Investor Essentials Daily

People will keep spending on their pets

May 24, 2024

The COVID-19 pandemic led to significant changes in consumer behavior, particularly increasing the demand for home products and pet ownership, as people sought companionship during isolation.

This boosted the pet care industry, leading to higher spending on pet food, accessories, grooming, and veterinary services.

Statistics show that pet ownership in the U.S. rose sharply, with expenditures on pets reaching over $123 billion in 2024.

Central Garden & Pet (CENT) emerged as a major player in this market, benefiting from consistent demand for pet and lawn care products.

Despite concerns about the sustainability of this high demand post-pandemic, Central’s business model, focusing on essential products and services, has shown resilience during economic uncertainties, making it a defensive investment choice.

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The COVID-19 pandemic unleashed unprecedented shifts in consumer behavior and spending patterns.

As people were confined to their homes, more and more individuals sought companionship and emotional support amidst isolation, and pet ownership became a popular solution.

The pet care industry benefited immensely from this trend, with an upswing in pet food, accessories, grooming services, and veterinary care.

Contrary to initial expectations, this trend has shown no signs of slowing. Instead, pet owners have forged deep bonds with their animal companions, further driving the need for premium care products and services.

According to pet ownership statistics from the American Pet Products Association, around 66% of U.S. households, or 86.9 million homes, owned a pet as of 2024. This represents a significant increase from 56% of households in 1988.

The rising pet population has directly fueled higher spending. Americans spent over $123 billion on their pets in 2024 alone, up from $95 billion just five years earlier.

During this surge, Central Garden & Pet (CENT) emerged as a formidable player in the pet care market.

Central is a leading producer and distributor of pet and lawn/garden supplies.

Its pet segment sells essential products like food and treats that pet owners require on an ongoing basis to care for their animals.

The growing pet population translates directly into higher spending on supplies over the long run. Even during economic downturns, pet expenses are less likely to be cut back on due to the responsibility of pet care.

In addition to pet supplies, Central also sells lawn and garden products through its garden segment.

While discretionary home improvement projects may be deferred in a recession, basic yard maintenance must continue. Homeowners still need to replenish supplies periodically to keep their lawns healthy. This maintenance spending provides another stable revenue stream.

However, the market believes the high demand during the pandemic is not sustainable in the long run. Our EEA model shows that the market expects the company’s ROA to decline going forward.

In inflationary times, consumers prioritize their spending on everyday essentials that cannot be eliminated from household budgets.

As a result, Central delivering these necessities has demonstrated resilience through uncertain economic cycles.

Their consumer staples business model is well-suited as a defensive investment option.

Best regards,

Joel Litman & Rob Spivey

Chief Investment Strategist &
Director of Research
at Valens Research

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