Central Garden & Pet reported a 6% first-quarter fiscal 2026 sales decline to $617 million, driven primarily by the planned shift of seasonal garden shipments into Q2 and continued portfolio optimization, yet non-GAAP gross margin still expanded 100 basis points and non-GAAP EPS of $0.21 came in above expectations on favorable mix. Management completed further network consolidation and a Champion USA tuck-in acquisition while signaling a strategic pivot from cost and simplicity toward a multi-year growth and innovation agenda. The company reaffirmed fiscal 2026 non-GAAP EPS guidance of $2.70 or better, holding roughly $20 million of incremental tariff exposure concentrated in pet.
Good afternoon, everyone, and thank you for joining Central's First Quarter Fiscal 2026 Earnings Call. Joining me today are Niko Lahanas, Chief Executive Officer, Brad Smith, Chief Financial Officer, John Hanson, President of Pet Consumer Products, and J.D. Walker, President of Garden Consumer Products. Niko will start by sharing today's key takeaways, followed by Brad, who will provide a more in-depth discussion of our results. After their prepared remarks, J.D. and John will join us for the Q&A session. Before they begin, I would like to remind everyone that all forward-looking statements made during this call are subject to risks and uncertainties that could cause our actual results to differ materially from what those forward-looking statements express or imply today. A detailed description of Central's risk factors can be found in our annual report filed with the SEC.
Please note that Central undertakes no obligation to publicly update forward-looking statements to reflect new information, future events, or other developments. Our press release and related materials, including GAAP reconciliation for the non-GAAP measures discussed on this call, are available at irc.central.com. Last but not least, unless otherwise specified, all comparisons discussed during this call are made against the same period in the prior year. If you have any questions after the call or at any time during the quarter, please don't hesitate to contact me directly. With that, let's get started. Niko?
Thank you, Friederike, and good afternoon, everyone. We entered the year with strong momentum, and I'll begin with a few highlights from the first quarter before stepping back to talk about how our priorities are evolving and how we see the year ahead. We closed the quarter with improved gross margins and solid earnings per share, especially when compared to a strong prior-year first quarter that benefited from favorable shipment timing, promotional activity, and weather. These results reflect the strength of our operating model and the commitment and disciplined execution of our teams. Over the past several years, we've focused on simplifying the business, improving efficiency, and maintaining profitability across both segments, and that work continues to show up in our results. At the same time, we're increasingly focused on positioning Central for sustainable long-term growth.
Supported by a strong balance sheet and deep customer relationships, we're sharpening our strategic priorities and advancing them with speed and agility. Over the past three years, our cost and simplicity agenda has strengthened the foundation of the company, creating leaner processes, a more streamlined footprint, and a more resilient operating model. While this work continues, much of the foundational transformation is now behind us, and the pace of incremental benefits is naturally becoming more measured over time. A key part of these efforts has been our multi-year supply chain network design program, which has improved customer alignment, service levels, and cost efficiency. During the quarter, we completed several important actions that further modernized our network and reinforced these benefits, including integrating two garden distribution facilities in Lawrenceville, Georgia, and Ontario, California, into our modern fulfillment centers in Covington, Georgia, and Salt Lake City, Utah.
We also consolidated a fertilizer manufacturing facility into our Greenfield, Missouri location. What's most important is that the discipline around managing costs and operational simplicity is now firmly embedded in our culture. With that foundation in place, we're applying the same clarity, focus, and consistency to fostering a growth mindset and embedding innovation more deeply across the organization. We view innovation, much like cost and simplicity, as a multi-year journey rather than a near-term event. Our focus is on building repeatable ways to identify opportunities, develop products, and bring them to market. That said, we're already seeing encouraging signs. Recent examples include a new product innovation at Nylabone, expanded digital engagement through Kaytee's new Birder Hub, and strong early consumer response to several new garden and household solutions. We're also seeing good momentum in private label programs developed closely with our garden retail partners.
Alongside organic growth and innovation, we continue to be thoughtful and selective in how we use M&A to refine our portfolio. After quarter-end, we completed the acquisition of Champion USA, a small tuck-in business serving the livestock industry with EPA-approved feed-through fly control solutions. This adds a complementary capability to our professional portfolio, supports cattle health, and fits well with our focus on consumables and environmentally responsible solutions. Looking ahead, with the first quarter behind us, we're operating with strong momentum, clear priorities, and a steady focus on delivering results. As we build on the foundation already put in place, innovation will play a progressively larger role in driving growth across the business. Our diversified portfolio, operational flexibility, and a disciplined approach to cost management give us confidence in our ability to deliver profitable growth even as we navigate an evolving global macroeconomic and policy environment.
As we look to the rest of the year, we'll continue to balance prudent cost and cash management with targeted investments that support organic growth, especially in innovation, digital capabilities, and e-commerce. As these investments scale, we expect results to build over time. M&A remains an important component of our growth strategy. We continue to focus on margin-accretive consumable businesses that complement our portfolio and expand our presence in attractive categories, and we expect our activity to increase as market conditions continue to normalize. We also expect consumers to stay focused on value and product performance in a promotionally active but generally stable retail environment, alongside continued channel shifts toward e-commerce. These factors reinforce the importance of sustained investment in innovation, consumer insights, and digital capabilities. Based on these factors and our current operating plans, we are reaffirming our expectation for Fiscal 2026 non-GAAP diluted EPS of $2.70 or better.
As always, our outlook excludes potential impacts from future acquisitions, divestitures, or restructuring actions, including those related to our cost and simplicity agenda. Before I hand it over to Brad, I want to thank our teams across Central for their continued commitment and strong performance following a year of meaningful progress. The work we've done has positioned the company well, and as we move into the next phase, we're doing so from a position of strength, with a clear shift toward greater emphasis on growth and innovation while maintaining operational rigor. And with that, I'll hand it over to Brad. Brad?
Thank you, Niko. Building on Niko's remarks, I will begin with our first quarter performance. Net sales were $617 million, a 6% year-over-year decline, with two primary factors that accounted for substantially all of the change. First, the timing of retailer spring inventory shipments in the garden segment and, to a lesser extent, in the pet segment. As discussed in last year's first and second quarter earnings calls, seasonal load-ins in Fiscal 2025 were unusually concentrated in the first quarter. This year, a larger portion of those shipments shifted into the second quarter. Second, our continued portfolio optimization efforts intended to enhance margins and support sustainable, profitable growth. These include rationalizing lower-margin categories such as pet durables and select live plants categories, as well as the recent closure of our UK operations and transitioning of our European business to a more profitable direct export model.
In addition, first quarter results reflected two factors we had previously discussed on our fourth quarter call: the ongoing transition of two third-party product lines in our garden distribution business to direct-to-retail model, which began last year and is expected to be completed this Q4, and a temporary shipment hold with a large pet customer, which began in Q4 and was resolved late in the first quarter. Importantly, these two factors were balanced by solid growth across several key businesses, including rawhide, wild bird, and animal health, underscoring the resilience of our consumables portfolio and progress against our strategic priorities. On a non-GAAP basis, gross profit was $190 million compared with $196 million, while non-GAAP gross margin expanded 100 basis points to 30.8%, driven by productivity gains and improved mix. Non-GAAP SG&A expense was $166 million, down 1% versus the prior year.
As a percentage of sales, Non-GAAP SG&A was 26.8% compared with 25.5%. Non-GAAP operating income was $24 million compared with $28 million, and Non-GAAP operating margin was 3.9% compared with 4.3%. Non-GAAP adjustments related to our cost and simplicity agenda totaled $7 million in the first quarter. The majority of these costs were within the garden segment and largely reflected facility consolidation activities. Below the line, net interest expense of $8 million was consistent with the prior year. Other income was $200,000 compared with expense of $2 million. Non-GAAP net income totaled $13 million compared with $14 million in the prior year. We delivered GAAP diluted earnings per share of $0.11 and Non-GAAP diluted earnings per share of $0.21, consistent with the prior year and above our expectations for the quarter. Adjusted EBITDA for the quarter was $50 million compared to $55 million.
Our effective tax rate for the quarter was 23.3% compared with 23.5%. Let me now provide highlights from the first quarter across our two segments, beginning with pet. Net sales for the pet segment were $416 million, a 3% year-over-year decline, reflecting the portfolio optimization efforts, shipments shifting into the second quarter, and temporary shipment hold, which I noted earlier. These factors were partially balanced by continued growth in our rawhide business and our animal health business, especially within professional and equine. Consumables overall grew at a low single-digit rate supported by favorable point-of-sale trends. Across the pet segment, we held share overall with gains in several key categories, including dog treats, flea and tick, pet bird, and our professional portfolio, reflecting consistent execution across our core categories. Non-GAAP operating income for the segment was $50 million compared with $51 million. Non-GAAP operating margin improved to 12.1% from 12%.
Adjusted EBITDA for the segment was $60 million compared with $60 million. Now, moving to garden. Net sales for the garden segment were $202 million, a 12% decline, reflecting shipment timing, the continued transition of two third-party distribution product lines, and further rationalization of our live plants categories, partially balanced by continued growth in our wild bird business. Overall, we gained market share in garden with gains in several key categories, including wild bird, fertilizer, and packet seeds. As expected, the first quarter is seasonally smaller for garden, with the core selling season still ahead, and it would be premature to draw conclusions about the full fiscal year. Non-GAAP operating loss for the garden segment was $2 million compared with income of $2 million, as shipment timing more than offset productivity gains and disciplined cost management. Non-GAAP operating margin was -1.2% compared to +1.1% a year ago.
Adjusted EBITDA totaled $8 million compared with $14 million. Moving on to the balance sheet and cash flows. Cash used by operations was $70 million for the quarter compared with $69 million a year ago. Our teams continue to demonstrate strong working capital discipline, building on the significant inventory reductions achieved following the pandemic-related build. During the quarter, inventories increased by $20 million versus the prior year, primarily reflecting the timing of shipments. CapEx for the quarter was $11 million compared to $6 million, consistent with a focused investment approach centered on productivity initiatives and essential maintenance. Depreciation and amortization totaled $21 million compared to $22 million. During the quarter, we repurchased approximately 660,000 shares for $18.5 million, with $28 million remaining under the share repurchase authorization as of quarter-end.
At quarter-end, cash and cash equivalents in short-term investments totaled $721 million, up $103 million after our usual Q1 working capital build and the acquisition of Champion USA, underscoring our strong liquidity position and cash generation profile. Total debt was $1.2 billion, unchanged from the prior year. Gross leverage ended the quarter at 2.9 times, consistent with the prior year and below our target range of 3-3.5 times. Net leverage was approximately 1.2 times, supported by our solid cash position, and we had no borrowings outstanding under our credit facility at year-end. This balance sheet strength provides the flexibility to invest in acquisitions and organic growth, maintain financial resilience, and return value to shareholders. As Niko mentioned, we are reaffirming our non-GAAP diluted EPS guidance of $270 or better.
We continue to expect Capex of approximately $50-$60 million, largely focused on maintenance and productivity initiatives across both segments, reflecting our focus on high-return investments that enhance efficiency and profitability. Unchanged from the first quarter, we currently estimate incremental, year-over-year, gross tariff exposure of roughly $20 million for the fiscal year, concentrated in the pet segment. We expect to mitigate the impact through pricing actions, portfolio management, and supply chain initiatives. As always, our outlook excludes the potential impact of future acquisitions, divestitures, or restructuring activities during Fiscal 2026, including any actions associated with our cost and simplicity agenda. That concludes our prepared remarks. Operator, please open the line for questions.