- Earnings call transcript Q3 2022

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Operator

Good morning and welcome to the Petco’s Third Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Benjamin Thiele-Long, Petco’s Director of Executive and Business Communications. Please go ahead.

Benjamin Thiele-Long

Good morning, everyone and thank you for joining Petco’s third quarter 2022 earnings conference call.

earnings download is ir.petco.com, on third XXXX the infographic presentation summarizing to quarter to available our results. addition release, a there and our In website at

for Chief today Financial financial Chief In and remainder on the Brian a the will for Ron me to LaRose, I Officer. with quarter moments, operating outlook Ron call and Brian performance year. the Coughlin, On and the and Petco’s Petco’s invite Executive few provide Officer; Petco’s perspective priorities are of the and their

risks risks Before materially materials marked whether statements such they undertake any These only are to that statements. as These obligation that factors current will from and by statements begin, future forward-looking of a deliver I to actual and cause out which events are those remind filings contemplated set law, by them, could of required to or revise and except Commission. update are no our guarantees Securities not would events results make uncertainties as and on you date like and and plans, regarding events expectations, the to performance we other information, this our of and forward-looking and a the of results of as beliefs call, result new otherwise. and or our Exchange include earnings and made uncertainties we future subject in forward-looking number with

in grateful many finally, release and me that, included today’s filings references directly of earnings be over and Securities and Exchange GAAP non-GAAP measures most as financial addition, turn our to possible comparable time, you to as Ron. one question well presentation follow-up. the the Commission. participants question-and-answer us With financial as could with these let the of are one measures from to and today’s we to call non-GAAP And as our In presentation call and will during on if measures. keep for finish our contains Reconciliations financial allow the questions time to portion it in

Ron Coughlin

Thank everyone. you, Benjamin. morning, Good

that resilience members. Our the challenging our team accelerated a Care quarter our of we leading digital, vet macroeconomic our would third shift consecutive flow All also strategic product on XXth did of Financially, unique demonstrate said growth, our enhancing continue the rate, initiatives progress made ability incredible scaling EBITDA, made environment, results quarter drivers we capturing to And cash do. deliver future and category comp premium sustained brands. model see of secure of Vital mix strategic In on consecutive landmark megatrends. Petco we progress dedication of our customers initiatives. tangible added XXth quarter strength what the towards we launch growth to while our member Petco’s partnerships and we and sign-up sales for in category, delivered growth

XX% generated deliver stack. XX% enhanced and our to one to and revenue in equating have XX% are our in supplies pressures of Care, of above customer our also grew who us Contextualize, despite third million. marketing over model us customer a execution continue appeal leaning premium customers of insurance engine ecosystem Recurring value quarter, up customer growth were new base. X%. In returning X%, growing delivery net value-oriented XX base X our quarter, our Vital comparable mix repeat high growth by bringing a active The and unique add disruptions nimbleness, for quarter. X-year the High-value the revenue year-over-year. sales growth navigate value total on in to delivery, grew our customer grew enabled a the exemplifies consistent is revenue, Net and Our and driven and the kind enable XXX,XXX to Capabilities category. defense power by strength our our and customers to of membership by a customers macro shop and by programs. also customers into sales food growth of multi-category and like loyalty capabilities driven our to that

to which the drivers of brands traveling and health with category the positive, value Insurance, pre-pandemic like including growing by adoption collaboration engaged, future a customers. for powerful draw an Petco new growth remained and In quarter, Hill’s. pets. Additionally, these Colgate-Palmolive’s category partner well-loved I of and a below levels. Nestle makes to continues high The wanting advertising followed to our ecosystem relinquishments increase on for year-over-year brands wellness levels, we resiliency continue trending while later, with rapidly access partnership Nationwide a deeply All network and to more facilitate with Marriott announced new innovative which will our touch uniqueness be

that platform company. clear it’s and capabilities is platform our component in addition and industry membership a becoming pet leading together, is key Taken A offerings. products services, innovation driving our to of selling Petco

This quarter, an fueled Care in and addition companion over in-store sign-ups of of point-of-sale. by Vital enhancements XX% acceleration our animals to flagship saw weekly registration at

pet Perks, share times. over affordable care pets’ a in to increasing average expansion. Combined these and provide new with over Nutrition our our right XX%. especially intersection membership Perks with engagement These of members, continue by loyalty. was roughly needs X.X that Grooming base demand one the place, now Now more is Supplies also targeted bring programs of our and quarter, offering with are focused XX% Care and third during we members, active driving XXX% and with services generation. over spend X.Xx LTV XXX,XXX of members an pet, for higher healthier to sitting million, successful the marketing that it visits have and Vital in parents of showing pet to healthier with powerful to even we quarter-over-quarter make members They in value at of all increase new on and over a launched funnel driving tool loyalty programs wallet designed over early more confident year-over-year, parents impactful over Vital their proving Petco, Care been customers, care the for a selling inflationary food centers, contributor Critically, upper a we signs. members which for at customer end expanding Perks messaging for their have with XX% budget, positive by the key pet of so easier

focused by pillars business, accelerated Turning Thrive teams across business continued both after said capacity integrating and of Vet, to our we the make building momentum the customers. streamlining previous on successfully for have to on Vet the year, process booking The are new its sales On and growth, progress we in to double-digit of which core our driven businesses. earlier openings. Grooming services returned hospital this we run-rate continue

our This against exemplified quarter both. execution

Vital the and With integration Thrive only members. operational tangible not new Care but synergies complete, now delivering

from hospital new hospitals. And signed veterinarian more previous with We quarter openings we also XX on accelerated this a vets any standpoint, quarter. than

is bucking in-store growth sales high. hospital food an contributing trends, prescribed that all-time at vet vet to are industry Our

the representing of These professionals of at technological place, our with their market of while in-store in some strong appealing for appealing In add only and competitive to from It offer of new Between included full-service right practice veterinarians, and our on these hires. addition hospitals, additions demand. first providing the times. a suite Solensia by to conscious these The our uncertain clinics home healthcare the number highest produced care quarterly and form antibody and vaccinations sales XXX we capacity for and mobile solution clinics, full-time sophistication, of care cost offer continue our a compensation number the meet our veterinary to the especially for highly treats package, driver managing added therapy that focus XX% contract hospitals ever referrals business, continue pain store we record our veterinarians Vetco the sales in pets parents. time Treatment now growing osteoarthritis to medicine an of to ecosystem advances drivers. delivered cost full-service center A XXX for to create mobile the own to and pet access clinics economic mobility. of in stress the is in and primary of offering full-service being vet in centers our customers over record hospitals, be addition a wanting autonomous of veterinary without doctors approach feline times. Zoetis. Petco and our the medicine quarter and

who We the receiving already regain mobility treatment had impact of playful mischievous to cats, selves. for return and and their this are has life-changing testimonials

of pets that introduction In number new Grooming, capture bookings are same-day double-digit compared to unequivocal addressable X.X trailblazers their personalized new care advance to pets life, Europe, the optimizations our for and nationwide. we in over VAME we AVMA with an U.S. negating partnership in with services the the multiyear be need bookings comprehensive driver mission With our older want our of holidays Teams have one strong. positioned business veterinary to highly only that ensuring player ability the market. equity share remain provides from also available, parts for them pet mass this in supplement ease while through the possible, best Love pets with that and to but X.X% initiative XX remain million to We of to of quarter, the differentiator the From XX% program, partner and and us insurance high best vaccinations estimated impact in value families journey in need and insurance in get inclusion this growth industry. and at better on to last-minute look billion for care pet ongoing many Petco a growing even of a further end increased the And diversity, sales of insured a cancellations. online booking support of growth to and for training existing as as as announced national professionals competitors. Platform build full-service and

customers, to With grooming wellness and veterinary we with together. healthier Nationwide’s including the other’s merchandise approach number that excited and and health the combined bringing whole services, of our memberships, longer ability market lives and growing are pet Petco give and into Ecosphere, about to them cross-promote our each can families

other surge, Fresh elevated The growth continue driver grew and to over year-over-year over Frozen Consumables customers. in differentiated assortment. also deliver key growing and customers of to in continue Consumables our an both Sales consumables LTV X-year XX% year-over-year. Turning stack. merchandise. RX XX% to remains a

the driven prescriptions strength of Specifically, food, year-over-year, supplies, gross XX% by RX, grew Consumables customers. and offset on the repeat which combination margin. including to almost pressure transitory largely on weighs continues

X-year XX% Importantly, since stack. remain pre-pandemic up elevated supplies over on levels, a

of impact we the to the are long-term and sales teams seeing category. as macro overlap unique discretionary managing owned sales be supplies the environment Our continue pass trends realized. sign-ups economic draw to inventory expect to perks we improves, job brands with continue Premium in normalize and are in do a dynamics a fantastic the the aligning

Our And firmly to quarter. a becoming Yummers, Antoni. and of owned today, locations. The brands exclusive the brands. and WholeHearted offer the year-over-year. premium with in in both food premium only in and and and pet Stella created & brand for are the Petco the premiumization Sales we fantastic and trend national both is adding we announced natural lifestyle online partnership our mix retailer Reddy raw In products, Two continues launched exclusive Chewy’s brick-and-mortar and grew things brand clear. we health-focused by that Eye’s September, premium an JVN are grew their Queer retailer earlier first choice own

Chewy’s As in an incremental ecosystem, in highly popular, lift parents. that who our health are customers Stella us into & well narrowly we in we pet when sales. wellness distributed high-value shows focused see as bring and bringing Experience brands

challenging, are Importantly, macro to control we inventory. maintain cost partnerships environment with the brand to and our great although working closely remains maintain continue vendors and

and mix agility premium mass such outcomes outstrip loyalty we we promotional surgically, use players, the through where but not our BOPIS drive program our only competitive, in Perks While with supply demand the promotions programs to category, also and means many affordability from remains can grocery differentiates environment and drive our Vital Care rational, as of Petco to remain to conversion. and specific continuing parts

drivers half basket, of average Our channels first repeat delivery, continued with X years. RX, the year, in Key to increase on of continued included digital the sales growth QX total XX% in innovation. double-digit over an digital build profitable XX% and growth including this year-over-year, up growth in

gross strong margin efficiencies in saw particular cost We also improvement order. with per

moat these of Innovations multiple X.X same-day our reinforce versus like the have be the Specifically, online-only partners continue our time through with appeal. increased windows delivery addition which in placed players and orders retail deepen extended our competitive to can strategy. DoorDash and

for triple-digit and both quarter-over-quarter with delivering be to double-digit network base, year-over-year. growth powerhouse to health a and channels drawn conscious platform and brands Our high-value digital Petco, continue revenue customer in-store. as growth our Household for generation traffic growing online advertising and is awareness, a our

We strong XXXX. into for and the year continued of expect growth the balance

to Our Basket of and quarter strength consumables pet with remained both and care positive centers by stack. new their store year-over-year. comp consecutive fresh quarter in double-digit delivered and comp ninth business, brand tenth consecutive X-year Monday on driven Friday as consumables as customers repeat a supplies. Black growth elevated we sales Across offerings own Cyber drawn frozen and well in positively lapped the

and for and We supplies, famous about treats, are dill holiday including theme dogs also range pickle our excited our our toys and Hanukkah cats. fabulous fantastic

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driving continue continue into our to growth up ourselves set be and initiatives. relentless efficiencies growth XXXX, we scale both driving we in profitable to As will

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Brian LaRose

Thanks, remain resilient. category pet Ron. Petco and incredibly the

to and long-term the to We economic pet growth, strategic of build needs cycles throughout cost with number for investment parents and growing growth. continued of the continue a revenue business initiatives and meet discipline ongoing management

strength at our both Looking XX% be XX% offset consumables, X% in XX% by In among Vet which merchandise, strength to a up booking and value strength Total increase specifically, in Frozen, grew year-over-year terms Grooming of billion, and and basket was stack companion year-over-year sales spend of Fresh buoyed highest driven trips. year-over-year, customers in-store operational animals. in driven our $X.X transitory X% including a supplies were stack by net comparable services over translating enhancements of the in quarter and in systems. impact customers, XX% stack. year-over-year, and synergies average a discretionary Consumables and online X-year purchasing continue by X-year the sustained revenue in X-year an trends grew XX% to and on over and

pets repeat ongoing the pet a prove our by parents. continues planning the delivering differentiated retail on we’ve to and with services healthiest challenges both faced both new to insulated Due the these the remains cornerstone astute demand for the health-conscious for broader focus of from offering remained products and and team largely compelling by our mix, Regarding sector. inventory and merchandise

increased P&L. primarily strength points supply chain freight with through half costs Moving profit basis million year-over-year the down points mix $X first combined XXX basis quarter-over-quarter, of and associated that P&L. to driven transitory was elevated from pressure the $XXX and the by cycling down Gross Gross impact and supplies XX.X%, are consumable margin million. XX the capitalized

economic of XXXX of the As stated executional we’ve our muscle in QX year, building this anticipation been in fall since headwinds.

normalized sustained EBITDA million, up investments of enabling fully As adjusted long-term efficiencies margin as of we adjusted compared that internationally recently short- million overages to out year, to hub partners’ in continued both over prior Zebra was and adjusted allow center headwinds $XXX was year-over-year, and including with XX.X% initiatives to $X.XX, year, was an basis distribution opened shares reaction year, of the XX%. or our split average strategic invest time X.X% tactical year QX QX $X.XX ahead prior inventory pet us retention and long-term. more expense from store to devices. down XX.X% such strategically including tax investments improved we partners of decline rate from improve environment year based cost a our points we of and million, managing and shipments shipments care have a improvements, to from limiting a for diluted XX also $XXX us SG&A future to consumer to by of the us mitigate that and rate a basis done continue carry programmatic proactively last continue while from of prior for the staying points. effective XX serve basis, short sourced in on a as These points. costs, to decrease range absolute initiatives EPS will from SG&A alerts the revenue from center positioning of view the decrease macroeconomic an weight On enabled percent and weighted generate through XX growth. as X.X% to XXX EBITDA take and X.X% a handheld $XX basis prior as million in a

our quarter XXXX at generally, We our of have with Thinking equivalents million, excellence $XXX to $XXX continue and QX and and revolving million $XXX and about agility cash the more inclusive the operational sit of liquidity, strong approach. ending bedrock on of credit cash availability million facility.

quarter. Specifically, ability over a about We’ve XX% at near with meaningful a balance cash our enter is progress flow free what sheet. leverage our prior also out when historically cash we cash a increase made in level thinking year flow performance meaningful made get in as flow break-even we’ve and further and liquidity, to improvements cash free the our strong year-to-date in of cash flow

in capital, and efforts As Vet, of flow year continued flow Supply. we a pillars cash Fresh result of to Pet while improve for to future free be the expect Frozen cash and Farm positive still and working Neighborhood trending positive growth, full including investing

actions Additionally, on minimize rate through we’ve financial including of impacts of future caps to variable our portions instruments, taken rate increases. interest rate debt

in of confident actions, free XXXX without initiatives. investment long-term so do strategic in growth flow our sacrificing we result feel incrementally these to ongoing a extremely to continue in and ability As cash our generate to

Finally, guidance. to turning

are million of $XXX for capital to of EBITDA the revenue year adjusted million EBITDA adjusted $X.XXX expenditures. $XXX $XXX We and guidance and $X.XX expenditures and $XXX million million on with billion, to capital between revenue, billion full reaffirming

When adjusted assuming about average $XX rate mind. which a a million our higher XX% keep interest thinking things and million and than are $X.XX, guidance, For $XXX guidance, tax EPS, diluted expect we $X.XX share prior expense, of to million count. now there is our weighted between few XXX in

consumables services continue. growth with to be largely continue to expected and non-discretionary businesses Our strong

which Pet evolution and interest dynamics the and seasonal updated And range. in While curve, be to yield the behaviors, expense expect current of based our may from typical Petco’s leading we pressures, To dynamics the remain current anticipate will guidance changing To category. our interest Pet consumer structural uncertainty aspect EPS the given is of QX, EBITDA is to conclude, our adjusted guidance. upon in cyclical lower the enduring uplift capitalize on broader prudent the into we forward spending end ability it’s QX reflected in product fully holidays creates inclusive in the our and ensure drive consumer the entirety focus to out of we is the driving in to in cash across management environment us come these generation, portfolio infrastructure, while questions. some lives but in maintain appeal more profitable cost one, growth not on your of economic that stronger the your to megatrends grow our meet trends, approach, the while relentless our meaningful makes capital. in of services capital us will cost the sustained to high throughout Thank current happy for improvements our enable to managing even time. ROI in today of sheet position. Centers debt combined only addition and Care priorities, our to positioned we’d our and And long-term. with take that, our reinvesting This their cycle pets’ better to and through you the include: ability working confident and opportunities with two, business These the to balance significant chain, supply which actions fuel future growth; overall be

Operator

from [Operator Instructions] America. Please from ahead. Liz Bank Our first of Suzuki question go comes

Liz Suzuki

your a And to great condolences was Great. you the family my of Yummy. on loss Thank Ron, and He you. dog.

Ron Coughlin

you. Thank

Liz Suzuki

sales. you increase big case just continue? expect humans that that to for XXXX and margin – is as a when there’s the to a question be of gross in would year-over-year the a I food just you and that I some of pretty that continue we Do percentage would headwind food inflation the consumables cost So pets, headwind imagine expect that mix as abate, for just probably driver of mean the likely basis, on with go into a to on of

Brian LaRose

me the first start and with the margin thanks for question, Liz, Let gross question.

a aspects than As business mix gross more I fact, transitory in the primarily time. distribution through and underlying opened driving ad Digital, and which we’re due this business. say alone limiting the the the And efficiencies pressures. also work. to the the serve sourced split will year-over-year scaling in improvements mentioned mix for and is center hub internationally mitigated over margin, in We’ve shipments call, accounted by savings quarter partially in a also decline us inventory for was on as pressure that get quarter, distribution discussed of And margin this then strong, And costs business strong also prior as for we than gross XX% those while we’ve they but is softness softness, more the levels. downturns, experienced stabilizes in categories just and really categories to And are freight previously on. economy through And as as impacted capitalized begin expect the rebounded you last economic consumables the P&L. cycle in discretionary touched sequentially help seen margin through quarter discretionary categories margins. point, improved up pre-pandemic as with environment the would case our those as growth. return economic from gross we to those I’d

Ron Coughlin

in is on that doesn’t & we Chewy strength be the on see services, strong growth only the continue. strong to just a consistent build growth is that, which services, and that reason we’ve we made that today, addition had going announcement really in consumables, buttressed no I to by why Stella brand. But would which double-digit

Liz Suzuki

Great. you. Alright. Thank

Ron Coughlin

you, Liz. Thank

Brian LaRose

Liz. Thanks,

Operator

Please from from ahead. question next go Stanley. Simeon Our comes Morgan Gutman

Simeon Gutman

follow-up Ron. I morning. this good Hey, question. on want Good Brian. morning, gross margin to

what I today? the factors, of XX.X%. relative looks I that? and are gross wanted that vet on ask both Brian, The to history third most see it’s the the I It mix of, at in to shift. Street to the you – I think like quarter grows in the about it, I And – look that to weigh wanted looked what much public how said wanted you’ve business how if I light could your margin it guess, of know kind of investments don’t thoughts then year, much these ask XX.X%. at for trends about was like in lowest company next

Brian LaRose

about Thanks talk relation than of going point for I decline on is, will gross mix, the not you first more XXXX tell guidance margin. the to today. XXX% in What question, Simeon. I’m yes, in to your

than that. more points we’re XXX the So was basis impact down year-over-year. mix

mix margin categories look you to go a And fully different you those that with gross and historically when supply level expect return beneficial will normalized very more business return. If elevated had gross those and margin. at to the back categories in We a was this to be very profile.

Simeon Gutman

I’m Ron. follow Okay. a And sorry, up –

Ron Coughlin

go I look earlier, mix. to being category you a back to it the happened at to the what where and supplies, it mean But you back Great as was very was Recession, was later, it said if Brian a in year similar. robust to back

So businesses, I for – look pretty the supplies Great X-year discretionary I kind those the due have it gross would of I’ve the but Recession softness of what anticipate growth – top – rates I’ve similarly with impact. to when back looked would looked at a in each growth recessionary at happened margin the took then,

Simeon Gutman

a follow-up, or and run-rate the business percentage of And are those the the discretionary as is stable define would – or that classify you quick is products decelerating? underlying

Brian LaRose

me Let mix into first. get the

at non-discretionary. categories, of that, presentation can those combined XX% the our you that And look within about and mix. you we the services the are If consumables between posted largely online, see that’s that

consumables, services, you rates remain double in at strong. those this digits growth very the look If quarter, XX%

today a is purchases it delayed. of is believe all lot not XX%, discretionary the are remaining that being and the we what Within of

some to And are going purchases come back. those of

category XX% to return. entirely, A and of not growth fully that we So portion is that is expect discretionary. it

Ron Coughlin

supplies with we perks green shoots, call And program. it with with a stable signs launched hopeful to the stable, I regards meaning would

taken have – customers there. perks from very on the redeem, takes program. food and early happy animals Supplies program. very then the to we’ve showing on that We our sign-ups secondly, back that we’re some perks while little we’re on And a know for those It are and actions companion signs. grooming with come with We sign-ups the but happy

shoots. So green with it’s stable

Operator

question from comes next Our Benedict Please ahead. from go Peter Baird.

Peter Benedict

million One think run base $XXX here. to in, good a interest Hi, this? next for lock rate guys. the put we how through just quarter Do Thanks taking next that you that model Is expense. think, question. implied kind the the I said in caps expense, Brian, some $XX on you is fourth interest million, of question, place million, we $XXX to that should about as year? for year? Is we assume

Brian LaRose

forward would expense to increase and I try of on half XXXX. we expected the that based help, interest you our to which guidance first is me Let remind Peter. through curve, continue yield the

is So curve that say current you rate factor to I’d the increase. run yield that expected into

we’re manage free year-over-year. On We as our made of ways place And looking quarter, We meaningful in call, and and a debt. risk business on at in variable and in We to the remain, relentless drive all protect to financial cash here. to the both free of the I this put in going leverage balance meaningful flow we’re said sort – flow on the mitigate flow. in part XX% to progress a ‘XX to some to yes, cap, improvements instruments then ability good made in incrementally sheet, ability our cash debt. cash feel got overall get our on reinvest improvement continue confident we to caps

Peter Benedict

you’re it of managed inventory nice environment Got lot and an it. weighed too certain running that and to just much, do you me a That’s areas. not have certainly some question I inventory? see the I but in guess know in lean well, on in but out-of-stocks helpful. you a people know where we’ve too a in on see minute. then stores – And let flip been things How

a to Do What in lean too about sure us down you you’re customer? you better. the your are break Thanks. feel to make talk little Just to certain like just doing that areas? inventory service

Ron Coughlin

we’ve position we I are years. the few in inventory a been that in would say strongest

a great inventory. College, leader. Best managed who has Amy done in they’ve have experience job great We a Buy and We brought under

ago in-stocks that year favorable X have that now versus X to ago. We right weeks probably tangible turn are green a

be as inventory any a should contributor And a tangible to contributor cited, we like is inventory in but our we right places and the don’t feel to And feel already. we’re growth growth have any the over-inventoried Brian position or in places. so we places right like

exposure with is always years COVID. to that China You of supplies serving of from ahead actually away lot We ago, China very low. a several conversation, relapse on sourcing our of us type episodic China a our any just of issues kind should vendor kind have is and have issues getting a well, moved current but of

Operator

Wintermantel comes ahead. Evercore from question Please go ISI. next from Our Oliver

Oliver Wintermantel

traffic. morning. Yes. Good ticket regarding question and had I comp versus the a

you negative offset? fair all said Brian, Is it and mostly think, was that I the ticket transactions with basket. to were assume

Brian LaRose

basket, actions, in you has starting last second see actions the side, holistic would lap. transaction on driven, Yes. team in was recall, Most price took of half It driven trip was if say, by question on the We did I continuing place our tremendous by all not job year, pricing to price. some Oliver. the the look, which consolidation we’re but prior the that done way pricing a drive to basket, of

see So some drove it, on we back consolidation it transactions. did term

Oliver Wintermantel

it. then a Got quick And follow-up.

Ron Coughlin

I also that. build on would

your not traditional purely retailer. We are merchandise

tangible. Our services are

in visits etcetera, grooming, trips us. as get vets, increase for for we So significant visits drives that for this training,

is so that network. lever, which a vet tangible intent our why is we’re continuing So out on

us. So for that’s another trip driver

Sorry to interrupt.

Oliver Wintermantel

freight just question margins. No, for that to had how gross a And again you out Can margins? that Was the explain did fourth – in play on you component perfect, trend that you I in half? do follow-up thank quarter the just the first that. quarter? expect versus how the of the gross

Brian LaRose

Yes.

balance in as touched cycle more – chain elevated P&L. costs, I to had the on freight we capitalized supply last we those get first and broader through quarter, think half, on the sheet and start the So and

expected we quarter-on-quarter signaled, we QX. get those So QX to impact the from worse P&L to

are sheet second in of in back and step bit terms rates costs, starting balance improve the on overall a chain the to supply what’s a taking those on Now half. base

expect see improvement We to XXXX. more tangible into

Operator

UBS. Our next from Michael ahead. Please comes from question go Lasser

Michael Lasser

second multiyear my decelerated the the taking get It a on question. for from lot has Did growth bit. like worse a basis the a looks third Thanks to morning. consumables traffic Good quarter?

why paying year-over-year less well? be or an traffic quarter pet that So, did X% animals the as being on influence case feeding or only So, that in their are additions is the – in the to up in would quarter? parents the customer having new X.X% third second moderate from growth your

Ron Coughlin

the trip which to I for continued Thanks dynamic makes some question, And terms grow. said, Michael. us about consolidation Traffic in the that as was of happening, traffic services actually have talked more and relatively Brian efficient. stable

the driving Care talked The tools on Similarly, on at look we nice about they growth post is that Care pre, you XX% the seeing up vet frequency Vital XX% If trip the piece. visits traffic, thing about I on by our tangible. are visits in up perks are are the getting for customers. are those. program, the Vital

purchasing us there Those happen. a are maintain environment, stability natural hyperinflationary or have is a cutbacks helping in trends. programs some in to traffic you while our recessionary So,

Brian LaRose

valuable have And we I And a on are will most LTV just an up Look, refiner from add on stack. XX% consumables, just customers Michael. standpoint. the a customers we were as X-year consumables

we really that. happy So, with are

Ron Coughlin

Yes.

more frequency – trips that type to selling products. you you of then which or action mega those we contributor are inherently Another types offers, number behind reduce is pack number it of mentioned your of

Michael Lasser

Thank from freight that the enough the to have point My sales the benefit on reduction been if you in drag going the last from And very been point to away shift freight will discretionary? have quantify follow-up couple be from that margin they remain you is quarters, like a you discretionary see benefit is get it? the much. weak are costs. there of you offset which gross experiencing question the some you in at Can at the

Brian LaRose

the Yes. part. that’s than And to tried mix say I larger I dynamics. hit that would Michael, impact, much on the freight

that basis look points the mix. you impact If and gross from XXX again, more year-over-year, margin, than

part the the terms discretionary fully So, will margin. driver of in we happen, to gross be which biggest the expect return categories, of

you, In see you. in of some it quantify the specifically will freight, going am for benefit terms I not I would QX. tell we to

see more head will benefit of ‘XX. we a We as into

Operator

from comes Our BNP Paribas. Bottiglieri next Chris from question ahead. Please go

Chris Bottiglieri

the in you guide? a then probably for slightly, QX you flat a question. guess gross bit that I in much I I like typically, QX. it’s the mix just looks to I to normal guess It of how QX? terms in where what gross little higher conservative in And the and down environment pre-COVID taking promotional how like margin margin the maybe thinking being up range. out for EBITDA were, Thanks on Can bit QX the speak think are implied than to past, is a in in want and are everybody. you depending Hi were QX? you taking that think see I you picks promotional assuming today. environment year,

Ron Coughlin

Ron. it’s Chris, Hey

on any the take through and gross me promotional Let Brian margin. environment, can view you walk

is the of It’s demand. rational continues better, a So, lagged for be aggregate market from terms has the supply that to promotional market time And rational. now, fact a environment standpoint, long remains that in of the but part pricing. aggregate gotten

what you our promotional over weekend, if depth, promotional levels and were points happened look our look depth Friday the you promotions ago. actually, pre-pandemic at XXX If Black below a at to was year similar

type period, along. we will seems anticipated to it holidays. promotional seen But environment anticipate I continuing what pass a that’s the all we you through the Brian. So, the episodic have promotional over rational. We Obviously, on have things. standpoint, from and rationality

Brian LaRose

not saw the successful, into are our program. Yes. that why perks a passengers perks would Chris, We very on launched the just We perks great when launching success we is program. but we categories, program, the that good And the I we saw supplies led launched discretionary say on here. bus which

are early there. encouraged we sign-ups So, the by

lineup, the until and holiday around we our but margins think in reference a improvement commentary see about guidance we appropriate. the of is the guide, we to in that there excited which categories, those trajectory gave are We implied the it tangible in discretionary gross

Chris Bottiglieri

That’s very Got helpful. it. Thank you.

Ron Coughlin

Chris. Thanks

Operator

next from Zaccone Please comes ahead. go question from The Steven Citi.

Steven Zaccone

Great. for Good morning question. my guys. taking Thanks

in of sales. bit more you the outlook Our range also quarter the detail. of implied fourth sorry, same-store Ron. loss about a Could a talk It’s condolences for Yummy, wide

the the versus positive. end the Friday trended overall What Maybe range? Black I and thus of you factors are has business far November? get the comp Cyber the to cited end how high think you to in low Monday swing

Ron Coughlin

we will again. tag team Maybe

the of this about variability. low is remarkable one So, very things there business is

or X% We XX%. swings we don’t the down on week-to-week, when that. see when If then at I weeks other of not and it’s weeks and you some look significant the had I that in look have data, see will retailers the see NPD it’s you up

had consistent great QX, Black we through and Friday relatively through Monday, in the consistent period. November Cyber very been tracking have consistently. We are a We

on business, providing. guide Brian swings have that’s we which our into feeding So, not the is big why seen that is

companion are getting like program. Klarna, supplies you particularly add have the animal, we in I a our as perks said, seeing of if have to well. animal, a companion Brian are put up traction a As getting we are getting tag, you you setting initiatives for early place animal, on an would are accessories bunch we are you that,

well been that but add with anything relatively But feeding will are our which seeing the I early our traction we let consistent is Brian that. to and guide, as has on business. So, into business companion animal

Brian LaRose

point, in like we and Friday Black appropriate. but just We of would build are holiday still saw Ron’s to solid see we Cyber while it continue the there, range to add on Cyber and the we remaining. fact is the growth. still dynamic, I consumer that Steve, that the but past growth feel – we the Monday, that we got guidance in majority is past Monday, vast Black gave we are have We Friday, season the given

Steven Zaccone

for to seven we And a the sales learnings six bit openings talk the boxes? about early an detail How about then of do concept? the productivity Maybe four-wall profitability what’s your on what’s farm supply. XXXX? more the question just by Could and level these little potential relative of think Great. to pet to the Okay. from Follow-up openings appropriate existing year-end, stores? you relative

Ron Coughlin

for question. Thanks Yes. the

We are fired neighborhood up about farm supply. the and pet farm and

rural TAM. If billion you at roughly today, it’s look $X a markets

We share TAM that that, have is not had and growing our rapidly. of fair

cited don’t aisle player we ahead pet people or when the of markets. people and our Then third first get or that San absolutely, so in there did get a specialty heard I I these to player. the I my products brand. have these research second for the what pet these research, looking that pet to compete for then we glad our in launched products. our is, is, to I performance anymore go could locations to an that I I a hour Antonio our question, can looking have So, well, before, proving are was now is specialty with are am and specialty expectations drive We

it’s So, encouraging. very very,

to get the or the we of said, to end by I year. As going seven eight are

more We of XXXX allocations anticipate for for the at rate rapid But promising. is because would in so out a building finalizing capital XXXX. it process are we

The other is portfolio merchandise thing these our extends it products. I would say into

new So, that products we our some in are breeds new chickens, seeing for really as well nice other for products sales to adds portfolio.

Brian LaRose

is last about you from manage these way the centers. they a is bit care thing great add the in The would pet I anomalistic turned centers care we thing sort of to which year positive a little one, pet traditional

momentum of promise. So, we and us the stores positive opened lot early signs the a a that gives three from have

Operator

comes question Wedbush. next from ahead. Our Seth Basham from Please go

Seth Basham

you Ron, Cyber the declined promo also sales, that Thanks near-term Friday a where you basis Black you [ph] debt Monday lot XXX and up, good brought and mentioned regarding it just periods, this period. points morning. Since over grew

merchandise meaningfully period? this year-over-year So, gross mean that profit during growth increased dollar that does

Ron Coughlin

That would mix. on be dependent

So, prepping we been have quite frankly, earnings. for here

dug into on of dynamics dependent haven’t mix the mix. would we So, there, some that but be

with that we So, pleased are the we generated. sales

We to response activity. promotional our with are pleased the

holiday merchandise week-over-week get way, into our We premature sales have increased. Black Monday. are Friday I over sold Cyber think to we also with mix But pleased, the the what it’s by and of

Brian LaRose

at look come promotions would I – of some think I promotions we were other back you is some the promotions, thing And the right. say Yes. did, I on mention those had that if of

did, the care talked the about about we your next centers. into $XXX that pet visit is you ones on, that up on $XX think So,

did a gross care season. center back not Black into impactful margin customer bring and So, we from around the in Friday, that the they that promotions are standpoint holiday some our pet of

Seth Basham

offering the Fair our Got signed? secondly, you insurance? that it. terms you in tip have could iceberg you for offerings that more the agreement insurance pronounced will the Nationwide and enough. that expand And the pet on a of Is of

Ron Coughlin

of so it. far it very start what have well. it’s – We said the said we at Yes,

number in start this partnership saying Let player a insurance. me with the by one is

that about company. from to nationwide partner us came Companies our platform Number whether Petco with scale are We be because prepared Marriott, talking see whether to to talked coming customer upside. even a I Klarna we right So, access us are to against a that be very partner whether the be with data Nationwide, In two, increasingly that a insurance us. us, and as are get-go, remarks, one. giving number them significant becoming base. valuable we

relatively that. penetration. States in you a about If a has is look low XX% is billion today, but Europe, upside the it market. U.S. penetration is vis-à-vis roughly of a this Europe market, $X.X fraction big at it’s United

big So, upside.

We to if which Nationwide and and bundling pets are we to offering a Nationwide. like great a of will the is – insurance developing with bundling because It’s insurance easy Vital developing things customized going be imagine veterinary Care, are are very healthier, right, be win-win, costs care lower. it’s because of

that of a come lot this. exciting can So, things of

base The we other now customer market thing that is they a significant have can to.

get can but So, We provide them provide them they can might We – veterinary sell at insurance to services. with existing their services. customer merchandise. base, with we grooming them provide can

So, very excited about this partnership.

Operator

Please Our Forbes go next Guggenheim. question comes Steven from from ahead.

Julio Marquez

morning. guys. on Julio Hey This this Steven for Forbes Marquez is

see on good guys you behalf the the on quickly, a of to very memory. team, quarter to fund Just Guggenheim our and Yummy congratulations up in condolences setting and

Ron Coughlin

you. Thank

Julio Marquez

you increase maybe specifically Thank in cohorts could, and any if across you. that you if – demographics color has members So, exactly across on how how think advertising terms and in Care correctly. there? POS think about on different membership new there? I guys What an And heard I members, generations. you mentioned changed of And Vital conversions, color overall,

Ron Coughlin

Sure.

of sign we of animal, thing, you find sign-up sale. Care, things The I success customers, that the out. companion leaning exciting we Vital the said the point really accelerated and us. But into that XXX,XXX, in companion when we it’s with move at for animal at really, million. is not X to some One to of great rate of as was think business. up Day, is that rolled cited, if the XX% which So, timetable interested second is are really It’s we at a now fact to we matter accelerated Analyst/Investor that got our get going I are fact

would you we would enable the a Obviously, go whole that, before go process phone. their So, to that’s on registration etcetera. some contingent in on WiFi, their and – have instances, customer phone on through

register membership Care credit card in on the they can whatever at purchase. having partner onto are a at while are checkout Petco that the Vital their for purchasing purchase they add Now, there

in partners sign-ups. our a say, customers that, So, because With Petco needless we we to also from saw with tangible have of more interactions ability. increase that

get then more tangibly Care Care us. food So, with these us, it’s are services been a with to in customers XX% of of real win. us, the to to Vital benefit new Care And traffic. back are Vital to XX% terms Vital new we

So, more getting of that means we that of wallet share are these customers.

is really, shifting broader effective. been really And of which recurring base theme is there predictable. I more it’s think revenue, Petco revenue to a there makes more So, its which us

Vital recurring those programs like revenue customers PupBox, into recurring over we and XX%, to from revenue like are insurance, our continue up So, drive to was Care, going etcetera. like

Brian LaRose

I is such the our give add last the asset capability just point at center point ability The them are, an customer advantage sale connect thing would to of underscores care what that to of pet for and give is with the us. partners an sale them

Julio Marquez

Appreciate you. Thank Great. the color.

Ron Coughlin

you. Thank

Operator

The next from Jefferies. ahead. from question comes go Corey Please Grady

Corey Grady

in-stock to in-stock when you of rates wanted very questions. to Can be us an you your terms petco for on turning centers expect favorable. rates grades? I comment in follow-up much and are your give on update where my you Thank Hey. on taking back to care

Brian LaRose

are specific you shape in I the tell we a been we a percentage won’t give best while. there, but would I have in

year-over-year. We up are

are We up quarter-over-quarter.

our and to with levels see across we portfolio, really continue We are improvements today. the happy in-stock

Corey Grady

on then and Can rollout Great. wanted your between just to I talk capital farm for for priorities get thinking upgrades supply my or then forward. more the going that neighborhood cash and balance Okay. rollout? you store the And pet about follow-up, like color like about

Brian LaRose

question. Great

leverage sheet. growth cash multiple out First, XX% generating balance a of a we would basis our free the up and on in quarter, near ways good P&L year get progress that made and tell We investing where driving cash through also year-over-year we breakeven are through in this long-term I on our we you flow initiatives. can in are focused

those I a you things. us. tell not are So, mentioned of binary areas for would different couple you investments growth

will to we So, continue invest that. in

us we have we think tell opportunity an that of of about the incremental excited side, I a be retired that which to little and there historically for we debt are you there sort a technical would bit. had We had bunch dogged on us. is the IT

debt. IT, We in we and technical are of of rid in investing gotten primarily have some that innovation

So, across would think you of that those to invest while CapEx expect well am that continue CapEx number, not in areas. I a it’s give going to mentioned. if tell in I ‘XX levels I you about total, not those to would be areas ‘XX in all you above ‘XX, we specific

Operator

Needham. comes ahead. Our next question from from go Andreeva Anna Please

Anna Andreeva

good Great. well. guys. our And Ron, Yummy morning you Thank condolences as on and

Ron Coughlin

Anna. Thanks

Anna Andreeva

questions. Two

net really a And Care I to that. is guess part sequentially. to adds, Ron, Vital big consistency So, first, I pretty of that see strong on results. Nice know

Can which those see ‘XX? to expect sales much. progress inventories. in come should year? where the about you guess customers about talk end more Good in are should at where point on is secondly, seeing with you can to Brian. we you be company thank I so inventories to the make talk from? And And curious, Just line you this And inventories

Ron Coughlin

net say pleased should into were the very continue And with we Yes, Anna. I QX. add we that Thanks to adds. customers

we momentum, QX. momentum into the continue see So, to

have where sourcing able service we offering as we source broader In a from we our them, independent as terms channel comes. customers consistently have of been offering to are the

veterinary of That’s before. they are veterinary the We coming their are for provider part sourcing to going customers because want that coming to purchases us. were of power services. they who consolidate another with are where They new

customers that We for – players are BOPUS, e-com pure from provide. same-day who sourcing online things the like like looking online things can’t delivery, customers are

of online two available sources other So, three aren’t and fulfillment those e-com customers independent would from customers to for looking it. that be players. are – the It veterinary main options

Brian LaRose

has Anna, elevated ‘XX, and give balance inventory then quarter-on-quarter inventory, and season, things. you it typically, normalizes. where how QX while a When just would strong are way me job. tell see forward-looking growth. was ‘XX, in in in in-stocks The typically sheet into sales line I you quarter, you driven our hit build revenue inventory with units of increase of pleased for have the to and QX going it’s up what on is inflation. really QX year-over-year the that really as on but was am historically, improving decline then would And the I exceptional inventory and is QX, I think tell inventory land bit did you throughout play a I with QX, holiday an you dollars and going let a this team in would the not number in remained by that an couple relatively

closer. the start as So, stay see inflation bit you and with normalizes line sheet to little balance converge on units when things in think a sales, come I that’s

Operator

Ron I remarks. closing for question-and-answer conference any back our session. over Coughlin would to turn the concludes like to This

Ron Coughlin

Thank your to you, a us advantages. as in your committed you, with thank an and purpose-driven to operator. all at holidays delivering priorities build investors, momentum with is performance. our To for We remain our Petco continues exceptional tangible happy which our support. Thank and category and Petco. analysts you, long-term time growth always, competitive against company, strategic from of

Benjamin Thiele-Long

available Thank XXXX team follow-up you. Petco’s The if Happy That holidays. have quarter you concludes after be call will call. conference earnings third the questions.

Operator

has now presentation. attending today’s concluded. you Thank conference The for

now may disconnect. You

Petco Health and Wellness (WOOF) 30 Nov 222022 Q3 Earnings call transcript