Financial Data and Key Metrics Changes - The company reported a net sales decrease of 3.1% with comparable sales down 2.2% due to the closure of 25 stores in 2024 and an additional 9 closures year to date [16][17] - Gross margin expanded approximately 75 basis points to 38.9%, driven by a disciplined approach to pricing and promotional strategies [17][18] - Adjusted EBITDA increased by 21% or $17 million to $99 million, with an adjusted EBITDA margin expansion of nearly 140 basis points to 6.7% of sales [18] - Free cash flow for the quarter was $61 million, significantly above the prior year, with year-to-date cash flow from operations nearly doubling to $161 million [18][19] Business Line Data and Key Metrics Changes - The services business continues to be the fastest-growing category, with improvements in staffing and appointment availability [10][11] - The company is focusing on enhancing the integration of services and store operations, which has historically been siloed [12] - The new MyHuman product line was successfully expanded into over 200 stores, indicating a shift towards a wants-based business model [8][10] Market Data and Key Metrics Changes - The overall pet industry has been stable with flattish growth, while the company's services segment is already experiencing growth [41] - Consumer behavior has become more cautious due to external economic factors such as tariffs and interest rates [41] Company Strategy and Development Direction - The company is in phase two of its transformation, focusing on improving profitability and preparing for a return to growth [5][14] - Four pillars supporting the return to growth include product differentiation, trusted store experience, integrated services, and seamless omni-channel integration [6][14] - The company plans to invest selectively in areas that can drive improvements while maintaining a focus on margin expansion [20][32] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to return to sales growth in 2026, emphasizing the importance of the four pillars [14][55] - The impact of tariffs is expected to be more significant in Q4, but the company has managed to revise guidance upward despite these challenges [20][37] - The management team is focused on building a strong foundation for future growth while continuing to improve cash flow and profitability [21][32] Other Important Information - The company ended the quarter with a cash balance of $237 million and total liquidity of $733 million [19] - The Petco Love Foundation has committed to improving animal welfare, having found homes for over 7 million pets [15] Q&A Session Summary Question: Can you frame the mix of the business as wants versus needs today? - The majority of the business is traditionally needs-based, but there are opportunities to create a more wants-based perception through new product offerings [23][24] Question: What is the realistic timeline for comp stabilization? - Management expects all four pillars to contribute towards comp stabilization in 2026, with more details to be provided in March [27][28] Question: How do you think about prioritizing the usage of cash? - The first priority is to invest in the business for sustained growth, followed by reducing leverage on an absolute basis [42][44] Question: Can you quantify the impact of moving away from less profitable sales? - The focus has been on expanding margins and building a strong foundation for future sales growth, with EBITDA market share growing despite sales declines [51][52] Question: What is the expected impact of tariffs on COGS? - The third quarter saw the first meaningful impact of tariffs on COGS, with expectations for a more significant impact in Q4 [36][37]