Earnings call transcript Q1 2023

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Operator

Good morning, and welcome to Petco's First Quarter 2023 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Cathy Yao, Vice President of Investor Relations. Cathy, you may begin.

Cathy Yao

thank call. joining and XXXX first everyone, conference earnings morning, you Petco's for quarter Good

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

me Chief On Petco's Coughlin, Petco's Brian Officer. are Chief the today Ron Officer; Executive call and with Financial LaRose,

and statements, These that earnings filings. uncertainties SEC from number we will call, they I begin, this a actual cause would Before could uncertainties in our such to certain that like those which forward-looking results on of materially our subject to out and set risks risks remind you differ include are make materials to and statements.

of these can in today's please and presentation portion earnings keep to finally, found on our ask measures release question we call, our one Q&A the you addition, And well of SEC to filings. call, today's follow-up. our Reconciliations we and as certain during in as refer be In measures. will non-GAAP one financial that

turn let that, to Ron. it With over me

Ron Coughlin

we growth. growth consecutive today. up Good delivery Petco's the and growth, results Cathy. the and trends us performance. you up of joining comp its current QX, of with secular quarter of premiumization, execution brick-and-mortar the Petco purpose-driven through We These continued category quarter pet delivered demonstrate humanization environment, X% revenue appreciate you, strategy resilience morning, our successful the both the XXth ongoing and of sales of XXth everyone. X%, consecutive Thank achieved In our of also and

driving laser-focused parents, pet In of efficiencies short we and our our cost country our for productivity ongoing term, to health priorities, XX,XXX controlling the the medium without to are executing pets, against structure. dedication strategic each and controllable, hard personally Petco wellness thank this of their of None further the achieved want been and partners on and and the across of I and have approximately commitment the who could out other. work

advantages our services, on three Brian XXX-degree derived and by offering from tied will comprehensive care a further. remain elaborate all loyalty business: we membership Longer of capabilities, our programs the and and omnichannel that benefit Petco. differentiated term, competitive mix, unique merchandise our through the our pet this together core pillars parents in pets, confident delivered and

up core these in on the start Focusing I'll services, double quarter. was with revenue where pillars. digits

continue evolving our By and integrated pet to differentiate grooming services growing business through care. our with we and offering fully veterinary hands-on model training, further

clear, is Our differentiator or big full-service scaled veterinary be there business and this retailer our set not Petco. for competitive an veterinary to online another player and continues a And in is a to scale. own network, with

bring even QX, provide diagnosis care for clinics as full that mobile provide positioned into appointments A the providers treatment, enables of our U.S. growth in In affordable us of a number of more we one provide trajectory. our ecosystem. expanding and growth and our pets saw and powerful lever our underscoring to XX% convenient spectrum pets well to is this momentum and driver clinics, a vet hospitals vet Between top is year-over-year, Petco key that which the of preventative veterinary our XX more

while cost-sensitive the pet clinics needs term, parents of suited robust our also address more and economics. pipeline are this for us to clinics up veterinary allow the short our year-over-year, hours In during way extended of X,XXX incredible while XX% these that demand agile affordable, well week hospitals. a talent providing over an to Averaging services a operate weekend in QX, fast, clinics and environment veterinary delivering in to the meet convenient ongoing high-performing

market. Similarly, and of We ecosystem QX, created anticipated in a business. dynamic employer with record choice attractiveness our to competitive as hospital year-over-year, total XX our extremely this continue ecosystem within up year. veterinarians XX% that In enhances we a our new labor new veterinarians’ be flexible of working added towards turn, meaningful we've the vet for in pleased hospitals fiscal environment to progress hospitals XXX XX of XX to opened our XXX, full-service progress a reach a a

economics. result, have to those vet without. store medium growing care increasingly lift sales the our while tangibly been And faster later. long will PCCs year. center a just are hospitals Brian seeing with touch supporting In hospitals mid-single-digit and after contribute a top one on this as our pet than growth term, with further more and centers maturing to will hospitals bottom-line aggregate, firewall In

care to hospitals long-term is in short, our ecosystem. for and both addition financial securing In in clinics also and operational we profitable in offering, generated providing runway strengthening veterinary integrated and sales our growth the a progress the Grooming the record quarter. made world-class

a and in increase with grooming We store delivering capacity remained our so our center retentive efficiencies and traffic further while uplift. continue experience skilled to driving teams on. knowledgeable and Demand high

sizes. Combined, model our continues across market, us and in offering position all fully well choice the wallet flexibility to consumers service integrated

Turning pillar. to our second

merchandise provide quarter year-on-year on increased consumables. edge. led a in continues competitive to the basis, differentiated a by double-digit in Our sales Total growth merchandise

remains ecosystem. within Importantly, brands with health-focused our an continues of our important assortment to demand pet premium driver and resonate parents of

frozen customer and fresh growth QX, double-digit delivered and both year-over-year. sales in Specifically,

with further Diet, with Additionally, ACANA, Freshpet this and momentum double all opportunity offering Royal gives the digits including and we see up Similarly, Science rapidly meals to capture to us our this of share premium market. brands, quarter. custom Canin, continue exciting exclusive scaling

customer base. At the seeing some we're same also in time, behaviors value-seeking our

health-focused demand a positions providing with us parents WholeHearted, own For yet pet those customers, competitively. alternative as our well value-oriented a saw that brand such shift into offerings we

result, to double year-over-year. grow WholeHearted continued a digits As

quality, vendors high-quality offerings. working animals, purchasing costing position supplementing in QX. in this brand transitory our with by meet to sure we We our We're First, ways: continued and price-sensitive with also in discretionary addressing on the consumables two in offset more in of and value own affordable needs remained consumables. enhanced consumers more impact down companion making which supplies of we're Strength help the portfolio

Second, we're is getting proactive know we more where there demand.

Northwest, was and while tick. warm over we it the the flea in For last extremely marketed weeks, few heavily example,

As a performed have tick supplies and strongly. result, flea

third Turning advantages omnichannel model to the structural business, and the it that of pillar our our provides.

growth delivery delivery the delivered relative customers, underscoring digital strength continued Our growth and double-digit in scaling competitive by dynamic repeat our competitors. online-only to business of delivery driven sales doubled our moat same-day rapidly than the pharmacy, digital network, more growth same-day ad offers in year-over-year, orders, significant which our

structural to advantage channels. for our in delivering parents pet brick-and-mortar competitive our continue with provide Our an partners centers the and guiding micro-distribution and digital Petco pet while in-store also a experience care helpful engaging aisles

of terms I partner QX. as proud Petco In am retention people, in our very stellar we experienced

partners our career provides for through partners In fact, nearly working we the opportunities XXX centers, category basis generated in for working and point like improvement care enhancements pet in saw a a pet. Petco and to passion exciting our both year-over-year full-time benefits compensation

the our and three ecosystem, tying integrated Finally, growth unified wellness providing our experience. health focus customer a pillars customer, together relentless with our fully on is

building customers Our loyalty $X over XXXX. customer increase reached year-over-year of programs with QX customer value momentum recurring build in XX% our billion in our revenue, milestone on and continue an marked to highest

deeper delivered we parents QX, into Additionally, ecosystem. growth pet our we year-over-year net as bring in pack

year. clear consolidating Vital programs all Care program this under membership while of Care after customers provide the for especially continues Vital our earlier umbrella also to loyalty, loyalty Our value driving

basis. grew annualized Care Premier revenue Vital over on recurring Our quarter Care to paid $XXX in in QX, over Vital Premier year with now XXX,XXX an on generate XXX,XXX the over a customers ending is customers. track million

lapsed active discretionary end-of-period the Premiere growth in Our repeat roughly of delivery, at total is by customer up our Concurrently, flat net consolidation visits. value Vital the and which driven XX.X programs showing as continues customer build base trip seeing. count million, we and debt such are to trends in positive was some Care via

how want continues impact Before moment Petco take to our I partners. have I acknowledge close, I that proud a the and to Petco communities am on to

retail Lost. joined to leadership We This over partners. Love of Vaccinated to our underserved quarter, Open free Loved Petco lives and together vaccines discrimination-free through Petco reunited XXX,XXX the over reinforcing XX,XXX saved pet for customers we've ongoing communities through date over and circle environments with to And delivered to we and initiative. commitment fostering the safe pets All, now and Love, XXX,XXX our

we resilient conclude, the the our enable as To achievers, Petco recognizing growth, high-performing business, category. secular epic an for services our veterinary retailer of select last integrated our pillars differentiated capitalizing of And We're enduring excellence fully humanization proud including at premiumization these and capture underscore megatrends the offering on advantages in the of our partners and incredibly us scale. in of group the year. of the growth a a over results appeal focus honored to their current environment. model structural April, operational assortment, a Combined, our in incredible and omnichannel continued on will unique catalyst, work our pet

to me pass let Now over it Brian.

Brian LaRose

and this and Ron, morning, Thanks, build drive over best we've very on few of team's our everyone. been pets also advantages Ron's the pet growth. the the with to combined want building competitive and extend last to parents. demonstrates agility thanks This focus and long-term reinforces on their delivering to my the partners laid foundation years I we've dedication in good the execution environment, benefits the profitable mindset, for Petco remarks, to continued To and

want in Ron's sustained increase strength driven our was on of digits, I X% also Total $X.XX average basket exceptional in vet X% time and leadership to at and trends an services by year-over-year. on Looking Comparable our Services the the year-over-year under a strength the XX% quarter, spend driven some vet team. revenue grew double hospitals. sales of two-year stack. net expanding grew comments by grooming on billion,

thinking our When first to that At to own year, hospitals projected accelerating opened. into operated from originally two in year accretive economics and to being cohorts. business set helpful our unit two hospitals dissect five. our with part year of out margin the joint venture about were and existing up dilutive Day the our distinct primary ramping that as Thrive of trajectory, we with margin our hospitals it's Investor breakeven last we've in Hospitals year veterinary by this

of cohorts medium- compounded of are their aggregate, our own trajectory inception seen And three now hospitals have roughly which Both and earlier continued those now hospitals, in cohorts to our Since hospitals growth. profitable The oldest tailwind both we've Thrive on positive the post-integration. Thrive, year. in is reaching a provide long-term and fifth model the years. outperformed

Ron has to the just been in care continues a of incrementally without. mature, see to lift Tied hospitals as weighted relative continue with centers in together those mentioned, the mid-single-digit cohorts after Additionally, aggregate pet outcome our to center sales year store as our positive. average life one

companion animals, was the Consumables in year-over-year. ongoing in in Turning Strength the were XX% purchasing quarter and X% which up impact by were to discretionary merchandise. offset consumables down supplies of QX. in partially

digital showed with growth business the sales strength quarter. in double-digit Our

Moving profit QX the down year-over-year. $XXX.X points points Gross in gross quarter XXX down of P&L. XX was basis margin million. the basis was XX.X% at first down

The by softness. decline mix was driven of ongoing primarily strength consumable supplies and and companion animal impact the

balanced paid to a mentioned, retention. term dividends I'm efficiencies as while initiatives. QX, XX of and $XX down the Our basis has from that as or cost points entry focusing team XX.X% wage our approach improved discipline raising pleased to long-term strategic continues making drive such to revenue short report employee above, our year-over-year, by investments percentage managing strategic to which, to through as on a in XX.X% SG&A cost demonstrating Ron

effective rate year points with margin QX adjusted XX adjusted the EBITDA expense. prior decrease EPS adjusted by of an average fully million, weighted $X.XX, XX%. of was $X.XX $XXX a from based on a from QX X.X%, and rate year-over-year was diluted basis interest EBITDA $XXX normalized in X.X% tax year-over-year. driven shares a of down million primarily prior $X.XX down year, increase

Turning sheet. to our balance

cash Our with in the availability of $XXX We million revolving of remains inclusive facility. million liquidity and strong. $XXX equivalents and $XXX ended on our position million, quarter cash credit

down of $XX enabled of our we Our to million pay last and the target our additional on total, million week. paydown $XX paid $XXX strong In QX million toward down principal year. for liquidity an us $XX million have in debt debt

Turning guidance. to

discretionary the anticipate to and We see the fluid. in environment continue remain environment uncertainty to macro

$XXX in such, $X.XXX revenue executing the on As reaffirming on that our continue guidance our of we expense billion for control $X.XX interest adjusted $XXX to million mind, With $XXX $XXX to $X.XX million we EBITDA adjusted year are focused and $XXX of and to factors the expenditures. capital EPS to full within billion, million; million, in $X.XXX of of remain expect $XXX to business. million the to million of

both XXXX in vet to rural We to also of our to continue XX guidance. locations, to XX hospitals which are expect and XX in add XX owned reflected

beginning want light provide don't typically peers, want establish sector and we the and the a saw quarter, tax do continues in uncertainty Although half commentary Like provide retail precedent, detail. to weigh environment, on banking first cautious other consumer from second refunds, we don't more to more of a we intra-quarterly discretionary. of some unique quarterly lower in which to resulting we or the

While our this of growth desire continues of in environment. into reaffirmation our top-line guidance our prudent remain reflective is May, to

environment. on EBITDA discussing animals. expect in to up relative and we I flat to EBITDA such, flat the anticipate basis additional and year-over-year of driving the As also QX be how a we're dynamics given continue EBITDA to slightly savings a this second be to to companion to half QX up moment year-over-year spend to supplies in want

and examining marketing long-term growth while profitability and shareholder efficiencies including, our competitive and hospitals manage costs, drivers enhance importantly, additional advantages. to create hyper-focused extracting overhead, to We supporting continue in We spend. additional on remain optimizing real execution estate expanding of needs, vet out our investing proactively value, including digital

Similarly, conclude, provides the this well environment in while execution ability deliver our in category navigating year business us differentiated free in term investments. we through short-term growth a so strong to to and strategic focused but profitable model. resilient improve through this continue our ensuring on execution are remain positioned cash our sacrificing unique optimization not long capital balance we the and We our continued in longer to To flow, remain sheet. support do term confident significantly just without confidence to working to toward

we'd Thank that, you happy to be for questions. your And take with time. your

Operator

first [Operator question our from And Oliver go ISI. Instructions]. comes Wintermantel Please from ahead. Evercore

Oliver Wintermantel

Thanks, good morning guys.

on Brian, number? commentary clarify Just regarding that or QX? that that was quoted a year-over-year that the EBITDA you -- XQ, you can your versus number Is

Brian LaRose

Oli. QX, Versus

a take QX. things me let So, of on couple

peers, back to said combination grow in some banking reported That weigh to to in sentiment to retail continue headlines relative like May. EBITDA. the But of continue is call you as into slightly on we the call, heard that other So, the we comment of we sector EBITDA the that me QX expect we said, on to consumer half impacting would and on EBITDA comment be QX up discretionary. the specifically flat quarter, saw the

Oliver Wintermantel

you. Thank then follow-up. maybe it. Got And a quick

pre-pandemic, in that supply the mix the lot consumables your business, you higher when a Just of obviously, at look the since business. made growth mix versus

out? your there -- and still weaker, the year look profit the If How supplies that that EBITDA impact for and the that do you business into consumable have can rest the on about maybe you then your for a think has might remained tie year you strong of the playing of do commentary which well. gross margin. bigger rest you number Is as see the

So the maybe you can you. are Thank your into that? tie about EBITDA. that commentary What of drivers

Brian LaRose

Oliv. Yes. Good question,

consumables you services. total first the was but with digit start consumables me let So, where in up quarter, double want

services. in strength see to continued we've So,

business really strong. grooming remains Our

scale. Our vet business model is continuing to

out, dual call. hospitals we kind tracking model of on the above cohort about tailwind actually laid talked Our that the we that and own are

about categories, If dollar just reported improves the to And you think just in think in if about terms the that's to half you the second our out basis segments. the take year. little different in hopefully, a and balance of lapping year, of QX, towards number discretionary our the by how of of that dynamic the the drag bit business helpful comp nature last were volume,

Operator

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

Peter Benedict

the questions two them gate. in we'll just guess Thanks. get I

in trend First on just the consumables.

those color the seeing more then curious taking your the costs that you that you dry? secondly, value-seeking in availability And talked seeing Just there. about particularly upon prices Are on behavior. in talk business, working tone supplies Is as some happening of where down you. frozen? you around -- just area. Thank promotional you're with in are and and fresh Is you're maybe products value your on vendors? more that? just there? that the about Can You some expand What

Ron Coughlin

Peter. Thanks,

many see we a pets on little bifurcation, to First, food, other different continue a categories. than

best their of a is doing for whom have non-negotiable. You pet absolute customers the thing for host

So, the what our growth ORIJEN Wild, products. Diet Science super strong we're and or in seeing like strong growth and frozen, fresh in of premium Kibble double-digit is double-digit Taste

there. So, growth to strong we see continue

a us, continue And higher-priced WholeHearted that current a mix decade-long And the as revenue environment, for first is range. there we more customers is value. towards this a in and for actuality, that's to of of a products, those category that shift WholeHearted. a are is quality premium positive mid-price product for looking beneficiary of subsegment truth which That's is a In trend. well.

for a terms So, we're which WholeHearted, double-digit on good growth stickiness. seeing in of obviously is us

of our end, portfolio. high-quality it. doing We're for lower some term are food line value. products We've a short doing the house. the called products. about which a mistake looking we'll Diamond, associated there side look any that in with no is not it, are supplement continue customers And That's product of that don't our margin product. part to we're the On But have that low-quality with supplemented make not to the to

On the vendors. the supply are with of vendor more side base. a working disaggregated That's we house,

cost with on working the side are We of house. the vendors

our supplementing more offerings similarly there. line are We with value

promotional sequentially terms QX was flat. environment, QX of promotional the pretty In to environment,

significant seeing activity not at this increase we're So, promotional in point.

Peter Benedict

you. Thank

Ron Coughlin

Thanks, Peter.

Operator

Forbes Steven The next go Guggenheim ahead. question Securities. from comes from Please

Steven Forbes

you trends, Curious total recurring morning, impressive some are maybe about growth, Good this of penetration start channel can with we again commentary XXXX potential XXXX given to the this quarter. beyond, the of then business? as is look core Brian. over as And the evolving your around the what about the higher do sales we of macro? XX% about rate drive that that think percentage what highlight and in initiatives to your want of you think recurring and Ron How I revenue to first wanted revenue. really out

Ron Coughlin

go for talked that a earnings was maybe over very revenue as more we recurring our which call, pretty recurring question, about we $X it the point, back first total our the big which repeat and put that that had competitive you we our we if growth is math. do reached that revenue is Thanks In high. QX, of Steve. Obviously, to customer with to Key that and milestone. that into pretty our on that furthered, offer our build percent up At model. we're Actually, are of billion, QX, very about, drivers penetration announced desire small. a number sat I'll a have let and you excited very in delivery,

particularly And we're particularly, exclusive there. are to have competitive and very products since able us frozen, we to some fresh, be that

us, The Premier value second Vital QX it. about. a And piece really average Care rate for in picking They sign-up in increased see over is up month. Consumers which our excited share wallet. of on QX, we're only the we're more and versus $XXX save

Premier XX% our and weren't even with over it. food Care Vital of So getting more services us weren't customers having with

play very a it's It for share us. for very, of wallet strategic us. So, is

it we As couple about aspiration. an years ago as a I of talked said,

only model, more we're percent as are our Now focused model. revenue our of out you it, recurring think think the revenue delivering powerful. into that if on recurring interconnectedness it. insurance to of accelerate our And like our more of as it continuing we we about only I would gets bundle more initiatives on a And very mix. And drive

Steven Forbes

for maybe And you. a follow-up, quick then just Brian,

a you express like sort of on us commentary. better gross mix still and on the the the sort help margin gross looks compares ease for companion But to any quarter you quarter just the of animals’ do you're second second trying supplies on second margin? because what implications, it right, quarter? -- Can of margin Or outlook? outlook here impact in understand The expect mix contextualization negative

Brian LaRose

Yes.

expect remain second I continue the would think strong, to let me start services remain into to with continue quarter. to we to consumables strong

to therefore, half the about we go back QX about balance the intra-quarter for back the in how in we the grow see in of you softening and did the commentary As we dynamics on reaffirm some We prudent wanted the May. QX, I And reiterated if guide be environment, the the we've QX to mentioned overall, to the year. about continued full talked on Steve. for year, the and call, of call of

Ron Coughlin

what services. on on would I talked the past remind about just we've everyone in

on sales. So because labor it's geography the continue is line, P&L cost as there services to but of grow, is EBITDA neutral in the relatively

Operator

comes next Our question Sachs. go ahead. Please Kate from Goldman from McShane

Kate McShane

wondered morning. us if versus year? the you're Hi, that breakdown how Thanks help in for quarter, of also but think you through thinking good for rest of taking ticket questions. traffic the I could then the my

Brian LaRose

retailer Good you integrated services, said, traditional question. are that fully think have, featuring model we of I remains the see. and healthy, pleased as would Kate, how omni. and we given we what basket you? don't Honestly, we're with that tell our ourselves digital That

Ron Coughlin

positive the just quarter. would business, veterinary this on XX% industry I a traffic standpoint, the trends saw traffic From side. trends, that. more grooming seeing pets We're on build also we're on positive we where seeing is bucking which

are want those merge total areas and the some consolidation. traffic there's So then trip driving to where important be box, we help

Kate McShane

just that could And a the progress looking competitively, if question things fully with owned our just you're can and It owned by with wondered of what seeing how bit are you're I to just little terms hiring that seeing more the in some second double-click, signs Petco, now regards just vet. go you're into maybe is sounds I vets? there doing that, And like encouraging you like vet. around what of is

Ron Coughlin

I tag Kate. the and for maybe Brian start, will I'll question, and Thanks team.

in a the many we've So of so about into hiring. And our vets clinics. of hired never past we've case quarter the And brought had did as we first, lot a them this ecosystem or conversations at the clinic growing very, business the vet very It's time. offer I that right underappreciated will is asset. I'll This right on you It's strong. clinics. is tell rapidly. maybe the start our

which you a leagues, And and bringing vets our if our week high feeder for has nobody into that but also system, is that feeder We clinics hospital. else will, it an have X,XXX system, is a a gives our over advantage. us absolute minor appeal,

-- So that's hospitals track we number for to XX We XX We're XX. in new opened on one. executed the quarter.

recruiting strong. Our engine is

value other Our attract helping is the elements Brian in elaborate. as interesting really working. and of we're that capabilities terms in model, that's let proposition well, some And bringing diagnostic of I'll

Brian LaRose

from about when would ahead are our dollar model, as maturities, total, you a say margin at to owned think accretive. the perspective, rate on I the Yes. on standpoint, I in call you cohorts. And they're vets be. a Kate, on certainly, our projected vet mentioned, of and as said From are aggregate, we model

Over XXX we've the our three last last a years. hospitals XXX years, reminder, just added the of three in

in it So, to allow curve And year-over-year as us a our clinic good us us years. strong increase helped hospitals advantage a of business XX% maturity younger of runways than that lot to take with accretion. mentioned, the that's is visits. three business, and our of is will The Ron vets ahead lot vet of vet that contribute that of news us a a are gives and such

And so really overall, about good we our position. vet feel

Operator

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

Seth Basham

and to if accurate that's the a delta Day Doing Analyst $XXX there? spend question seems what customer member math, the indicated of and for you tell annualized. getting you're Premier me last goal. implied program. you think per I your about the Can great you year, At per per morning. is customer just continued revenue please $XXX It's Thanks Vital a the good in sign-ups terms had Care I lot, see that it there.

Brian LaRose

Yes.

it, So, let walk me through kind Seth. of you

So, subscription a month $XX what pay is a they fee. in

the So, we is year, an balance that if $XXX talking of the that you enterprise quoted out $XXX. value. run over -- you're The

from an subscription X.Xx an a to greater the one of greater the trips share us ecosystem. on average customer those overall you basis, it's those of compared That Vital think So, us is if just wallet. the we're that on-ramp to getting additional annualized gives It Care. about part LTV and for The customers of customers, it. what fact gives a

Ron Coughlin

food a Brian and customer, that example, Vital significant a not number share for us. rate Care driving doing the cited. maybe wallet we're being Maybe weren't So, is that, of they us seeing service getting they with free incidences which customer services of were with

Seth Basham

as Vital to that And how the new associated good. just forward? Has been you customers. significant? about trend Very And Care going margin my with do expect thinking dilution follow-up, that

Brian LaRose

Yes. LTV share of we we When at look as and do Vital Seth. wallet Care, it think play, about an

So, a standpoint, some standpoint, is members Care Vital of very on margin million talking it significant. enterprise dollar impact. it's there's when from a accretive. an From But base XXX Premier customers, not rate you're about XX

Operator

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

Anna Andreeva

ones I so follow thanks guys. from much customer morning, Good on two us. count quick to wanted up flat. active the

to as Could any of secondly, I out or through you on could you portfolio? you're the time model. on are just notable color are not color tracking 'XX? more ahead seeing Is And growth that? or that provide above? the owned adds. the profitability difference all And of churn? first growth call think sales then hospitals it's hear provide that great go Brian, to in What across the on And seeing customer we we with net that? you how should think net about

Ron Coughlin

Hi, thanks the for Anna. question.

flat we which we customers of visits, share are loyalty driving trip strength the sequentially strength our about ago. seeing due Pac were lapse in to While and our supplies really and talked wallet, a while [ph]. more programs in consolidation due And little Nest of that's to

great examples, consumables, XX new customers to services. some Vital new XX% Care to And are Premier of

times customers. again, wallet earlier, I talked and about of more that driving it's share average than So, that X.X

So, marketing an levers significant in desk. exciting discretionary on new the From visits on have campaign due we're making progress of there. see lapsed you'll our environment. an lot to and some shortly out an ad Pac Nest standpoint, a environment seeing where coming you're One we is

model. service Our

Petco. XX% If customers, new vet at to those you look customers our of are

actually, rural XX,XXX. already our our at have added look You -- stores rural

early days we're there. see You

So, net and we customer the going Nest desk have our customer drive driving base. on Pac continue we're from in to levers value to But our adds. the meantime,

Brian LaRose

things. -- just vet the on question then on And say I of would couple Yes. a

or revenue profit. that's whether about asked You

scale you a business, think utilization. If it's about the about all vet of maturity and

to ahead top just nature, line. both if of going So and we're line model, it's bottom by be

asked call between and out only You joint about the Thrive under the cohorts. owned sort The in venture. is difference the thing of the I that difference we would originally opened ones

the of tracking to of acquisition of made behind the is performance improve the if for the hospitals the Thrive can get additional hospitals, back model. Part like And have we and enterprise we were Petco. year the own those greater of performance hospitals brand go model; hospitals XX% felt once were Vetco that ahead a because under tracking the Those reason we of last you we return integrated those improved. fully the

Operator

Our Fadem comes Wells ahead. Zach next from Please go Fargo. from question

Zachary Fadem

Hi, And the shift for recovers? is components about a good as categories macro callouts deferral category divot whole? of versus supply’s as the and think you segments X.X% think of the seen you any decline category, supplies and companion morning. fair about Or the should just challenged? we a a how have when the doing to particularly reflection these share within well in think some Do then you animals, versus mass?

Ron Coughlin

Zach. Thanks for the question,

not first me a really standpoint split let dynamic. mass companion into that's from it animal a So,

dynamic. that's -- category really the category So, a

of against holding that supplies, those think of are more products share's mass on sake, pools terms focused segments. just Sure. own channels. profit and than we're low-end higher our could through super rather some In kind we online or of for there the going share value discounted be We're

we're our on nearly digits think brand that brand. Ready I our where is double growing And of evidence Ready

on where focused is we're higher value. on a again, there We're profit pool. So focused

had to Sure, value we're things but vendors So, is there on to our underneath as as where could be we're a working well some of that And be But we said, profit products. cost profit line those believe the there's might there those competitive that be focused. where said, as both we pool? not with some I more some segments. supplementing reduce so of that's on

Zachary Fadem

contribution and of the And you from think then into you at us about can 'XX, hospitals? across on business, and Okay. help Vetco, and still XXXX your businesses? growing Great. through the these nicely. you contribution sales growth And look talk Could evolution services vet as EBITDA grooming,

Brian LaRose

Yes. through the vet have year, don't If growing play other you'd me growth high Zach. at dynamics utilization. of get total going I By given every but very great you higher overall that sort it. probably But specific right? we than So, growth subcomponents Vetco, as about services, long number, let walk keep look hospitals rate vets. that's we're adding for forward, is a out be to you we continue won't of growth those us. to been faster. as going if disclose rate the continue we overall It's nature, fact think as revenue business to as growth that going to just want, adding to a that at scale overall business expect we the

Operator

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

Steven Zaccone

see commentary typically second year, question. your just on last very you, sequentially guys. this of Hi, about for good were this in you talking point on we be going that the morning, like quarter, taking I ask much Thank based looks May. fact increase, my to wanted cadence the year, it's the down revenue sequentially it At the to about whereas year.

just the we you are what help end, then takes that you the maybe the And how line the Brian, us low top the second half on and high year? puts could about of get about versus think about talk the as to in the factors should big end the the quarter? second year, So, you of balance think

Brian LaRose

the for Yes. question, Thanks Steve.

continue. the about call we do that half Let are the grow. that QX call QX. would the to growth, on start back in I mentioned with what of we've We first comment continued and more me with see May, we to The on to on continue expect comments the made to

And in to did half the at this see we remain first a the quarter. of the back So, QX, that continues to I us for think time. it's best shift extent into prudent

half, in lapping discretionary rather that the improve and that category just second not half recovery, dynamics. The mistake, banking terms But you a out drag half bank value of nature again on in we're you discretionary what of the if in take by the QX, to the we will comp about biggest but you what the there's dynamic on is to QX of dollar category. two make for QX QX if no one reported enormous an think in to

Steven Zaccone

enough. Fair Okay.

just We supply overall? about how then us year-end. remind and many pet haven't stores Thank of that heard by have progressing How the is farm And this you. will those quarter. you

Ron Coughlin

quarter even $X towards to I is initiative are three well. closed we XX,XXX pet which The very PCCs. exciting. it's care to are the already, open because which opportunity and really this rural They progress Steve. doing with have year. performing above this centers to really, Thanks, customers important said mentioned We but eight We growing. for earlier, is XX% billion We're rural surprised I making in the really we would $X encouraged. billion opened us And our this our expectations. admit and this QX from new Petco meaningful XX%, me, of

last excited even And a KY saw I while supplies, and the But while got the I in new was Glasgow, my had earnings stopped parking quarter, back. to as after in lab, it see horses the dog I great harness there. Yogi, -- lot in on really cat I we a This stage. way even was chocolate front products Carhartt my was if some equine, I bovine,

of extension bringing and is this on online as So, of our merchandise of our great PCCs products extension of We're terms some great well. assortment. those our in product a

thus So our model. ahead far very exciting of

Operator

from go ahead. Sommer question Our Greg next comes Haskett. Please Gordon from

Greg Sommer

for across Or traffic more of little wanted I was the looking question. just the behavior, comment business? the a just a either from cautious about being or if being the was like my standpoint if more taking into that for little customers was half curious thanks that value? consumer second more dig Hi, quarter to just so softer And consumer. category from more the I a

Brian LaRose

Yes. was sector retail lighter banking a heard to peers. dissimilar other what about from in standpoint. from It lesser environment more to headlines refunds, what to think the overall degree, a consumer not if behavior you you've perhaps it's the tax Greg, happened

talking about more I'm So, consumer sentiment.

Greg Sommer

Okay. I just had a quick follow-up as well on pricing.

said So, pricing come there of before most that be although majority could had the you guys already you pockets. the believe through,

Just that's anticipation kind of of for remainder a curious year. if still the the

Ron Coughlin

Yes.

that we vendors. know is where more that is in majority deflationary which has on come of opportunities inflationary I took pricing And the the of of pricing to engage it's second, there's through good house, as sticky, the truism. a terms said, opportunities. So we the be more We And first, supply a vendors side disaggregated news. base, probably that scale than vendor with, the the

Operator

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

Michael Lasser

ask my for question. Good morning. so, Thanks taking

the the increases basket of size, last between to due the that growth transaction quarters consolidation. is driven over that have bulk much. to And was trip it like-for-like was indicated lap took to you that going in next of by that and does comp after thank the You how in majority so how comp down start average follow-up if inflation, the you, of as inflation the year? break more I items some flow few you the that. very impact of one price the

Brian LaRose

Yes.

start me Michael. consumables, units. in with Let We grew

we driven about consumables wasn't grew equation, all in think you it by growth, pricing units. when So,

clinic. grow, our to growth really includes Grooming our and into business, that have the Services continued to really, You subsegment was different the components. vet Vetco strong. business also

and discretionary. growth unit you've growth So, talked in consumables growth in about in got consumables, services, we've

Michael Lasser

last back made math of it that in by you six easier margin or at expectation How is light that? a where when half stabilize? with laid especially do that, the what profitability question this the your getting that's typically quarters. you in that follow-up associated in lower structurally long-term to lower to softness these out penetration is periods simply more given the still year enter and the of should is, growth the you've be that as in your of business my Is profitable? And And past of the comparisons norm that's look Okay. supply’s could the profile case, the the the five supplies new rate start dynamics case the category the you

Ron Coughlin

the question. for Thanks

couple For let a me of -- facts. establish

at supplies all, our basis, First three-year double you look of business is up digits. if on a

at not years you turning case. that's categories, If three the ago. look They're versus red many now

double is business up on supplies a digits. basis, Our three-year

basis and mix The second don't see long-term do shift that the projectors we a on see. thing experts neither in a and is fundamental we

bleeding that dynamics are have You into the two dynamics today.

have flew life There dynamic first, second couple life talked about supplies we couple stage you a there. of of years a dynamic. is a years on heavy good example. we out the The you macroeconomic The the in and this pet, is then have stage of a of go. and initial and pet ago There's

Michael Lasser

answer, about He's your excited. Ron. Excited He's

Ron Coughlin

food year got I bought then We answer supplies, food pounds a and three, up of my he's stabilizes two, I crates, looking one. was model day. dog XX it to for there, for more and then year and that he's now things yogi. and And take eating and my like already and single every more lots

is quarters. economic which to And off, discretionary impacted has that it one to is now. the and the the that dynamic then historically So environment, current right come has six and five rolls second I'll impacted things dynamic

a be of mix more the nature our And a We as again, a size services P&L from portfolio build-out do because our relative in within a of dynamic the of will So, shift services. structural shift services of long-term of standpoint, rapid but geography more we categories. we go don't the see the see and major has forward. our

December, look on As to the you compare November, that were February, to five-quarter six-quarter and element, January, at and trajectory. to exactly that we if

the and through Historically, to tends there's there, to the recessions, when And which five has lines points, about gone right then up. hit and it has six grown in temporary category supplies. first, Consumables category points a February, December, six hangs back out. historical February improvement five and following trends quarters versus in patterns. saw the was and November We nice January, it were come January, to and that it's a in start to

that other bit. and on long that and confident the the And a to of of again, moderating But et normalizes. then the refunds, cetera, dynamics a we banking macro term environment the abated short-term influence mid tax combination had that. some the had We're with in

well confidence programs assortment sure make activities last to we're to the is We're lot and to Actually, our on driving. have taking bus. and promotional online I as across in shape drive passengers thing a supply that Those on as not we're advertising would destiny. in-store our across of say ability sales, and we across activity our own the actions

Operator

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

Simeon Gutman

and Hi, question, has good two Ron Brian, my They're first really not morning, related. parts.

anything It and first trending still been the quarter. worse Has we and you you the is get of the the was either then margin bottom? you're and your terms consumer [ph] weakness? stabilized? and we a GM second And factors of was question of majority that promotion or trending seeing. quantify on Can haven't like what end seems price the Or this what the gross mentioned of part we're the The and in consumer little mix. the comments towards is has felt the the other

Ron Coughlin

Thanks, Simeon.

industry to the trends. -- me category continues started is putting Services dynamic they pieces. bifurcation. robust, a Let is into be a where lot the bucking continues on vet We're hospitals. three break to of environment. go regardless the for capital be robust I into which back us. macro to super Actually, We're Services strategic of

Now on we're merchandise, a bifurcation. seeing

continues our a during sales this to trend, That's continue see products. timeless period. time We and premium on that strong

campaign guidance. I about I would saw the say why prudent we're of at that as of back we marketing and which right we what that's has terms the talked already of talked that the -- the QX into our in initiatives were seeing continued value-seeking, about is QX. launching that. trend now, half In I We're and

Brian LaRose

EBITDA a business Yes. and by being EBITDA the if services. rate is what thing very consumables. call is when services majority impact out And margin, when is affected Anytime is margin I we're discretionary strong, of the Simeon, talking dollars, and happy impact we and okay would mix at we only between services mix quite you dollars, in that of are remind mix honestly, attractive. us is. about dynamic There impact talk impact primarily other is and business, The rate for there EBITDA that, very, the you it about really very the look and are by because gross

So, is business. news it growing strong, the good for service is

Simeon Gutman

bit in the of a I felt half EBITDA year. some know sense the full the Okay. on shape on maybe for the the there My out first second of question It get playing the I dynamics coming given in was versus lighter felt like is guidance conservatism little like don't it. expectations. mentioned. you is some year how your it's initial

the mentioned these maybe some We has items taking from are that but model of just second bit like second that in conservatism half fair? a steeper. that half, first you the little the gotten lapping it we're the you also that feels Or place? had Is in

Brian LaRose

don't to that's I honest. fair, be Simeon, No, think

look happened you QX, this think of QX, at commentary our QX. the I if time commentary half of to back in saw ahead expectations. The I what at on what the make think think, prudent QX I was is in given we

right But given for So, say the it's days We the and ago. would point I don't time. reaffirmed our in reaffirm takes. think guided think guide I QX at it to We year we XX performed performed worse, better. just normal this call puts the

Operator

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

Ron Coughlin

vet, our category highly you, growth In we're ecosystem long-term delivers environment, with resilient and a like Thank to that the want today's reinforce on integrated controllables. is both parents' To and an key and call, Petco operator. focused close this operates in on unique an I partner. wellness our for health strategies pet controlling desire progressing

course, an to providing with without grateful competitive Petco every none for us day. this incredible, advantage whom Of partners would I'm single our incredible of happen

you Thank for time. your

Cathy Yao

first Thank our concludes call. earnings you. quarter conference XXXX That

Operator

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

disconnect. now may You

Petco Health and Wellness (WOOF) 24 May 232023 Q1 Earnings call transcript