WOOF - Earnings call transcript Q2 2024 | Petco Health and Wellness Company, Inc.

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Operator

Good morning, everyone, and welcome to Petco's Second Quarter 2023 Earnings Conference Call. [Operator Instructions] Please also note, today's event is being recorded. At this time, I'd like to turn the floor over to Cathy Yao, Vice President of Investor Relations. Cathy, you may begin.

Cathy Yao

Good morning, and thank you for joining Petco's Second Quarter 2023 Earnings Conference Call.

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

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

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

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

Ronald Coughlin

and Thank you, welcome, Cathy, everyone.

Before for day. I commitment to very deliver work single our teams the XX,XXX I'd to results. morning, on parents. providing I I their best thank partners our for briefly focus First, Petco review and proud of my will enduring pet every I'm the key want like remarks X This pets begin, to topics: our QX

we're margin. by our accelerated I'll and help and million weighting enhancements the approximately will growth. gross road And I'll efficiencies gross savings margin for from end in XXXX. Second, on progress productivity profitable combination outline a generate OpEx a run map actions $XXX that finally, greater both continued cost discuss of rate of to making drive will with These the fiscal

basket sales X-year X% delivered This the average by revenue line sustained driven also $X.X on solid standout Comparable billion. was a grew stack. up growth For momentum translated Net in in results to X% trends and X%. year-over-year at services we growth. quarter, top

again delivered $XXX once and business now services over growing run XX% is exceptional Our performance, million business. a rate

and market business proposition unique and one the believe capture scale, growth health Our mega omnichannel veterinary our more trajectory. trends the Vet our continues our to long-term consumables delivery both offering of strength the wellness are pet and grooming capturing differentiated the business humanization and and pillars our ecosystem is XXX-degree continues of its We solid model our of and to of value and premiumization strategy. right fundamental long-term share. And

entered we're we line we to top in While than we that yet a And be to as where recognize a we're result, our forecasted as demonstrated the ability we operating the bottom translating environment line. want grow, in year. consumer discretionary tougher to us I growth not

businesses companion the food, as environment to well and to focused year actions shortly. guide relentlessly also for cohort. broader a migration the EPS key will more remain color provide ensure discretionary the today's dynamics. SKUs adjusted to Our amongst its price in premium on on Brian to foods revising as expectations. With expectations animal behaviors businesses among navigate see bifurcation for anticipated we're our consumer controllables continue pricing more our are our competitive more impacting Animal remain EBITDA controlling Companion and We the adjusted the undertaking and Due profitability Supplies we our our optimally we're and relative on and the second year. impact to an on pressured value-seeking associated products our parents one supplies hand to and uptick than pet we ongoing on with

our long-term strategic have continue focused progress plan We to we our deliver to make revised a targets while priorities. against

protect additional actions to profitability. taking First, we're

million by in cost $XX in which end across cost identified and in unlock savings are comprehensive efficiency cost program, actively run project business. controls tight working $XXX rate programmatic by of the million and XXXX, the We end fiscal the we've of areas a year initiatives are we of implementing and Through savings to multiple X.

reducing of and corporate of a roles. including leadership total by Specifically, over cumulative adjusted field including last and QX, the year, approximately we open XX% headcount our the our in workforce, closure

As that a lightly. leadership care team, take have acutely of about. deeply we the impact actions We these these are decisions on not aware colleagues we did

and best strategy. the matches While our support These for as long-term actions a difficult, workforce organization. they ensures position our needed to leaner are our more capability effective us business

we've to enhancements, G&A prioritize Brian will position Beyond distribution such in include initiatives meaningful programmatic elaborate profitability. refinements broader better debt efficiencies operations. initiatives These key short, this automation, and to term, improvements further as for enabling the and including further. We're capital supply will of to while identified and allocation us merchandise and our year, our shipping enhance digital reduction. confident us vet, these on chain, medium long actions

with Turning assortment, strategic to of marketing. with the parents the surgical and We'll in-store experience component second use of positioning strengthen value, pet actions. our our

We align to our brand, this teams come pet here. This value-based Diamond the are care with franchise. to with that center the Fancy Feast both as well customers are seeing. Both options. drive Naturals. selling about trends #X premium our as will our we're and Supplementing incremental More something evolving very week, reintroducing excited customers to offerings growing the actively assortment includes more rapidly cat food

product SKUs. targeted in the gaps to actions moves pricing competitive complement will address brands We traffic-driving key with and

taken and and delivered We to revenue and impact tenure here, accretion similar breakeven thereafter. times they within customers, a my have throughout margin unit year several have with growth actions

help to and we Additionally, once those and continue margin we delivered again, services pressures. expansion within to offset mix digital, expect

customer the to program whether we also supplies programs Halloween and right we the right the like in-store. the the products at As And recently holiday. supplies we app customer lean have purchases. will we'll it's our for online, back additional or And seasonal to continue popular into enhance price stimulate experience, right brought on ensure perks

our meaningfully we retention points with progress XXX and accelerate deliver capability differentiating Combined, growth we'll without nearly up against for our our this pay priorities. do profitable long-term Our to off drive should investments partner strategic into year-over-year. labor customers. compromising And continue actions these to basis on believe

Now turning services, seen omnichannel. year-end. ended hospitals pets across to mix In XXX are vet differentiated track total year-over-year. to our results QX the of with and on increased merchandise XXX We by and the in quarter, XX% quarter our hospitals approach the

year-over-year year our hospital become As outperform up remain a of clinic pool. in increasingly to complementary support mobile with our economics expectations of recruits from clinics our business. full-time of to Petco visits week, for XX% vets full-time vet coming mature, an hospitals X,XXX our and affordable routine They clinics continue wellness source clinics XX% a this also talent attractive. a total remain our our to way. These our

QX, consumers in Categories improvement phthalates, earlier gain supplies quarter. these store launch up in merchandise, year-over-year, In fragmented well vets has in grooming toys by business. total, nearly key a In this market. for products apparel, chemical point parabens, continue market including and treats remains the basis and In our basis a services slowed growing sales. spending XXX Up accelerated ecosystem basket clean into as products. free brought like we Grooming's our points challenges our was and been available we X% Groomer revenue continued growth Grooming, the in momentum year-over-year retention. nearly in year-over-year, share and year, and a XX% XXX business, clinic which to soft down as as in vets was center XXX strong, dyes with of transactions

initiatives capturing more competitiveness, response are value-oriented nimble they improving the to arise. including taking targeted actions price to when this screening offering opportunities area We over stabilization in and our to time. We remain drive performance, expect in

As tick a leading drive nearly extreme were of flea to our year-over-year. we business sales result Rx able XX% up the heat, to and

the our will supplies back input lower and QX. year, the half to in of offerings freight benefit lower look we from expense, particularly costs As

strength In beyond grew consumables year-over-year. both and up quarter, the year-over-year X% Looking X% with nonpremium, remained this, up premium in consumables solid. X%,

Specifically, we growth customers. and customer and year-over-year, see Frozen some strong continue of to growth are growth highest XX% our these XX% value with revenue Fresh

who continues an of Our to prefer delivery omnichannel a the needs in shop fashion. meeting to Petco model for pet differentiator parents be

Across X% ] [ and in trends we saw driven nester by the strength growth. growth, a growth brick-and-mortar X% business, basket digital and

to orders, our omnichannel proposition BOPUS as supporting value as integrated in delivery continued player. delivery grow repeat Our did same-day an revenue

all will we optimize channels, marketing to ahead, Looking across in-store investments our and continue online.

traffic lever in are the Specifically, grew for that here our is with share we Care driving will propel eventual and growth. of where profitable the high-value well Vital to XXX,XXX relationships than key tighten so will This in marketing our valuable our Premier members more customers spend to capture quarter, points, dollars quarter. increasing million the focus locations, our A customers expectations. partnership modest XX,XXX already furthers we discretionary. These this a to we triple spend. Lab Lowe's program, decline. positioned our expanding we recovery locations XXX and what to deepening ] finally, existing include about This ahead capital of Petco the customer Petco. are our contributed of in announce performing outlay supplies touch And were think of X markets rural expansion shop-in-shop from as strips at footprint clinics. including [ proud total nonmembers to XX,XXX These XX customer XX

incrementally be our us profit to positive to to new top customers. partnership will the expect dollar and our accretive We capture enable to line,

I to the And and evolution store plan including plan and proud over As an chip it confident we that, ensure has years, Petco X aggressive an the progress and model. That across competitiveness, we build-out of you. business. that price with have to said, of I'm blue marketing XXX-degree actions we are, right we will not and digital even product, execute Brian. am satisfied stronger where deliver. and outlined I'll the over made I hand omnichannel our I'm team to this last Thank close, the vet the our today have with forge experience we

Brian LaRose

dedication want the good everyone. and Ron's partners our thanks and my to Ron, Petco on build and I wellness their pets. extend of continued also Thanks, morning, health to remarks, to To

in revenue net on quarter, trends year-over-year. sustained was year-over-year X% stack. Comparable the basket X% of billion, by driven X% and an average grew X-year strength For $X.X sales a increase

year-over-year softness, showed and run X% quarter, quarter. driven down strength the in XX% ongoing the the up grooming by growth Our is of merchandise, digital in $XXX while leadership exceptional Animals In a under in consumables X% team Total businesses grew strength business. business were plus year-over-year, rate and year-over-year and year-over-year. services services with vet Supplies million now experienced our our discretionary Companion the X%

was and and million. XX.X% continued mix Gross The was attributable softness $XXX Moving down primarily roughly the basis XXX shift the to business flat quarter strength second in services in of with categories. year-over-year. profit digital discretionary year-over-year QX points decline margin down gross at in P&L. was

labor services, of in sits in our reminder, cost sales. a As

EBITDA. adjusted primarily services QX, whilst In XX to a So to has increased gross long year-over-year an onetime increase enterprise, than driven in it's margin term, lower points compensation related revenue and headcount in by of reduction. basis to a SG&A the costs XX.X% as primarily helpful stock-based percentage

costs onetime decreased and compensation of this quarter, stock-based XX as our have Excluding year-over-year. basis points would a SG&A revenue percentage

shares weighted $X.XX, X.X%, the tax also down increase a retention. QX a average $XXX of adjusted partners, in we expense made we wage by payroll continue onetime year, with in a prior step-up our from year-over-year. a an invest interest diluted a XX%. down last as points based hour was part a QX EPS million year-over-year rate We margin increase move of EBITDA prior from December expense in decrease that rate adjusted fully $X.XX year XXX of was per normalized million, in minimum driven $X.XX effective had on XX.X% from adjusted the tangible EBITDA increasing to $XX to and XXX is basis

Turning to our balance sheet.

ended of In quarter We cash of inclusive million, $XXX $XXX liquidity week. Our another availability cash last strong. on for revolving the paid down million we down remains paid QX, now the $XX have credit Year-to-date, in and year. principal million $XXX paydown our $XXX toward with million our and of $XX we and in debt million position equivalents $XX million target facility. million

on I XX% the also lapped $XX of build-outs. our to with CapEx year's touch quarter we million strong. improvements pleased inventory inventory was remain want with briefly. as last Overall, turnover cycle we down in-stock and Our year-over-year inventory performance freezer remaining for

a generated of We the year-over-year. of loss X% steering underscoring enduring environment. Year-to-date, $XX million focus of total business $XX year-over-year, up million to our in on we've million $XX free in this strategically down the are improvement $XX dollars flow, flow through this inventory X million a of first cash free in months $XX generated million quarter, cash XXXX. Our a

acknowledge of that more trends this the As this, strategy value-sensitive profitable us To we will better we outlook, I position that our consumers implementing premiumization turn are are also XXXX to remains, mega our discretionary strategic and in pressures long-term actions for humanization and address focused environment. beyond. during although growth and on remain

benefits XX to vet approximately to consumer $XXX above expenditures million. of of current benefit we $XXX $XXX fully capital unchanged. to our strategic dynamics to EBITDA, million adjusted million expense capital weighted $X.XX $XXX of million which expected XXXX and of in is $X.XX the the $XXX lowering and XXXX. We've expect in and expenditures, our outlined unchanged. from primarily of own actions, Given of locations. start billion guidance on adjusted average is billion, XXXX updated EPS a add diluted which fiscal which we rural to will XX to timing our hospitals $XXX cost Adjusted Interest to $X.XX $X.XXX of million EBITDA million, total revenue for outlook to million XX shares, to are $XXX Adjusted EPS continue to and

Our guide updated on pressure adjusted gross continued EBITDA margins. anticipates

on mix prior discretionary growth continued which positive have and from Given retention to returns iterations. seen in we pricing along undertaking away we actions accelerate are pressures strategic with

the When productivity, and our stabilize. coupled actions outcome cost stabilizes, we expect margins gross environment the discretionary our with of will

services in margins. improvement continued seen we've e-com Importantly, and gross

a As gross the which business sales, services, of P&L labor of sits the lower in on a means margin has geography enterprise. than cost reminder,

guide vet locations anticipates provided of Our rural and in still build-out lower CapEx the updated our guidance. the as

fiscal our our initiatives rate supply strategy. have and costs further the an the following. run of an leg to $XX across efficiencies end million savings distribution X broader on a In to chain, the estimated $XXX opportunities. These Beyond we optimize XXXX network identified chain and reduce streamline G&A and merchandise, this estimated year, rate and includes to programmatic which on million sum run basis we additional in expect year our supply by further split long-term drive first DCs of

routes and DCs to so we working that to are our DCs can further stores. efficiently We ship more optimize automate our from

e-com technologies merchandise, vendors. have additional in additional we to drive down also will we as shipping rightsizing We costs. Zebra devices, costs within from handheld management. optimize opportunities by our input savings our extract In tasking labor continue further PCCs to leveraging to assist inventory such plan G&A, to In our through and

real course, remain resources short, these to locations. roles, to confident And other for for position certain estate, opportunities. shifting we and marketing are our actions better We're Additionally, plan vet, us this medium conclude, to of allocation lower-cost key and us of capital we tactical across term the and and To navigating while term prioritize Petco allowing on on through our execution remain environment. short focused entire the reduction. initiatives team disciplined in I the debt digital long leadership

and long while cyclical favorable thoughtfully secularly We to the and term parents are resilient as and our a for committed profitable adapting business category. the leader current pet to the our delivering meet impacts in business evolving in well to growth positioned remaining pet

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

Operator

first Wintermantel Evercore comes Instructions] Oliver from today Our question from ISI. [Operator

Oliver Wintermantel

the Brian, that's maybe first you. for Great. question

the margin EBITDA the same. like stays by top in Looking decrease EPS just line

do in a then away about is part EBITDA the continued is And a could in shift SG&A more is, on the consumables mix the So Or from the based supplies reduction half? If you pressures. to maybe margin? second also the bit that? that in talk of gross little just second seasonality you just see

Brian LaRose

Let me macro a basis. start on

have seen year these the modest as wallets And on some not margin. continue spend of and back We initial year guidance us, spend a and continue half stabilization further dollar assumed moving basis Specific uncertainty to factors our towards stabilize. that services the we a in see discretionary pressure consumers' shift result, to a forward. to with full discretionary gross

reduction is specific gross vast of discretionary to directly to the is that companion the yes, in to outlook your and question, change majority for and reduction guide the the related in So EBITDA our related animal categories, the margin. supplies

in will some there modest already XXXX, quick from is do benefit while we The actions some primarily those and be place. though energized. cost in We're XXXX. cost team benefit Now getting XXXX have actions wins

Ronald Coughlin

impact the margin. of majority those And actions gross

Operator

comes from Wells Zach next Fadem Our from Fargo. question

Unknown Analyst

David Lane on is This for Zach.

taking about You Curious more price coming that's talk you noted be price to to be on of more -- competitive. if business up your you're excuse increases what that the and how actions stacks could me, pricing side this year? discretionary

Ronald Coughlin

the We for drive today Yes. We're consumers From can't as are really pricing can a seen that we within pricing say these it's standpoint. units. both But traffic that Thanks, breakeven product actions, and from Historically, value, elaborate customer in perception. David. a taken when drive engagement, looking to gaps competitive actions value. taking to drive the Brian year. categories cited, we've a we've standpoint, address really key

Unknown Analyst

XH. flat That's implies guide to helpful. down then comps the And in

So through of and if business the there talk we the as quarter. maybe could just exited curious you the rationale the trajectory

Brian LaRose

Yes.

You're right.

If guidance, look at overall to you I'll macro. go back the revenue

we see half continue And that pressured. category in and with consumers' but remains services primarily did see We consumables first in on in pressure wallets, overall, momentum especially discretionary growth to the discretionary. continued

So felt was given that our guide environment, we appropriate. revenue most maintaining like

Operator

from Morgan from question Our next comes Simeon Stanley. Gutman

Simeon Gutman

being rest what's taking plan wanted and there's the are for discretionary a you should and as 'XX, that year grow category for assumed of year? you out ask mix I extra companion to percentage flatten for conservative? the if for tact next Or of just

Brian LaRose

Yes.

start, Ron to Let I'll about turn then Simeon to over me talk and XXXX. it

in earlier, guide our some initial assumes So I that said stabilization as discretionary category.

declined at QX, X%. you look If we

Obviously, QX, expectations down QX with in previously we line were X%. we at what look in you weren't If our assumed.

if in to Ron turn And from minus that it balance you think a not assumed look won't the X% get the over to 'XX. specific for we have talk I recovery I'll about I of year. QX at number, much While into the

Ronald Coughlin

Simeon, supplies. versus the actions. actually projections which but not enrollments the on were when on are for overall we're XX% that action of waiting. digit take costs. current taking happens, that will we a When stabilization perks, in we mid-single We're taking supplies up category see, our for before. to of 'XX going with We're actions ran We're

We progress on supplies. cost our have favorable

flexibility to of which to providing us We in more freight, favorable value customers. have have allows terms

actions. at digits taking stabilization a 'XX Category is call we're with mid-single for this in supplies. So point

Simeon Gutman

I I can can. If one I if don't follow-up, ask know

up. it half, industry, ticking the of -- optimization. if as I'm I how And promotionality plan guess, the that or I don't or is actions you price discounting it. seems it's you second like is pricing it's On describe know curious promotions

Ronald Coughlin

Good Yes. have demand and rebalanced question. Supply ago. a versus year

for So we looking for making the we neutral. that we're provide industry positive There's traffic to revenue levels. profit and run pre-pandemic promotional sure driving most part, and the consumer and who's more is the are returning value, promotions a that it dollar

them, So generating now supply upon seen to a based customers. it it's but levels is balance effective to more positive an being really in tool reactions with return pre-pandemic demand. We've promotional in

Operator

Our Needham next & from Anna Andreeva Company. question comes from

Anna Andreeva

follow that I the quarter. to saw on up cadence wanted the you Great. during sales

more you was said line that with previously I had in think May XQ.

So that's mid-single digits.

So I seeing a August? think as follow-up And in the July And should are well. had then you business and so we in June slowed? both what far

Ronald Coughlin

thanks for Anna, the question.

noncomp X months May, linearity, which June guidance of solid quarter. supplies strong in noise What a terms across growth showed month-to-month shifting across versus change. from had and is can food I or Services say driving our July, with happy is ago. with weren't we we all the year events In remains

seeing seen initial and we're August, some actions. In a some line, on trend our of terms we change shoots significant in green we're taking but action, those haven't of

Anna Andreeva

line you a and just on And that the That's puts Did for helpful. your the share Great. on come annual any line by Okay. follow-up implied in gross the expectations that guide. margin with takes could the margins. color just gross as on quarter? as And

in benefits year I gross from starting think, on as well. this Ron, you a the to had actions mentioned of margin cost trickle some the

Brian LaRose

Anna. take one, can that I Yes,

overall that our terms and So line coming in line in not category despite gross our with of the expectations. discretionary expectations margin, was relatively in with

expectations as the of primarily on change is supplies our So the category. related mentioned, we renewed discretionary that and guide, to

cost towards heavily XXXX. XXXX that but will cost the and mostly actions Ron the actions, margin, On are they did of benefit mention weighted gross benefits those

line benefits actions XXXX in of of are Some in headcount the that the some more we've the from taken. SG&A

Operator

from Our next Forbes from Steven question comes Guggenheim.

Steven Forbes

I up comments strategy? unit made Ron, assortment those the the premium consumer and and subcategories if But a you current some about of between think, X%. in the nonpremium you general, business from provide mentioned about X%, consumables you're up you the just curious of how mix color X go-to-market thinking given volume

Ronald Coughlin

question. the for Thanks

cost the value-seeking value We've to seeing Acana, continue ORIJEN, still our launch see Fancy supplies an behaviors the of and demand. in a said, be products more price which additionally, bifurcation be we well. Frozen, that are like points us Feast a be do on competitive to will strong growth like with the to see our We weaved premium That customers. those at in, supplemented outperforming. And second offerings Naturals We're and half Diamond increase in to on level, allow offers freight as our on continue amongst related Fresh to in appealing cost enhancements category subsegment.

a on side story the well. of and really end increase it's demand as the strong demand high value bifurcation, on So

Steven Forbes

investment expectations. this capital with Brian. you're for on a most just the year change? capital set you on deprioritizing recent spending level where To the quick And Can then follow-up Maybe expand spending XXXX automation, like strategic on other initial comment needs any initiatives some capture pertains for of it of growth as noted? that the your you with plans sort to savings balancing to

Brian LaRose

Steve. question, Good Yes.

First, address let XXXX. me

down pay million our million our did QX. We're did at we've of We XXXX million $XX terms hospitals town year $XX XX. allocation capital of that in our last debt rural We XX $XXX also XX about maintained priorities. we've in another this small our commitment in maintained million. and So And -- $XX build-out of of to target already to week.

to us So $XX QX million already in million. gets $XX

to expect of change In don't dramatically. terms capital those XXXX, allocation priorities I

paydown. focus debt will on We to continue

high able other adjustment the where lean of we some not into It ancillary our this and The and other in our cash were year to areas was make priorities. any priorities did trade with like we capital to for CapEx managing continue guide those that to working strategic were sure trade-offs maintain off of make ROI. appropriately. balance strategic will We areas

Operator

Securities. Our next Wedbush comes from question from Seth Basham

Seth Basham

just pricing the better My you're merchandising some is understand to and that of trying question making.

first, aren't driving. in Now supplies typically traffic

So and what's leading you to secondly, back and in to then the things invest program, price those have removed Fancy decision and why purchase the supplies to supplies were like place? bringing Feast in the first

Ronald Coughlin

the question, for Thanks Seth.

we price let within categories is is and we're certain the are similar through. would lower flowing traffic. strategic contribute creating What me coming traffic by pricing. encouraged through then that costs So of have why in model terms that freight we to There where can fact are lower price food bifurcate costs of are we didn't taking is those supplies. perception provide find to we're And supplies, drag which which a -- and driver, grocery categories perception a indication defining the that

Seth Basham

the And supply helpful. Fancy decision Can give some perk to you there? That's remove context Okay. in us a then program. Feast previously

Ronald Coughlin

the our and Fancy win thing. positive it. about is a Feast for We're Nestle, XXXX Fancy excited And win today customers. took products It's On for us driver. and absolutely Feast all a really are decision really back been for a in reformulated brought a have a artificials, great stores have artificial win into that which is we Feast, around our ingredients, eliminated Fancy traffic it's

Brian LaRose

out program, for we those pulse and our demand. tend and to the elasticity on in of Seth, programs perk based expectations And supplies Yes. on

dormant we And was very so in. decision just for long, that and we made to -- tend not pulse the back

Operator

comes next UBS. from Michael from Lasser Our question

Michael Lasser

basis now level year in expected points So Petco's this be margin it was to for XXXX. the EBITDA around adjusted below XXX is

you like to competition? As significant your view long-term of external business of margin changed much how relates does EBITDA about to compression? the of all And that increased it diagnose this inform the is, what's factors outlook company's How margin is? why what drive such

Brian LaRose

Michael. the Yes. Thanks for question,

with margin, play actions, stabilizes the that cyclical EBITDA. cost margin When that on that impact the stabilize. That impact primarily that, our to has on profitable cyclical cost We're of to pressure has in in confident the confident is million business. coupled a have direct from stabilize. impact pressure So we to XXXX $XXX do gross in the that growth help gross margin adjusted direct gross will future. change return a We EBITDA have actions will related we're impact discretionary that

at look margin as labor of sales. services -- gross in sits that cost remind well, you impact If on I'll the sits for you services

If XX%. the our a you been take actually over services bit model out in would gross quarter, margin have little our of

again has up services impact that grown as line. the XXXX So materially from XX% margin in QX, gross rate has on an on

Ronald Coughlin

a on highest discretionary. really And discretionary of story category, It's cyclical of the that's our the pressure P&L. given profit

Michael Lasser

XQ, the are My downside those on what Okay. base and what upside follow-up is environment, as given to especially uncertain What comp holiday. would would the especially question for drive comps, the case your comp XQ outlook, you assuming as drive you and expectations? head macroeconomic into

Brian LaRose

we expect strong. be the thing but but services to revenue consumables discretionary We're most going to quarters, Michael, I'll that given quarter, not get of that I'm revenue was appropriate to some that We'd category under continue uncertainty. maintaining the -- felt into Yes, up pressure. like happy you X%, the the do with guide remains that our would performance tell this

the imply, based of today. comp. like was somewhat half best guide asked of you We that at that is we in deceleration what as know would felt year, the the on back a if look earlier somebody So

Operator

Citi. from Zaccone question from comes Our next Steven

Steven Zaccone

question, rate businesses. some drivers perspective. which lower cyclical are on the in in the But right, the So hand, to think a business follow and services, is discretionary the do public, growth up your on one yes, this Michael's of business? come you've you it's what on challenging Because optimal margin then for mix since premiumization of other food gross from hand,

for rate time I'm couple the EBITDA of mix and think about do improve drivers how over margin of over the So continues curious to margin discretionary next what's it optimal years? the if trend you lower, to

Ronald Coughlin

our high-margin like business, business, We companion our question. for discretionary Thanks supplies are the animal businesses. they business,

outside our category, customer from the And one of strong in roughly like an help they actually XX% own economic own drive in, brands. have we that our our profitability we're So differentiation and and cycle plus is brands. delighters,

a timeless So attractive it driver for on profit a is very basis. us

like things margin gross labor. in has a things which as driving is the margin enhancements Brian But cited, margin services you that. both silos, dilutive. standpoint, digital, are And within are those impacted offset like we services cases, cited, by help those from gross As

If equivalent you to our equivalent it's look total to term, to at basis in mid- it on -- an long the roughly enterprise. EBITDA

Steven Zaccone

follow Okay. that But to up then. on

right think if business So margin you the which the the whether next years? hospital to of side margin about is we Will that's say be can in EBITDA scale, EBITDA couple getting some it now, today? business of vet accretive the accretive

Brian LaRose

Steve, for Yes, the Today, question. not. it thanks is

vet is of about ahead vet model on the think you if So or the cohort. the continue unit about the our model, with along economics depending to great track news the model

on dilutive in ahead track year That gross XX% with Our as cohorts most EBITDA on a the EBITDA year X. in recent margin first has We're year, dollars roughly X model. in to model dollars and of are that. breakeven path

amount. rate those the XXX hospitals, XXX is at meaning that means If just our years, overall of average breakeven of last X-plus X EBITDA years. you XXX just to roughly with which is age of hospitals the hospital in we've those look cohorts over over the added average our

model become news our hospitals be to good as is that at overall model. EBITDA that those overall are with enterprise will actually accretive the And point they that mature, maturing the rate. to accretive inflection Now

Operator

Haskett. from comes Instructions] Gordon [Operator question Greg Our from next Sommer's

Greg Sommer

seeing out? then center vets. store traffic mainly similar just savings And still I in-store, like the various vet of quarters? just driven? follow from that if the buckets of on that was was is wondering biggest to you're And wanted that a follow-up. the laid that you to out million up bucket $XXX past What lift I then the

Ronald Coughlin

Thanks the question, Greg. for

has from store. it So the on like standpoint, the the vet we a impact of really rest

lift impact. center vet, when to So center put store from X-point is a a great on a X- store the we've we revalidated which lift in standpoint,

without driver locations the effective growing tangibly vets Our for traffic, vets. than traffic is very terms a And are us. locations of yes, in with faster it

vet the In new to are of fact, XX% Petco. customers

the of model. one that from that's So advantages

Brian LaRose

the Yes. an overweight supply are which will actions, line gross cost impact and merchandise the of the cost basis. And margin on buckets actions chain, larger on in the

have there's in sales. opportunities we more in of SG&A, cost opportunities While

Operator

ladies any gentlemen, to closing we'll that, and session. with Coughlin the question-and-answer Ron concluding turn remarks. for our be And conference back I'd to over like

Ronald Coughlin

Thank your you for your time questions. and

long-term megatrends that we remain the confident I and pet environment, are navigate category. plan want we're As resilient growing current to to we our capture and Thank you. reiterate that of to resolute positioned well in the the close, we

Cathy Yao

XXXX Earnings Thank concludes Conference Call. That Quarter Petco's Second you.

Operator

And that, will ladies and and gentlemen, with we call today's conference presentation. conclude

your You may now disconnect lines.

Cathy Yao

Goodbye.

Petco Health and Wellness (WOOF) 24 Aug 232024 Q2 Earnings call transcript