Petco Health and Wellness pany(WOOF) - 2020 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Fourth quarter revenue grew 16% to $1.3 billion, with comparable sales up 17% and 20% on a two-year basis, driven by 92% growth in digital, 13% growth in services and vet, and 10% growth in brick-and-mortar merchandise [61][62] - Full year 2020 revenue grew 11% from 2019 to $4.9 billion, with total comp sales of 11% [54] - Adjusted EBITDA for the fourth quarter was $149 million, an increase of 13% from Q4 2019, while full year adjusted EBITDA was $484 million, up 14% from the prior year [60][64] Business Line Data and Key Metrics Changes - Digital business saw over 100% growth in 2020, with repeat delivery representing almost 45% of total digital revenue [54][55] - Services and vet businesses benefited from grooming momentum and the scaling of vet hospitals, with 44 new full-service vet hospitals added in 2020, ending the year with 125 locations [56][34] - Own brands drove double-digit growth, rapidly approaching 30% penetration, with significant growth in the food brand WholeHearted and premium supplies brand Ready [28][29] Market Data and Key Metrics Changes - The pet category is projected to grow at 6% to 7%, with higher growth in premium food, services, vet, and digital areas [21][22] - The company added approximately 3 million new pets in 2020, leading to increased spending per pet, which has historically risen by 4% annually [19][20] Company Strategy and Development Direction - The company aims to monetize its unique end-to-end pet health and wellness ecosystem, focusing on integrated multi-channel experiences [22][24] - Plans to expand its veterinary hospital business to 900 locations, enhancing customer lifetime value and retention [35][36] - The company is committed to sustainability and improving the lives of pets and pet parents, with initiatives to eliminate artificial ingredients and promote positive dog training [46][49] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued growth driven by increased pet ownership and a strong multi-year growth runway across all business areas [72][70] - The company anticipates a lift from federal stimulus and a broad-based economic recovery, which should benefit pet spending [51][72] - Management highlighted the importance of customer retention and the shift towards recurring revenue models, which are expected to support baseline growth into 2021 [114] Other Important Information - The company ended Q4 with 1,454 Pet Care Centers, down 23 locations from a year ago, and plans to add over 10 Pet Care Centers in Mexico [65][66] - The company successfully completed its IPO, yielding net proceeds of approximately $939 million, which will be used to pay down debt and invest in growth [68][69] Q&A Session Summary Question: Gross margins and their impact - Management indicated that gross margins for FY'20 and Q4 were in line with expectations, with continued improvements expected in high-profit areas like own brands [79][80] Question: Strength of business driven by pandemic vs. transformation - Management noted that the transformation was already underway before COVID, positioning the company well to capture increased demand during the pandemic [86][88] Question: E-commerce competitive advantages - Management highlighted structural advantages in fulfillment and delivery that allow for faster service at lower costs compared to pure online players [99] Question: Promotional environment and gross margin dynamics - Management stated that promotional activity was reduced in 2020, allowing for margin improvements, and they do not expect increased promotional pressure in 2021 [104][106] Question: Customer retention and repeat behavior - Management reported strong retention rates among new customers acquired during COVID, with a shift towards recurring revenue models enhancing predictability [114][116]