Central Garden & Pet Co
NASDAQ:CENT
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
32.52
50.85
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Central Garden & Pet Co
You don't have any saved screeners yet
Ladies and gentlemen, thank you for standing by. Welcome to Central Garden & Pet's First Quarter Fiscal 2020 Financial Results Conference Call. My name is Diego, and I will be your conference operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded.
I would now like to turn the call over to Howard Machek. Please go ahead.
Thank you, Diego. Good afternoon, everyone. Thank you for joining us. With me on the call today are Tim Cofer, Central's Chief Executive Officer; Niko Lahanas, Chief Financial Officer; J.D. Walker, President, Garden Branded Business; and John Hanson, President, Pet Consumer Products.
Our press release providing results for our first quarter ended December 28, 2019 is available on our website at www.central.com and contains the GAAP to non-GAAP reconciliation for the non-GAAP measures discussed on this call.
Before I turn the call over to Tim, I would like to remind you that statements made during this conference call, which are not historical facts, including adjusted EPS guidance for 2020, expectations for new product introductions, long-term organic growth goals, future acquisitions and future revenue, margin expansion, cost savings and profitability are forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those implied by forward-looking statements.
These risks and others are described in Central's Securities and Exchange Commission filings, including our Annual Report on Form 10-K filed on November 27, 2019. Central undertakes no obligation to publicly update these forward-looking statements to reflect new information, subsequent events, or otherwise.
Now, I will turn the call over to our CEO, Tim Cofer. Tim?
Thank you, Howard, and thanks to all of you on the phone for joining today. As you know, this was my first quarter here as Central's CEO. My time with colleagues, customers, and consumers over the last four months has only strengthened my conviction about the value-creation opportunities ahead. These include sustained and attractive organic top line growth, margin expansion, and continued smart M&A activity. We have the platform, the people, and the resources required to unlock our potential. And I look forward to providing as promised on the last call, a more robust view when we share our strategy later this year.
As you have seen from our press release, first quarter performance was generally in line with the guidance we gave on our last earnings call. Total sales rose 4.5% with the increase driven principally by the Arden and C&S acquisitions. Organic sales were flat. Our loss per share was $0.08, close to our November guidance of a loss of $0.10 to $0.15. This compares to income of $0.03 per share in the first quarter of 2019.
You'll recall that the key factors that made for a tough comparison with last year's first quarter include our strategic exit of the fashion-oriented pottery product line in mid-2019, a major retailer’s decision in 2019 to exit the live fish business, a fire in one of our pet bedding facilities, and the inclusion of Arden in our Garden segment. Arden typically has a loss or little to no profit in its out-of-season quarters. Importantly, Q1 is typically our smallest in terms of revenues and earnings because of the seasonality of our Garden segment.
Back in November, I spoke to you about my view that Central needed to invest more in growth initiatives and consumer-oriented capabilities to drive success in the years ahead. To that end, I challenged each of our businesses to identify areas, where they believe significant opportunity exists to increase sales and profits if resources were made available to them to help spur growth. The response from the businesses was encouraging with numerous areas identified for smart investments.
Examples include: incremental marketing and promotion activities, enhanced digital and e-commerce initiatives, increased capital expenditures, and select additional personnel in targeted functions. We plan to begin executing on these initiatives very soon with many of them being funded during 2020. The early top line benefits of these actions will likely begin to show up later this year, and we expect to see a nice overall return on these investments over the next 18 months to 36 months.
So, while there may be a negative income impact as we invest in the short term, including in our second quarter, this is the right path to enable sustainable growth and strong shareholder returns in the years ahead. Importantly, our planned investments are embedded in the fiscal 2020 EPS guidance we gave last quarter. We are not changing that guidance today. We continue to expect 2020 EPS to be at or modestly above fiscal 2019 EPS of $1.61.
Last quarter, I also discussed Central's efforts in the months ahead to evaluate and fortify our long-term strategy. We've kicked off these efforts to identify and prioritize the initiatives we believe will be most important in driving our success in the years ahead. Internally, we're calling it Vision 2025. And we currently have leaders across our business units and functions engaged in this important effort. We expect to share further information of this plan with investors this summer, and we'll tell you more about the specific date and format as we get closer.
Finally, I want to reinforce my confidence in the long-term potential of Central Garden & Pet. We've got work to do, but I'm confident that we can deliver.
And with that, let me turn it over to our CFO, Niko to share more of the Q1 details for the company and across our Garden and Pet segments.
Thank you, Tim. Good afternoon everyone First quarter total company sales increased 4.5% or $21 million to $483 million from $462 million in the first quarter of last year. Our recent acquisitions were the main drivers of the sales gain. Organic sales came in relatively flat, negatively impacted by the factors Tim mentioned earlier. Consolidated gross profit for the quarter increased $1 million and our gross margin decreased 100 basis points to 27.2%, negatively impacted by an unfavorable mix of sales and the impact of the lower volumes in decor and live fish businesses.
SG&A expense for the quarter rose 8% or $9 million versus a year ago, due to the recent transaction -- acquisition. Our corporate expense increased versus the first quarter of last year, due primarily to higher variable compensation expense and increased third-party expenses. As a percent of sales, SG&A increased 80 basis points to 26.8%.
Central's operating income for the quarter decreased to $2 million and operating margin decreased 180 basis points to 0.4% due in part to the Ardent acquisition, the lower gross margin, and the higher SG&A expenses. EBITDA for the quarter decreased 33% to $15 million.
Turning now to the Pet segment. Pet segment sales for the quarter increased 4% or $14 million to $354 million and grew 1% on an organic basis, despite the live fish and pet bedding declines mentioned earlier. Most of the other Pet categories had positive organic growth. Pet segment operating income for the quarter increased by approximately $0.5 million or 2% compared to the prior year to $30 million, aided by the C&S acquisition.
Pet operating margin decreased 20 basis points and remains at 9%. Our aquatics business was the main factor in the decline as supply constraints that carried over from the prior quarter impacted the period. We would expect those challenges to now be behind us. Pet EBITDA for the quarter increased 2% to $39 million.
Turning now to Garden. For the quarter, Garden segment sales increased 6% or $7 million to $129 million due to the Arden acquisition. Organic sales decreased 4% despite a 4% increase in POS for the quarter. Sales were negatively impacted by our exit from the fashion-oriented decor business, lower grass seed and control sales, due in part to timing factors and much higher than normal temperatures in the eastern part of the country in early fall were also factors in the decline, offsetting some of the weakness with stronger sales in our Bell Nursery business which benefited from new distribution.
And just to remind you, the first quarter is typically the smallest for our Garden segment. Garden's operating loss increased to $8 million in the quarter compared to $5 million in the first quarter of last year. Garden's operating margin decreased 270 basis points to negative 6.5%. Almost two-thirds of the decline was due to the inclusion of Arden, which was not in last year's Garden results and the decor category which was impacted by lower volumes and the disposition of obsolete inventory of the exited businesses. Garden EBITDA was a loss of $5 million versus a loss of $2 million a year ago.
Now getting back to our consolidated results. In the first quarter, we had other income of $300,000 compared to other expense of $200,000 a year ago. Net interest expense increased $0.5 million to $8.6 million, due primarily to lower interest earned on our cash balances this year versus a year ago. Our tax rate for the quarter was 27.6% as compared to 14.3% in the first quarter a year ago.
Turning to our balance sheet and cash flow statements. Cash at the end of the first quarter was $446 million, down from $479 million at the end of the first quarter last year. For the quarter, cash used by operations was $18 million versus cash generated of $7 million in the first quarter a year ago, due primarily to the loss for the period and higher inventories. CapEx was $10 million, an increase of $2 million from $8 million in the first quarter of 2019.
Total debt was $693 million, relatively unchanged from last year. Our gross leverage ratio at the end of the quarter decreased to 3.0 times, well within our target range. We had no borrowings under our $400 million in credit line at the end of the quarter. Depreciation and amortization for the quarter was $13 million, up from $12 million a year ago.
During the quarter, we repurchased approximately 829,000 shares, or $22 million of our stock. There remains $100 million on the Board's previously authorized share repurchase program, an additional 600,000 shares under The Board equity dilution authorization.
It is worth noting, the substantial change to our balance sheet this quarter, we adopted the new GAAP lease accounting standard and have now added leases to our balance sheet. The effect was to gross up our balance sheet by about $105 million. At quarter end, we had a right-of-use asset of $105 million and a related liability of $110 million.
As Tim mentioned earlier, we are maintaining the 2020 earnings guidance we gave last quarter at or slightly above last year's diluted EPS of $1.61. It is still very early in the year and our first quarter is typically the smallest of the year in terms of sales and profitability. As we see how the Garden season plays out, we will be in a better position to update our guidance, if needed, on the next earnings call.
Now, operator, please open the line for questions.
Thank you. Ladies and gentlemen, at this time we will conduct our question-and-answer Session. [Operator Instructions] Our first question come from Chris Carey with Bank of America. Please state your question.
Hi. Good evening.
Hi, Chris.
Hey, Chris.
How are you? Hi. Niko, just -- I wanted to just ask quickly on your last comment there around, you'll see how the Lawn & Garden season shapes up before thinking about adjusting the guidance. And I ask this in the context of clearly more of a weighted year to the next three quarters than what was typical given the Q1 earnings, which you had expected. So were you referring to the fact that weather is always a bit of a wildcard or were there other comments embedded into that view on the potential to change earnings guidance only after seeing how the Law & Garden season shaped out?
No. The exit there is just that, the largest part of the year still remains out in front of us. And like every year, after Q1, it's really too early for us to call, and it would be not wise for us to change or adjust guidance at this stage because really the season hasn't played out.
Okay. That makes sense.
And Chris, it's Tim. And the other thing to build on what Niko said is just what you said, which is the good news is that the quarter result was within our expectations. I'm talking Q1. And so far, we're on track with our plan and that puts us in a position of confirming that full year guidance.
Yes. Okay. Makes sense. And then just given that the Pet segment has been one that has required a bit more attention recently, are you able to kind of frame the impact of the live fish retailer exit and the fire in the pet bedding business to get a sense of what the underlying trend of the business might be? And how you might see that playing out over the remainder of the year with some of these headwinds behind you?
Yes, this is John. As we mentioned, live fish as well as the fire did have an impact on our Q1. We would say that, it was less than 3% of total Pet sales combined. The fire impact is something that's fully covered by insurance. I mean, there may be quarterly – based on when we see the insurance payments come in, there may be some quarterly ups and downs on it, but we feel very good that it's fully covered. And in addition, we are currently filling all orders, dealing all customers, and in a very good position going forward.
Okay. But it -- okay. So relatively small impact and perhaps the trend that we've seen this quarter in that business is reasonable to assume that that's indicative of the underlying trend of the business more or less?
Yes.
Okay. And then, I suppose, just last one, right? In the context of the outlook for this year and the investment spending that you're going to be putting into the business, hence the earnings outlook. And you had mentioned expecting some of these investments to come to fruition over the next 18 to 36 months and starting to feel the impact of the P&L.
I wonder if you're expecting any of the investments that you'll be getting in this fiscal year to have any upside in the back half of the year? Said another way whether you're embedding some positive impact from these investments over the course of this year in order to hit your numbers?
Yes, Chris. As I said in the prepared remarks, the investment envelope broadly was part of the overall plan and therefore embedded in the guidance that we provided down at the EPS line. So no new news for really favorability or unfavorability on that. I would say since we're beginning to greenlight those investments now, there is the opportunity to see maybe a little pickup on the organic top line as we go into the back half versus what we see here in Q1. But of course, we're in investment mode. So not so much on the bottom line. Over time, over the next couple of years, obviously we're investing on these based on good ROI credentials. And so, we feel good about the ROI on it over a broader time frame.
But again, I would tell you the important takeaways I'd encourages take is: one that investment is built into the guidance that we've already shared; and two we're doing the right thing for the long-term of the business. I mean I -- it's been an area of focus for the last couple of years in this company. But my view is we needed a little bit more in a few areas that I've highlighted. There is some certain brand positions where we have an opportunity to smartly step up the investment to four to five if not expand our share positions. There are some places especially in digital marketing and e-commerce where I think we're still at a point of the investment curve where there's some really nice returns to step up. And there's some few capabilities and a couple of areas that we need to build all towards setting up this company for long-term sustainable returns.
Okay. Make sense. Thanks very much.
Thank you. Our next question comes from Bill Chappell with SunTrust Robinson Humphrey. Please state your question.
Thanks, good afternoon.
Hi, Bill.
From the last release to this one, I guess we've moved the financial update from the spring to the summer. And then I think the guidance was slightly better than last year to now slightly better inclusive of some of the changes that you're making. So can you give us I guess why it's been pushed out a little bit further? And then also maybe quantify if there is some difference or maybe some color there, are you not going to spend that much this year anyway so it's not that big of a difference or is there a $0.05 to $0.10 cushion to your guidance?
Sure. I'll start Bill. This is Tim. Look I mean spring and summer are adjacent seasons. So I think we're still as I said in my comments Bill, we're looking for a date. A date that's going to work for us and where we're going to get an appropriate participation rate from folks like you. So we'll be back shortly on that. It will be somewhere in that late spring early summer season. And so I don't think a big change there. On your second point, Bill no, I guess I don't see it that way. We guided at the end of last year to be at or modestly above 2019 EPS. That included our investment plans and we're reconfirming that today. So I don't see a change Bill.
I guess asked another way, is there a way to quantify what the investment changes are doing to this year's EPS?
We don't know that yet because we have to still see how the ROI plays out on a lot of those investments. So it's a little bit hard for us to predict. And some of them obviously are going to dribble over into next year and the year after, which is why we're a little reluctant to give an exact number.
Yes. I mean Bill if nothing else a little bit on competitive reasons, we're not willing at this stage to share what that investment -- incremental investment number is. But I think you'll see as the quarters play out, I think you'll see that show up in our numbers in terms of incremental commercial investment. Again all contemplated within the guidance shared last quarter and reaffirmed this quarter.
And keep in mind too Bill that on the Garden side those investments, we still have to see how the weather plays out. If it's a horrific weather year we're not going to lean into that and send incrementally. So we're going to be pretty disciplined in the approach and we still have to see how things play out.
Okay. Switching gears just actually into the Garden segment. Scott's implied on their call and in their numbers that they're kind of I guess reaccelerating some growth at Walmart, which has been both your core customer and your core kind of place, where you've gained some share over the past four or five years. Didn't know if that impacts your outlook, if you're seeing that. How we should read that for your upcoming Garden season?
Bill, it's J.D. I'll take that question. I'd say, it's difficult to tell and we wouldn't comment on a specific retailer on the impact on a specific retailer. But as you know their portfolio is different than ours. So it's possible they could have some gains in some categories in which we don't compete. They are big in mulch and rodent traps and much bigger in soils. And we're bigger in things like wild bird food and we're in live goods now and we're still in pottery and the terra cotta segment of the pottery.
But no we don't feel -- first of all we feel like we're going to have a -- we're bullish and optimistic on the upcoming year. We feel good about our plans at that specific retailer and others. So they may have called that out, but I don't see that deterring us from achieving our plans for the year.
Okay, guys. Thanks so much.
Our next question comes from William Reuter with Bank of America Merrill Lynch. Please state your question.
Good afternoon. My first is a channel question in the Pet segment. I guess, if you could provide any color on how the growth of brick-and-mortar is trending versus the growth that you're seeing in your e-commerce customers?
Yes. So this is John. First of all, we see e-com growing much faster than brick-and-mortar both in the categories and in our business. We would -- we're happy with our growth, but we think we've got a long runway ahead of us. We continue to build capability and invest in that growth both on the marketing side and the capability side and we're very excited about the future of e-com.
Relative to brick-and-mortar, we continue to partner with our major customers and we continue to make progress. We don't speak to individual customers, but we also very -- feel very good about the relationships we have in the future there as well.
That's helpful. You continue to have a large cash balance you did some share repurchases during the quarter. Does the pace of share repurchases in the quarter reflect maybe what we should expect going forward? Or do you expect to put the pipeline for M&A may pick up and that that will be where you allocate more of the cash?
Yes. We look at that obviously every day and we're going to buy back shares where it makes sense. We have different levels at which we purchase where we think there's tremendous value. And I think again we play that off of what's going on in M&A. My preference right now would be to do more M&A and then also invest in the business organically with CapEx or low-cost producer type of initiatives and then have the stock repurchase program be in third place.
All right. And then lastly for me, I think last call you mentioned that CapEx is going to be up this year. I don't remember hearing a number. Do you have a target now that we're one quarter in? And I guess maybe one or two of the larger increases are items that are contributing to the increase are this year?
Yes. I think we gave a range of $40 million to $45 million in terms of what we expect this year. Last year -- some of that is carryover from last year. And if you recall last year's CapEx was a little bit on the low side. So that's why you're seeing a little bit - a little higher CapEx here in 2020 and also the renewed willingness to invest in the business with Tim stepping on board. So I think that's really the way to look at it.
There's really not any one or two projects that I would call out. I think it's there's good breadth across Pet and Garden. So we're pretty pleased with those projects. And the other part too is we evaluate them all on their merit. So we look at the ROI of each project before it gets done. And we have a whole process and the CapEx committee around that.
Great. That’s all for me. I will pass to others. Thank you.
Thank you. Our next question comes from Brad Thomas with KeyBanc Capital Markets. Please state your question.
Hey good afternoon. Thanks for taking my questions. J.D. just wanted to follow a little -- up a little bit more about trends that you're seeing. I just want to make sure I understood if there had been any timing shift between 4Q and 1Q? And any further quantification of that? And then just thoughts on, how sell-in had been and how your door count and shelf space were shaping up for this year?
Sure. Thanks Brad. First of all and with regard to timing there were some minor timing differences between some volume that had shifted into Q4 versus Q1. That had a minor impact on Q1. I wouldn't call it significant. The two big drivers there were called out in the script.
One was the addition of Arden and the other was the -- our intentional exit of the fashion pottery business. So those were the big drivers there. In terms of timing that would be about it. In terms of how retailers are staffing up for the year or stocking up for the year, we're seeing opening orders that are a little bit smaller than they were a year ago and I think that's intentional on their part.
Think they're being a little bit more surgical in the way they're flowing the goods to the stores. And by the way I think that that's probably smart. We had one major retailer last year, they put an awful lot of inventory in the stores early on. I think they did that to prove a point. And we're seeing there opening orders this year be a little bit smaller and it will be closer to consumption.
Having said that, it will continue to build throughout Q2 and they'll be ready for the season. We feel good about the engagement level of the retailers going into season, and we feel good about our listings. So I'd say from the controllable standpoint things like inventory levels, inventory levels at retail were in great shape coming into this year. We weren't heavy on inventory. The retailers weren't heavy on inventory. The customers are engaged and we have the level of support we need. And in terms of our distribution for this year, if you factor out the – our intentional exit of some of the pottery SKUs, if you factor that out our points of distribution were up mid-single digits year-over-year. So we feel very good about that.
Very helpful. Thank you J.D. And Tim, I was hoping to just ask you a question about the opportunity for acquisitions and how you're thinking about, if there's any brands that are maybe worth pruning? Just could you give us a sense of your state of mind on the portfolio today and your aptitude to take on maybe a medium or bigger acquisition if it presented itself?
Sure. Look, I think as you well know, I mean, M&A has been just a real critical part of the playbook of building this company at Central Garden & Pet. And it was one of the many points of attraction for me in joining this company, and I expect that to continue. So, when I look at our positions across Garden and Pet, we've got a number of strong businesses, good brands in a number of niches and segments, but there's so much more to play. And there are both in terms of the categories and segments in which we compete today to strengthen leadership positions and fortify ourselves. And then in other places, I think there's some what I call more adjacencies that are very attractive. So, it's fair to say that in the last number of months, there's no proof in that putting yet.
But as Niko has shared in the past, I mean, don't mistake that for lack of appetite and lack of activity. And you got to swing the bat a few times. And we are swinging the bat, but have nothing yet to report on. But I can assure you that, as Niko said from a capital allocation strategy standpoint for me, it's about reinvesting in the business and smart growth opportunities. Then, it's about M&A and adding to our platform. And then, if we feel it makes sense based on price some buybacks.
Very helpful, Tim. If I could squeeze one more in here for Niko perhaps on modeling for the second quarter. I don't think there's real explicit commentary on how to think about 2Q, but I think there was a reference to there being investments is a little bit of a headwind. It looks like maybe the Street's modeling earnings up a little bit year-over-year. Does that seem reasonable to you? Or are there any other considerations we should take as we think about 2Q?
No. I think where the Street is reasonable assuming we have a relatively normal weather. It does not have to be a great weather quarter, but a fairly normalized one. And I think the numbers right now are fairly reasonable.
Very helpful. Thank you all so much.
Our next question comes from Hale Holden with Barclays. Please state your question.
Hi. Good morning. Thanks for taking the question. I had one or two quick ones here. The increased investment that's baked into your guidance for this year, it sounded like it was more on marketing muscle and SG&A. So I was wondering if – do you feel like you also have the right product set? Or is there – would there also be increased investment in product innovation for new SKUs?
Very much innovation is part of the consideration set. We do have some pretty exciting initiatives in a couple of different business units that are either hitting the shelves today or will in the balance of the year. And part of that growth investment is against supporting that innovation. I think on top of that in general, there's a recognition right now with me and the leadership team at Central Garden & Pet that we can still build further capability in innovation and increase our consumer orientation to improve the success rate of our innovation.
So part of the investment envelope is also building some of those capabilities. And that is, including things like some – as I said earlier some select additional personnel in key areas. But innovation back to the core of your question is definitely part of the – a book set of investments.
And then when you get the flywheel moving, do you have a sense of what the capture rate would be in terms of how much more growth versus the category you could achieve for maybe what you're currently missing out on in either one of your two core categories?
Sure. Yes. I would -- first part of the answer is I do expect to be able to share more later this year when we have the chance to come out and give you a perspective on our evolved strategy. And I think that that will be part of what we share.
But I would tell you if you look at the organic growth of Central Garden & Pet the last couple of years, it's been more in the flat territory. And the majority of the growth's been through M&A. I think collectively we have an ambition that we could do better than that. But there's a few things we're going to need to do to assure that on a sustainable basis and make sure of course that we do it in a profitable way. So if I had to give you a little bit of a preview I think there'll be an ambition to see that set up, but more to come a little later.
Great. Thank you. And then I just -- very quickly. Are you guys having any supply issues from China related to factors that are maybe on extended shutdowns because of the virus?
Well, we're monitoring that situation as is everybody. And interestingly, this virus broke out right around Chinese New Year. So we typically order quite a bit in advance to Chinese New Year. So I think in the short-term we feel really good about our position from an inventory standpoint. But again, more to come we don't really have a sense of how long this is going to go on. And so more to come we're going to continue to monitor that obviously, the longer this goes on the tougher it'll get. But I think that's going to affect a lot of people not just our company.
Great. Thank you so much.
Thank you. [Operator Instructions] Our next question comes from Jim Chartier with Monness, Crespi & Hardt. Please state your question.
Hi. Thanks for taking my questions. First, I just wanted to clarify on the impact of the Live Fish and the Pet Bedding. So excluding those two items organic sales for Pet would've been closer to 4%. Is that correct?
No. I think -- so on the Pet Bedding business, as I mentioned, we did have some shortages in the quarter. And we focused very heavily on making sure that we serviced all customers. And the impact on that in the short-term it is less than 1% of our sales about $1 million in total.
Live fish as we continue to lap Walmart. We're seeing a decline year-over-year a bit of that and we'll see it through June of the year. But the majority of it will be out of our base in April-May time period. So hopefully that helps.
Great. And you've been talking last year about the Animal Health business was a meaningful headwind. I guess where our inventories in the channel for that business? And what are your thoughts on that for the upcoming year?
Well, we feel pretty good about inventory levels. We don't think that they're crazy. But that said we still have to see about the -- really the health of the farmer and what their P&L looks like? And are they going to lean in and spend a little extra on the products that we provide? So that remains to be seen. The weather will play a role there. What I can tell you about this last quarter the volume was down in Animal health, but we really like the mix and we had some nice margin expansion. But again the volumes were down. So, we have to see how that really recovers over the long haul. And again that one really mirrors Garden -- really the Garden controls business most of these products control pets. And so, we'll know more as Q2 winds down and into Q3.
Okay. And then on the pottery decor business that you guys exited can you give us a sense of how big that business was? And just I guess given the seasonality of the Garden business, is it fair to say the first quarter would be the most impacted from a percentage standpoint from the exit of that business?
So Jim, its J.D. We haven't disclosed the size of that business. Having said that, it would be fair to assume that the largest percentage would be in Q2 and 3.
Is the seasonality similar to the rest of the Garden business?
Yes. It is. It's -- I'd say that's -- typically for pottery the peak would be in the month of May, so Q2 and Q3 I'd say it tracks very closely to the rest to the seasonality of the rest of the business.
Okay. And then finally, in terms of the investment spending was there any investment spending increase in first quarter related to your plans for the year?
I think what -- in the first quarter, there was limited incremental investment over prior year. Q2 you'll see us go up higher. And then the material increases in the back half.
Great. That’s all I had. Thanks for the time.
Ladies and gentlemen, there are no further questions at this time. I'll turn it back to Tim Cofer for closing remarks. Thank you.
Thanks everyone for joining the call today and look forward to talking to you again soon. Have a good day.
Thank you. This concludes today's call. All parties may disconnect. Have a great day.