Petco Health and Wellness pany(WOOF) - 2025 Q3 - Quarterly Results

Executive Summary & Q3 2024 Performance Petco reported a 1.2% year-over-year increase in net revenue and improved GAAP net loss for Q3 2024, with the CEO emphasizing progress towards sustainable, profitable growth Q3 2024 Financial Highlights Petco reported a 1.2% year-over-year increase in net revenue to $1.51 billion and a 4.7% year-over-year increase in gross profit to $575.8 million for Q3 2024, with GAAP net loss significantly improving to $16.7 million from $1.2 billion in the prior year, which included a substantial non-cash goodwill impairment charge, and Adjusted EBITDA also saw an increase to $81.2 million Q3 2024 Key Financials (YoY Change) | Metric | Q3 2024 (Millions) | Q3 2023 (Millions) | Change (%) | | :---------------- | :----------------- | :----------------- | :--------- | | Net Revenue | $1,510 | $1,490 | 1.2% | | Gross Profit | $575.8 | $550.0 | 4.7% | | GAAP Net Loss | $(16.7) | $(1,200) | (98.6%) | | Adjusted Net Income | $(6.5) | $(14.5) | (55.2%) | | Adjusted EBITDA | $81.2 | $72.2 | 12.5% | - Consumables business was up 2.7% year-over-year, and services and other business was up 5.0% year-over-year, with this growth offset by a 2.8% year-over-year decline in the supplies and companion animal business[3] CEO Commentary Petco's CEO, Joel Anderson, emphasized the meaningful progress in strengthening retail fundamentals to drive sustainable, profitable growth, expressing confidence in the company's strategic path and the organization's focus on profitability and free cash flow for a solid finish to 2024 - The company is making meaningful progress to strengthen retail fundamentals to drive sustainable, profitable growth[4] - The entire organization is focused on driving profitability and free cash flow[4] Business Outlook Petco provides financial guidance for Fiscal Q4 2024 and the full fiscal year, detailing projections for net revenue, Adjusted EBITDA, EPS, net interest expense, and capital expenditures Fiscal Q4 2024 Guidance Petco provided specific guidance for Fiscal Q4 2024, projecting net revenue of approximately $1.55 billion, Adjusted EBITDA between $90 million and $95 million (including $10 million in third-party consulting fees), and Adjusted EPS between $0.00 and $0.02 Fiscal Q4 2024 Guidance | Metric | FQ4 2024 Guidance | | :---------------- | :----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | Net Revenue | ~$1.55 billion | | Adjusted EBITDA | Between $90 million and $95 million (including a minimum of $10 million in third-party consulting fees associated with transformation effort) | | Adjusted EPS | Between $0.00 and $0.02 | Fiscal 2024 Full Year Guidance For the full fiscal year 2024 (a 52-week year), Petco expects net interest expense to be approximately $140 million and capital expenditures to be around $130 million, assuming consistent economic conditions, currency rates, and tax/regulatory landscape, with a 26% tax rate and 273 million weighted average diluted shares Fiscal 2024 Full Year Guidance | Metric | 2024 Guidance | | :----------------- | :-------------- | | Net interest expense | ~$140 million | | Capital Expenditures | ~$130 million | - Assumptions for guidance include consistent economic conditions, currency rates, and tax/regulatory landscape, with a 26% tax rate and 273 million weighted average diluted share count[7] Company Information This section introduces Petco's business operations, including its extensive pet care center network and wellness offerings, alongside a cautionary overview of forward-looking statements and key risk factors About Petco Founded in 1965, Petco Health and Wellness Company, Inc. is a category-defining health and wellness company dedicated to improving the lives of pets, pet parents, and its partners, operating over 1,500 pet care centers across the U.S., Mexico, and Puerto Rico, offering a comprehensive ecosystem of merchandise, services (grooming, training, veterinary), and solutions, both in-store and digitally, and through Petco Love, the company supports animal welfare groups and has facilitated nearly 7 million animal adoptions - Petco operates more than 1,500 pet care centers across the U.S., Mexico, and Puerto Rico[9] - The company offers comprehensive pet wellness products, services (grooming, training, on-site veterinary hospitals, mobile veterinary clinics), and solutions[9] - Through Petco Love, it has helped find homes for nearly 7 million animals via in-store adoption events[11] Forward-Looking Statements & Risk Factors This section serves as a cautionary statement regarding forward-looking information, highlighting that such statements are subject to significant uncertainties and contingencies, and outlines various risk factors that could cause actual results to differ materially from expectations, including increased competition, reduced consumer demand, reliance on key vendors, macroeconomic pressures (inflation, interest rates), and operational challenges - Forward-looking statements are based on current expectations and assumptions about future events that are subject to significant uncertainties and contingencies, many of which are outside the control of Petco[12] - Key risks include increased competition, reduced consumer demand, reliance on key vendors, macroeconomic pressures (inflation, interest rates, tariffs), failure to effectively manage costs, and supply chain issues[12] Financial Statements This section presents Petco's consolidated financial statements, including detailed reports on operations, balance sheet positions, and cash flows for the specified periods Consolidated Statements of Operations For the 13 weeks ended November 2, 2024, Petco reported total net sales of $1,511.4 million, a 1% increase year-over-year, with gross profit rising 5% to $575.8 million, and the company recorded a net loss of $16.7 million, a significant improvement from the $1,241.1 million net loss in the prior year, which included a substantial goodwill impairment charge Consolidated Statements of Operations (13 Weeks Ended) | Metric (in thousands) | Nov 2, 2024 | Oct 28, 2023 | Percent Change | | :------------------------------------------ | :---------- | :----------- | :------------- | | Total net sales | $1,511,437 | $1,494,166 | 1% | | Total cost of sales | $935,680 | $944,165 | (1%) | | Gross profit | $575,757 | $550,001 | 5% | | Selling, general and administrative expenses | $571,780 | $559,611 | 2% | | Goodwill impairment | — | $1,222,524 | (100%) | | Operating income (loss) | $3,977 | $(1,232,134) | N/M | | Net loss attributable to Class A and B-1 common stockholders | $(16,673) | $(1,241,137) | (99%) | | Net loss per Class A and B-1 common share (Diluted) | $(0.06) | $(4.63) | (99%) | Consolidated Balance Sheets As of November 2, 2024, Petco's total assets were $5,211.5 million, a decrease from $5,363.2 million at February 3, 2024, with total liabilities also decreasing to $4,088.6 million from $4,178.7 million, while total stockholders' equity stood at $1,122.8 million Consolidated Balance Sheets (in thousands) | Metric | Nov 2, 2024 | Feb 3, 2024 | | :----------------------------------- | :---------- | :---------- | | Total current assets | $931,783 | $951,744 | | Fixed assets, net | $739,806 | $816,367 | | Goodwill | $980,064 | $980,297 | | Total assets | $5,211,480 | $5,363,152 | | Total current liabilities | $1,113,679 | $1,113,143 | | Total liabilities | $4,088,642 | $4,178,723 | | Total stockholders' equity | $1,122,838 | $1,184,429 | Consolidated Statements of Cash Flows For the 39 weeks ended November 2, 2024, net cash provided by operating activities was $81.7 million, a decrease from $168.7 million in the prior year, with net cash used in investing activities at $89.5 million and net cash used in financing activities at $7.8 million, resulting in a net decrease in cash, cash equivalents, and restricted cash of $15.6 million Consolidated Statements of Cash Flows (39 Weeks Ended, in thousands) | Metric | Nov 2, 2024 | Oct 28, 2023 | | :------------------------------------------ | :---------- | :----------- | | Net cash provided by operating activities | $81,680 | $168,696 | | Net cash used in investing activities | $(89,506) | $(156,149) | | Net cash used in financing activities | $(7,802) | $(84,040) | | Net decrease in cash, cash equivalents and restricted cash | $(15,628) | $(71,493) | | Cash, cash equivalents and restricted cash at end of period | $121,021 | $142,234 | Non-GAAP Financial Measures This section defines and reconciles Petco's non-GAAP financial measures, including Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, and Free Cash Flow, to their GAAP equivalents, with detailed footnotes Overview of Non-GAAP Measures This section provides definitions and reconciliations of non-GAAP financial measures, including Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, and Free Cash Flow, to their most directly comparable GAAP measures, as management uses these non-GAAP metrics to offer investors a clearer view of Petco's core operating and earnings performance, facilitating period-over-period comparisons - Non-GAAP financial measures are provided as supplemental information and should not be considered superior to, or a substitute for, GAAP measures[22] - Management believes Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS are meaningful for investors to compare current and prior period performance and assess core operating performance[24][28] Adjusted EBITDA Reconciliation Adjusted EBITDA for the 13 weeks ended November 2, 2024, increased to $81.2 million from $72.2 million in the prior year, with the trailing twelve-month Adjusted EBITDA at $345.7 million as of November 2, 2024, and an Adjusted EBITDA Margin of 5.5% Reconciliation of Net Loss to Adjusted EBITDA (13 Weeks Ended) | Metric (in thousands) | Nov 2, 2024 | Oct 28, 2023 | | :----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :---------- | :----------- | | Net loss attributable to Class A and B-1 common stockholders | $(16,673) | $(1,241,137) | | Interest expense, net | $34,451 | $35,418 | | Income tax benefit | $(857) | $(22,902) | | Depreciation and amortization | $50,109 | $50,674 | | Goodwill impairment | — | $1,222,524 | | Adjusted EBITDA | $81,236 | $72,159 | Reconciliation of Net Loss to Adjusted EBITDA (Trailing Twelve Months) | Metric (in thousands) | Nov 2, 2024 | Feb 3, 2024 | Oct 28, 2023 | | :-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :---------- | :---------- | :----------- | | Net loss attributable to Class A and B-1 common stockholders | $(110,554) | $(1,280,210) | $(1,224,903) | | Adjusted EBITDA | $345,743 | $401,103 | $453,652 | | Adjusted EBITDA Margin | 5.5% | 6.4% | 7.4% | Adjusted Net Income and Adjusted EPS Reconciliation Adjusted Net Loss for the 13 weeks ended November 2, 2024, was $(6.5) million, or $(0.02) per share, showing an improvement from $(14.5) million, or $(0.05) per share, in the prior year, with this reconciliation adjusting for items such as goodwill impairment, equity-based compensation, and other non-operating income, applying a 26% normalized tax rate Reconciliation of Diluted EPS to Adjusted EPS (13 Weeks Ended) | Metric (in thousands, except per share) | Nov 2, 2024 Amount | Nov 2, 2024 Per share | Oct 28, 2023 Amount | Oct 28, 2023 Per share | | :---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :----------------- | :-------------------- | :------------------ | :--------------------- | | Net loss attributable to common stockholders / diluted EPS | $(16,673) | $(0.06) | $(1,241,137) | $(4.63) | | Goodwill impairment | — | — | $1,222,524 | $4.57 | | Equity-based compensation | $11,357 | $0.04 | $18,183 | $0.07 | | Adjusted Net Loss / Adjusted EPS | $(6,533) | $(0.02) | $(14,466) | $(0.05) | Free Cash Flow Reconciliation Free Cash Flow for the 13 weeks ended November 2, 2024, was $(10.3) million, an improvement from $(28.1) million in the prior year, and for the 39 weeks ended November 2, 2024, Free Cash Flow was $(9.4) million, compared to $(7.8) million in the prior year Free Cash Flow (in thousands) | Metric | 13 Weeks Ended Nov 2, 2024 | 13 Weeks Ended Oct 28, 2023 | 39 Weeks Ended Nov 2, 2024 | 39 Weeks Ended Oct 28, 2023 | | :------------------------------------------ | :------------------------- | :-------------------------- | :------------------------- | :-------------------------- | | Net cash provided by operating activities | $20,724 | $34,431 | $81,680 | $168,696 | | Cash paid for fixed assets | $(31,012) | $(62,509) | $(91,041) | $(176,532) | | Free Cash Flow | $(10,288) | $(28,078) | $(9,361) | $(7,836) | Non-GAAP Financial Measures Footnotes This section provides detailed explanations for specific adjustments made in the non-GAAP calculations, clarifying that Mexico Joint Venture EBITDA represents 50% of the entity's operating results, adjusted for consistency, and defines acquisition and divestiture-related costs as direct costs from such activities, with 'other costs' including restructuring, legal reserves for significant non-ordinary matters, and strategic transaction costs, additionally defining net margin and Adjusted EBITDA margin - Mexico Joint Venture EBITDA is 50% of the entity's operating results, adjusted to reflect a basis comparable to Adjusted EBITDA[34] - Acquisition and divestiture-related costs include direct costs such as third-party professional and legal fees, losses on sales of divestitures, and other integration-related costs[35] - Other costs include restructuring costs, restructuring-related severance costs, legal reserves for significant non-ordinary course matters, and costs related to certain significant strategic transactions[35]