Petco Health + Wellness Company, Inc. Reports Second Quarter Earnings – PR Newswire

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  • Comparable sales grew 3.8 percent year over year and 23.5 percent on a two-year basis, resulting in fifteenth consecutive quarter of comparable sales growth
  • Net revenue of $1.48 billion increased 3.2 percent year over year
  • Delivered net income of $13.5 million and Adjusted EBITDA1 of $142.0 million
  • Earnings per share of $0.05, a decline of $0.23 from prior year; Adjusted Earnings Per Share1 of $0.19, a decline of $0.06 from prior year
  • Updates full year guidance, with net revenue of $5.975 billion to $6.05 billion; Adjusted EBITDA1 of $580.0 million to $595.0 million and Adjusted Earnings Per Share1 between $0.77 and $0.81

SAN DIEGO, Aug. 24, 2022 /PRNewswire/ — Petco Health and Wellness Company, Inc. (Nasdaq: WOOF), a complete partner in pet health and wellness, today announced its second quarter 2022 financial results.

In the second quarter of 2022, Petco delivered net revenue of $1.48 billion, up 3.2 percent versus prior year. Net income was $13.5 million or $0.05 per share compared to $75.1 million or $0.28 per share in the prior year. Adjusted Net Income1 was $49.7 million or $0.19 per share, compared to $67.5 million or $0.25 per share in the prior year.

“Q2 marks our 15th consecutive growth quarter, demonstrating that Petco’s business and customers continue to grow, driven by the strength of our unique end-to-end health and wellness pet ecosystem,” said Petco CEO Ron Coughlin. “Despite economic volatility, the pet category remains resilient and our 29,000 Petco Partners remain focused on improving the lives of countless pets and pet parents, working together and tangibly executing against our strategic priorities – including further expansion of our vet network and capabilities, continued mix shift towards premium products, the addition of over a hundred experiential fresh and frozen pantries in Pet Care Centers, and double-digit growth in recurring and loyalty customers.” 

Fiscal Q2 2022 Operating Results:
Comparisons are second quarter of 2022 ended July 30, 2022 versus second quarter of 2021 ended July 31, 2021 unless otherwise noted

Second quarter results reflect continued business and customer growth, and operational execution, while delivering on the promise of purpose driven performance.

  • Net revenue increased 3.2 percent to $1.48 billion driven by comparable sales growth of 3.8 percent
  • Net income decreased $61.7 million to $13.5 million or $0.05 per share, which was primarily impacted by a $55.4 million non-cash change in the fair value of one of the company’s investments and $10.9 million of integration-related costs incurred related to the buyout of the company’s veterinary joint venture, Thrive
  • Adjusted Net Income1 decreased $17.8 million to $49.7 million or $0.19 per share
  • Adjusted EBITDA1 decreased $13.1 million to $142.0 million

Fiscal 2022 Guidance: 

Petco has updated its full year 2022 financial guidance.

For the full year, Petco now expects net revenue of $5.975 billion to $6.05 billion, with Adjusted EBITDA1 of $580.0 million to $595.0 million. It expects between $250 million and $275 million of capital expenditures, and Adjusted Earnings Per Share1 between $0.77 and $0.81. Full details can be found in the schedules below.

(1)

Adjusted EBITDA, Adjusted Net Income, Adjusted EPS and Trailing Twelve Month Adjusted EBITDA are non-GAAP financial measures. See “Non-GAAP Financial Measures” for additional information on non-GAAP financial measures and a reconciliation to the most comparable GAAP measures.

Earnings Conference Call Webcast Information:

Management will host an earnings conference call on August 24, 2022 at 8:30 AM Eastern Time to discuss the company’s financial results. The conference call will be accessible through live webcast. Interested  investors and other individuals can access the webcast, earnings release, earnings presentation, and infographic via the company’s investor relations page at ir.petco.com. A replay of the webcast will be archived on the company’s investor relations page through September 7, 2022 at approximately 5:00 PM Eastern Time.

About Petco, The Health + Wellness Co.:

Founded in 1965, Petco is a category-defining health and wellness company focused on improving the lives of pets, pet parents and our own Petco partners. We’ve consistently set new standards in pet care while  delivering comprehensive pet wellness products, services and solutions, and creating communities that deepen the pet-pet parent bond. We operate more than 1,500 pet care centers across the U.S., Mexico and Puerto Rico, which offer merchandise, companion animals, grooming, training and a growing network of on-site veterinary hospitals and mobile veterinary clinics. Our complete pet health and wellness ecosystem is accessible through our pet care centers and digitally at petco.com and on the Petco app. In tandem with Petco Love (formerly the Petco Foundation), an independent nonprofit organization, we work with and support thousands of local animal welfare groups across the country and, through in-store adoption events, we’ve helped find homes for more than 6.6 million animals.

Forward-Looking Statements:

This earnings release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, concerning expectations, beliefs plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not statements of historical fact, including statements regarding our fiscal year 2022 guidance. Such forward-looking statements can generally be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “intends,” “will,” “shall,” “should,” “anticipates,” “opportunity,” “illustrative”, or the negative thereof or other variations thereon or comparable terminology. Although Petco believes that the expectations and assumptions reflected  in these statements are reasonable, there can be no assurance that these expectations will prove to be correct or that any forward-looking results will occur or be realized. Nothing contained in this earnings release is, or should be relied upon as, a promise or representation or  warranty as to any future matter, including any matter in respect of the operations or business or financial condition of Petco. All forward-looking statements are based on expectations and assumptions about future events that may or may not be correct or necessarily take place and that are by their nature subject to significant uncertainties and contingencies, many of which are outside the control of Petco. Forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause actual results or events to differ materially from the potential results or events discussed in the forward-looking statements, including, without limitation, those identified in this earnings release as well as the following: (i) increased competition (including from multi-channel retailers and e-Commerce providers); (ii) reduced consumer demand for our products and/or services; (iii) our reliance on key vendors; (iv) our ability to attract and retain qualified employees; (v) risks arising from statutory, regulatory and/or legal developments; (vi) macroeconomic pressures in the markets in which we operate including inflation; (vii) failure to effectively manage our costs; (viii) our reliance on our information technology systems; (ix) our ability to prevent or effectively respond to a privacy or security breach; (x) our ability to effectively manage or integrate strategic ventures, alliances or acquisitions and realize the anticipated benefits of such transactions; (xi) economic or regulatory developments that might affect our ability to provide attractive promotional financing; (xii) business interruptions and other supply chain issues; (xiii) catastrophic events, political tensions, conflicts and wars (such as the ongoing conflict in Ukraine), health crises, and pandemics, including the potential effects that the ongoing COVID-19 pandemic and/or corresponding macroeconomic uncertainty could have on our financial position, results of operations and cash flows; (xiv) our ability to maintain positive brand perception and recognition; (xv) product safety and quality concerns; (xvi) changes to labor or employment laws or regulations; (xvii) our ability to effectively manage our real estate portfolio; (xviii) constraints in the capital markets or our vendor credit terms; (xix) changes in our credit ratings; and (xx) the other risks, uncertainties and other factors identified under “Risk Factors” and elsewhere in Petco’s Securities and Exchange Commission filings. The occurrence of any such factors could significantly alter the results set forth in these statements.

Petco cautions that the foregoing list of risks, uncertainties and other factors is not complete, and forward-looking statements speak only as of the date they are made. Petco undertakes no duty to update publicly any such forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by applicable law, regulation or other competent legal authority.

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited and subject to reclassification)











13 Weeks Ended




July 30,
2022


July 31,
2021


Percent
Change


Net sales


$         1,480,797


$   1,434,534


3 %


Cost of sales


886,320


835,124


6 %


Gross profit


594,477


599,410


(1 %)


Selling, general and administrative expenses


544,472


525,942


4 %


Operating income


50,005


73,468


(32 %)


Interest income


(137)


(13)


954 %


Interest expense


21,820


19,206


14 %


Other non-operating loss (income)


10,259


(45,162)


N/M


Income before income taxes and income from
   equity method investees


18,063


99,437


(82 %)


Income tax expense


6,638


27,011


(75 %)


Income from equity method investees


(2,031)


(2,429)


(16 %)


Net income


13,456


74,855


(82 %)


Net loss attributable to noncontrolling interest



(256)


(100 %)


Net income attributable to Class A and B-1 common
   stockholders


$               13,456


$         75,111


(82 %)










Net income per Class A and B-1 common share:








Basic


$              0.05


$          0.28


(82 %)


Diluted


$              0.05


$          0.28


(82 %)










Weighted average shares used in computing net income per Class A
   and B-1 common share:








Basic


265,431


264,216


0 %


Diluted


265,835


265,217


0 %


PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited and subject to reclassification)






 July 30,
2022 


 January 29,
2022 

ASSETS





Current assets:





Cash and cash equivalents


$    125,187


$    211,602

Receivables, less allowance for credit losses1


44,762


55,618

Merchandise inventories, net


723,336


675,111

Prepaid expenses


53,955


42,355

Other current assets


66,589


86,091

Total current assets


1,013,829


1,070,777

Fixed assets


1,872,567


1,745,691

Less accumulated depreciation


(1,101,442)


(1,018,769)

Fixed assets, net


771,125


726,922

Operating lease right-of-use assets


1,378,947


1,338,465

Goodwill


2,186,829


2,183,991

Trade name


1,025,000


1,025,000

Other long-term assets


166,702


152,786

Total assets


$ 6,542,432


$ 6,497,941

LIABILITIES AND EQUITY





Current liabilities:





Accounts payable and book overdrafts


$    416,603


$    403,976

Accrued salaries and employee benefits


104,222


150,630

Accrued expenses and other liabilities


220,247


210,872

Current portion of operating lease liabilities


272,089


265,897

Current portion of long-term debt and other lease liabilities


22,251


21,764

Total current liabilities


1,035,412


1,053,139

Senior secured credit facilities, net, excluding current portion


1,634,346


1,640,390

Operating lease liabilities, excluding current portion


1,135,627


1,096,133

Deferred taxes, net


326,739


318,355

Other long-term liabilities


131,162


134,105

Total liabilities


4,263,286


4,242,122

Commitments and contingencies





Stockholders’ equity:





Class A common stock2


228


227

Class B-1 common stock3


38


38

Class B-2 common stock4



Preferred stock5



Additional paid-in-capital


2,103,176


2,133,821

Retained earnings


180,315


142,166

Accumulated other comprehensive loss


(4,611)


(2,238)

Total stockholders’ equity


2,279,146


2,274,014

Noncontrolling interest



(18,195)

Total equity


2,279,146


2,255,819

Total liabilities and equity


$ 6,542,432


$ 6,497,941






(1)

Allowances for credit losses are $1,393 and $931, respectively

(2)

Class A common stock, $0.001 par value: Authorized – 1.0 billion shares; Issued and outstanding – 227.9 million and 227.2 million shares, respectively

(3)

Class B-1 common stock, $0.001 par value: Authorized – 75.0 million shares; Issued and outstanding – 37.8 million shares

(4)

Class B-2 common stock, $0.000001 par value: Authorized – 75.0 million shares; Issued and outstanding – 37.8 million shares

(5)

Preferred stock, $0.001 par value: Authorized – 25.0 million shares; Issued and outstanding – none

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited and subject to reclassification)








26 Weeks Ended



July 30,
2022


July 31,
2021

Cash flows from operating activities:





Net income


$      37,258


$       81,004

Adjustments to reconcile net income to net cash provided by
  operating activities:





Depreciation and amortization


95,570


82,845

Amortization of debt discounts and issuance costs


2,456


3,369

Provision for deferred taxes


9,216


12,691

Equity-based compensation


25,117


23,110

Impairments, write-offs and losses on sale of fixed and other assets


1,369


2,690

Loss on extinguishment and modification of debt



20,838

Income from equity method investees


(5,194)


(4,854)

Non-cash operating lease costs


210,946


210,490

Other non-operating loss (income)


9,945


(45,162)

Changes in assets and liabilities:





Receivables


10,856


1,937

Merchandise inventories


(48,225)


(89,784)

Prepaid expenses and other assets


(21,932)


3,294

Accounts payable and book overdrafts


12,626


74,466

Accrued salaries and employee benefits


(37,345)


(6,017)

Accrued expenses and other liabilities


5,148


51,145

Operating lease liabilities


(205,884)


(220,655)

Other long-term liabilities


(1,839)


997

Net cash provided by operating activities


100,088


202,404

Cash flows from investing activities:





Cash paid for fixed assets


(136,190)


(99,883)

Cash paid for acquisitions, net of cash acquired


(2,888)


(2,807)

Cash paid for interest in veterinary joint venture


(35,000)


Proceeds from sale of assets


2,127


105

Net cash used in investing activities


(171,951)


(102,585)

Cash flows from financing activities:





Borrowings under long-term debt agreements


4,000


1,700,000

Repayments of long-term debt


(12,500)


(1,682,361)

Debt refinancing costs and original issue discount



(24,665)

Payments for finance lease liabilities


(2,964)


(2,044)

Proceeds from employee stock purchase plan


2,591


1,721

Tax withholdings on stock-based awards


(13,461)


Payment of offering costs



(3,844)

Net cash used in financing activities


(22,334)


(11,193)






Net (decrease) increase in cash, cash equivalents and restricted cash


(94,197)


88,626

Cash, cash equivalents and restricted cash at beginning of period


221,890


119,540

Cash, cash equivalents and restricted cash at end of period


$    127,693


$     208,166

NON-GAAP FINANCIAL MEASURES

The following information provides definitions and reconciliations of the non-GAAP financial measures presented in this earnings release to the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles (GAAP). The company has provided this non-GAAP financial information, which is not calculated or presented in accordance with GAAP, as information supplemental and in addition to the financial measures presented in this earnings release that are calculated and presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for or alternative to, and should be considered in conjunction with, the GAAP financial measures presented in this earnings release. The non-GAAP financial measures in this earnings release may differ from similarly titled measures used by other companies.

Adjusted EBITDA and Trailing Twelve Month Adjusted EBITDA

Adjusted EBITDA, including Trailing Twelve Month Adjusted EBITDA, is considered a non-GAAP financial measure under the Securities and Exchange Commission’s (SEC) rules because it excludes certain amounts included in net income calculated in accordance with GAAP. Management believes that Adjusted EBITDA is a meaningful measure to share with investors because it facilitates comparison of the current period performance with that of the comparable prior period. In addition, Adjusted EBITDA affords investors a view of what management considers to be Petco’s core operating performance as well as the ability to make a more informed assessment of such operating performance as compared with that of the prior period.

Please see the company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022 filed with the SEC on March 24, 2022 for additional information on Adjusted EBITDA. The tables below reflect the calculation of Adjusted EBITDA for the thirteen weeks and trailing twelve months ended July 30, 2022 compared to the thirteen weeks and trailing twelve months ended July 31, 2021, respectively, as well as the twelve-month period ended January 29, 2022.

(dollars in thousands)


13 Weeks Ended

Reconciliation of Net Income Attributable to Class A and B-1
   Common Stockholders to Adjusted EBITDA


July 30,
2022


July 31,
2021

Net income attributable to Class A and B-1 common stockholders


$        13,456


$        75,111

Add (deduct):





Interest expense, net


21,683


19,193

Income tax expense


6,638


27,011

Depreciation and amortization


48,603


41,238

Income from equity method investees


(2,031)


(2,429)

Asset impairments and write offs


1,207


1,743

Equity-based compensation


12,895


11,506

Other non-operating loss (income)


10,259


(45,162)

Mexico joint venture EBITDA (1)


6,501


5,856

Store pre-opening expenses


3,803


3,488

Store closing expenses


881


962

Non-cash occupancy-related costs (2)


2,286


2,885

Acquisition-related integration costs (3)


10,859


Other costs (4)


4,915


13,671

Adjusted EBITDA


$    141,955


$    155,073

Net sales


$ 1,480,797


$ 1,434,534

Net margin (5)


0.9 %


5.2 %

Adjusted EBITDA Margin


9.6 %


10.8 %

(dollars in thousands)


Trailing Twelve Months

Reconciliation of Net Income Attributable to Class A and B-1
   Common Stockholders to Adjusted EBITDA


July 30,
2022


January 29,
2022


July 31,
2021

Net income attributable to Class A and B-1 common stockholders


$      119,895


$      164,417


$        79,915

Add (deduct):







Interest expense, net


78,932


77,335


143,113

Income tax expense


40,422


53,473


31,950

Depreciation and amortization


185,156


172,431


171,643

Income from equity method investees


(11,224)


(10,883)


(10,259)

Loss on debt extinguishment and modification



20,838


38,387

Asset impairments and write offs


9,597


10,918


12,035

Equity-based compensation


51,272


49,265


31,408

Other non-operating loss (income)


20,609


(34,497)


(45,162)

Mexico joint venture EBITDA (1)


28,254


26,837


23,434

Store pre-opening expenses


14,410


14,765


13,360

Store closing expenses


5,704


5,028


6,211

Non-cash occupancy-related costs (2)


8,570


8,114


10,095

Acquisition-related integration costs (3)


13,095



Other costs (4)


20,473


33,437


41,389

Adjusted EBITDA


$      585,165


$      591,478


$      547,519

Net sales


$   5,914,409


$   5,807,149


$   5,447,238

Net margin (5)


2.0 %


2.8 %


1.5 %

Adjusted EBITDA Margin


9.9 %


10.2 %


10.1 %

Adjusted Net Income and Adjusted EPS

Adjusted Net Income and Adjusted diluted earnings per share attributable to Petco common stockholders (Adjusted EPS) are considered non-GAAP financial measures under the SEC’s rules because they exclude certain amounts included in the net income attributable to Petco common stockholders and diluted earnings per share attributable to Petco common stockholders calculated in accordance with GAAP. Management  believes that Adjusted Net Income and Adjusted EPS are meaningful measures to share with investors because they facilitate comparison of the current period performance with that of the comparable prior period. In addition, Adjusted Net Income and Adjusted EPS afford investors a view of what management considers to be Petco’s core earnings performance as well as the ability to make a more informed assessment of such earnings performance with that of the prior period.

The tables below reflect the calculation of Adjusted Net Income and Adjusted EPS for the thirteen weeks  ended July 30, 2022 compared to the thirteen weeks ended July 31, 2021.

(in thousands, except per share amounts)


13 Weeks Ended

Reconciliation of Diluted EPS to Adjusted EPS


July 30, 2022


July 31, 2021



Amount


Per share


Amount


Per share

Net income attributable to common stockholders / diluted EPS


$        13,456


$             0.05


$        75,111


$          0.28

Add (deduct):









Income tax expense


6,638


0.02


27,011


0.10

Asset impairments and write offs


1,207


0.01


1,743


0.01

Equity-based compensation


12,895


0.05


11,506


0.04

Other non-operating loss (income)


10,259


0.04


(45,162)


(0.17)

Store pre-opening expenses


3,803


0.01


3,488


0.01

Store closing expenses


881


0.00


962


0.01

Non-cash occupancy-related costs (2)


2,286


0.01


2,885


0.01

Acquisition-related integration costs (3)


10,859


0.04



Other costs (4)


4,915


0.02


13,671


0.05

Adjusted pre-tax income / diluted earnings per share


$      67,199


$         0.25


$      91,215


$         0.34

Income tax expense at 26% normalized tax rate


17,472


0.06


23,716


0.09

Adjusted Net Income / Adjusted EPS


$      49,727


$         0.19


$      67,499


$         0.25

Fiscal 2022 Guidance

Metric

Prior Guidance

Revised Guidance

Net Revenue

$6.15 – $6.25 billion

$5.975 – $6.05 billion

Adjusted EBITDA

$630 – $645 million

$580 $595 million

Adjusted EPS

$0.97 – $1.00

$0.77 – $0.81

Capital Expenditures

$275 – $325 million

$250 – $275 million

Assumptions in the previously stated guidance include that economic conditions, currency rates and the tax and regulatory landscape remain generally consistent. Adjusted EPS guidance assumes approximately $90  million of interest expense, a 26 percent tax rate and a 267 million weighted average diluted share count.  Adjusted EBITDA and Adjusted EPS are non-GAAP financial measures and have not been reconciled to the most comparable GAAP outlook because it is not possible to do so without unreasonable efforts due to the uncertainty and potential variability of reconciling items, which are dependent on future events and often outside of management’s control and which could be significant. Because such items cannot be reasonably predicted with the level of precision required, we are unable to provide outlook for the comparable GAAP measures. Forward-looking estimates of Adjusted EBITDA and Adjusted EPS are made in a manner consistent with the relevant definitions and assumptions noted herein.

Adjusted EBITDA, Adjusted Net Income and Adjusted EPS Footnotes

(1)

Mexico Joint Venture EBITDA represents 50 percent of the entity’s operating results for all periods, as adjusted to reflect the results on a basis comparable to Adjusted EBITDA. In the financial statements, this joint venture is accounted for as an equity method investment and reported net of depreciation and income taxes. Because such a presentation would not reflect the adjustments made in the calculation of Adjusted EBITDA, we include the 50 percent interest in the company’s Mexico joint venture on an Adjusted EBITDA basis to ensure consistency. The table below presents a reconciliation of Mexico joint venture net income to Mexico joint venture EBITDA.





13 Weeks Ended

(in thousands)


July 30,
2022


July 31,
2021

Net income


$       4,064


$       4,864

Depreciation


4,711


3,401

Income tax expense


2,390


2,631

Foreign currency loss (gain)


444


(342)

Interest expense, net


1,392


1,158

EBITDA


$      13,001


$      11,712

50% of EBITDA


$        6,501


$        5,856



(2)

Non-cash occupancy-related costs include the difference between cash and straight-line rent for all periods.



(3)

Acquisition/integration costs include direct costs resulting from acquiring and integrating businesses. These include third-party professional and legal fees and other integration-related costs that would not have otherwise been incurred as part of the company’s operations. For the thirteen weeks ended July 30, 2022, approximately $6.7 million of Thrive integration costs were recorded in cost of sales and $4.1 million of integration costs were recorded in selling, general and administrative expenses.

(4)

Other costs include: severance; legal reserves and related fees; one-time consulting and other costs associated with our strategic transformation initiatives; discontinuation and liquidation costs; and costs related to our initial public offering and refinancing.



(5)

We define net margin as net income attributable to Class A and B-1 common stockholders divided by net sales and Adjusted EBITDA margin as Adjusted EBITDA divided by net sales.

WOOF-F

SOURCE Petco – Investor Relations

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