Petco Health + Wellness Company, Inc. Reports Second Quarter Earnings
Q2 2023 Operating Results
- Comparable sales grew 3.2 percent year-over-year and 7.0 percent on a two-year basis, resulting in the 19th consecutive quarter of comparable sales growth
- Net revenue of $1.53 billion increased 3.4 percent year-over-year
- Net loss of $14.6 million, or $(0.05) per share compared to net income of
$13 .5 million, or$0 .05 per share in the prior year - Adjusted Net Income1 decreased
$27 .2 million to $16.3 million - Adjusted EBITDA1 of $112.6 million compared to
$133 .5 million in the prior year - Adjusted Earnings Per Share1 of
$0.06 , compared to$0 .16 per share in the prior year - Operating Cash Flow of
$96 .6 million compared to$42 .6 million in the prior year - Free Cash Flow1 of
$44.6 million , compared to $(27.7) million in the prior year
In the second quarter of 2023, Petco delivered net revenue of
"We continue to focus on execution through an uncertain environment, delivering our 19th consecutive quarter of comp sales growth, with ongoing strength in consumables and services, particularly in vet," said Petco CEO
"In Q2, we delivered solid top line results and strong free cash flow," said Petco CFO
In the second quarter of 2023, Petco paid down $25 million in principal on its term loan. In August, the company further paid down an additional
The company also initiated a cost action plan in the quarter and estimates annualized gross run rate cost savings of
(1) |
Adjusted EBITDA, Adjusted Net Income, Adjusted Earnings Per Share ("Adjusted EPS"), and Free Cash Flow 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. |
Fiscal 2023 Guidance:
The company is updating its fiscal 2023 guidance for Adjusted EBITDA, Adjusted EPS and Capital Expenditures and now expects:
Metric* |
2023 Guidance |
Net Revenue |
|
Adjusted EBITDA |
|
Adjusted EPS |
|
Capital Expenditures |
|
*Assumptions in the guidance include that economic conditions, currency rates and the tax and regulatory landscape remain generally consistent. Adjusted EPS guidance assumes approximately
Earnings Conference Call Webcast Information:
Management will host an earnings conference call on
About Petco,
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
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 2023 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 current 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 and prevailing interest rates; (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 data 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
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.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited and subject to reclassification) |
|||||||
13 Weeks Ended |
|||||||
|
|
Percent |
|||||
Net sales |
$ 1,530,734 |
$ 1,480,797 |
3 % |
||||
Cost of sales |
937,730 |
886,320 |
6 % |
||||
Gross profit |
593,004 |
594,477 |
(0 %) |
||||
Selling, general and administrative expenses |
568,967 |
544,472 |
4 % |
||||
Operating income |
24,037 |
50,005 |
(52 %) |
||||
Interest income |
(764) |
(137) |
458 % |
||||
Interest expense |
37,493 |
21,820 |
72 % |
||||
Loss on partial extinguishment of debt |
305 |
— |
N/M |
||||
Other non-operating (income) loss |
(1,795) |
10,259 |
N/M |
||||
(Loss) income before income taxes and income from |
(11,202) |
18,063 |
N/M |
||||
Income tax expense |
6,732 |
6,638 |
1 % |
||||
Income from equity method investees |
(3,328) |
(2,031) |
64 % |
||||
Net (loss) income |
(14,606) |
13,456 |
N/M |
||||
Net loss attributable to noncontrolling interest |
— |
— |
N/M |
||||
Net (loss) income attributable to Class A and B-1 common |
$ (14,606) |
$ 13,456 |
N/M |
||||
Net (loss) income per Class A and B-1 common share: |
|||||||
Basic |
$ (0.05) |
$ 0.05 |
N/M |
||||
Diluted |
$ (0.05) |
$ 0.05 |
N/M |
||||
Weighted average shares used in computing net (loss) income per Class A |
|||||||
Basic |
267,163 |
265,431 |
1 % |
||||
Diluted |
267,163 |
265,835 |
0 % |
||||
CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) (Unaudited and subject to reclassification) |
||||||||
|
|
|||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ |
173,014 |
$ |
201,901 |
||||
Receivables, less allowance for credit losses1 |
66,258 |
49,580 |
||||||
Merchandise inventories, net |
675,441 |
652,430 |
||||||
Prepaid expenses |
54,880 |
51,274 |
||||||
Other current assets |
55,247 |
60,809 |
||||||
Total current assets |
1,024,840 |
1,015,994 |
||||||
Fixed assets |
2,090,367 |
1,987,560 |
||||||
Less accumulated depreciation |
(1,270,141) |
(1,184,233) |
||||||
Fixed assets, net |
820,226 |
803,327 |
||||||
Operating lease right-of-use assets |
1,401,834 |
1,397,761 |
||||||
|
2,196,664 |
2,193,941 |
||||||
Trade name |
1,025,000 |
1,025,000 |
||||||
Other long-term assets |
193,698 |
176,806 |
||||||
Total assets |
$ |
6,662,262 |
$ |
6,612,829 |
||||
LIABILITIES AND EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable and book overdrafts |
$ |
477,748 |
$ |
381,213 |
||||
Accrued salaries and employee benefits |
90,796 |
89,929 |
||||||
Accrued expenses and other liabilities |
219,910 |
217,556 |
||||||
Current portion of operating lease liabilities |
281,415 |
309,766 |
||||||
Current portion of long-term debt and other lease liabilities |
5,077 |
22,794 |
||||||
Total current liabilities |
1,074,946 |
1,021,258 |
||||||
Senior secured credit facilities, net, excluding current portion |
1,588,523 |
1,628,331 |
||||||
Operating lease liabilities, excluding current portion |
1,159,696 |
1,148,155 |
||||||
Deferred taxes, net |
294,094 |
303,121 |
||||||
Other long-term liabilities |
130,239 |
130,487 |
||||||
Total liabilities |
4,247,498 |
4,231,352 |
||||||
Commitments and contingencies |
||||||||
Stockholders' equity: |
||||||||
Class A common stock2 |
230 |
228 |
||||||
Class B-1 common stock3 |
38 |
38 |
||||||
Class B-2 common stock4 |
— |
— |
||||||
Preferred stock5 |
— |
— |
||||||
Additional paid-in-capital |
2,196,235 |
2,152,342 |
||||||
Retained earnings |
216,470 |
232,967 |
||||||
Accumulated other comprehensive income (loss) |
1,791 |
(4,098) |
||||||
Total stockholders' equity |
2,414,764 |
2,381,477 |
||||||
Total liabilities and stockholders' equity |
$ |
6,662,262 |
$ |
6,612,829 |
(1) |
Allowances for credit losses are |
(2) |
Class A common stock, |
(3) |
Class B-1 common stock, |
(4) |
Class B-2 common stock, |
(5) |
Preferred stock, |
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited and subject to reclassification) |
||||||||
26 Weeks Ended |
||||||||
|
|
|||||||
Cash flows from operating activities: |
||||||||
Net (loss) income |
$ |
(16,498) |
$ |
37,258 |
||||
Adjustments to reconcile net (loss) income to net cash provided by |
||||||||
Depreciation and amortization |
97,919 |
95,570 |
||||||
Amortization of debt discounts and issuance costs |
2,446 |
2,456 |
||||||
Provision for deferred taxes |
(11,002) |
9,216 |
||||||
Equity-based compensation |
46,248 |
25,117 |
||||||
Impairments, write-offs and losses on sale of fixed and other assets |
1,035 |
1,369 |
||||||
Loss on partial extinguishment of debt |
746 |
— |
||||||
Amounts reclassified out of accumulated other comprehensive income (loss) |
1,055 |
— |
||||||
Income from equity method investees |
(6,458) |
(5,194) |
||||||
Non-cash operating lease costs |
211,576 |
210,946 |
||||||
Other non-operating (income) loss |
(4,614) |
9,945 |
||||||
Changes in assets and liabilities: |
||||||||
Receivables |
(16,679) |
10,856 |
||||||
Merchandise inventories |
(23,011) |
(48,225) |
||||||
Prepaid expenses and other assets |
(14,237) |
(21,932) |
||||||
Accounts payable and book overdrafts |
97,062 |
12,626 |
||||||
Accrued salaries and employee benefits |
1,221 |
(37,345) |
||||||
Accrued expenses and other liabilities |
(1,238) |
5,148 |
||||||
Operating lease liabilities |
(232,518) |
(205,884) |
||||||
Other long-term liabilities |
1,212 |
(1,839) |
||||||
Net cash provided by operating activities |
134,265 |
100,088 |
||||||
Cash flows from investing activities: |
||||||||
Cash paid for fixed assets |
(114,023) |
(136,190) |
||||||
Cash paid for acquisitions, net of cash acquired |
(2,040) |
(2,888) |
||||||
Cash paid for interest in veterinary joint venture |
— |
(35,000) |
||||||
Proceeds from investment |
10,248 |
— |
||||||
Proceeds from sale of assets |
— |
2,127 |
||||||
Net cash used in investing activities |
(105,815) |
(171,951) |
||||||
Cash flows from financing activities: |
||||||||
Borrowings under long-term debt agreements |
— |
4,000 |
||||||
Repayments of long-term debt |
(60,000) |
(12,500) |
||||||
Payments for finance lease liabilities |
(3,349) |
(2,964) |
||||||
Proceeds from employee stock purchase plan and stock option exercises |
2,454 |
2,591 |
||||||
Tax withholdings on stock-based awards |
(4,873) |
(13,461) |
||||||
Net cash used in financing activities |
(65,768) |
(22,334) |
||||||
Net decrease in cash, cash equivalents and restricted cash |
(37,318) |
(94,197) |
||||||
Cash, cash equivalents and restricted cash at beginning of period |
213,727 |
221,890 |
||||||
Cash, cash equivalents and restricted cash at end of period |
$ |
176,409 |
$ |
127,693 |
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.
The tables below reflect the calculation of Adjusted EBITDA (include Trailing Twelve Month Adjusted EBITDA), Adjusted Net Income, Adjusted EPS, and Free Cash Flow, for the thirteen weeks ended
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
(dollars in thousands) |
13 Weeks Ended |
||||
Reconciliation of Net (Loss) Income Attributable to Class A and B-1 |
|
|
|||
Net (loss) income attributable to Class A and B-1 common stockholders |
$ (14,606) |
$ 13,456 |
|||
Add (deduct): |
|||||
Interest expense, net |
36,729 |
21,683 |
|||
Income tax expense |
6,732 |
6,638 |
|||
Depreciation and amortization |
48,664 |
48,603 |
|||
Income from equity method investees |
(3,328) |
(2,031) |
|||
Loss on partial extinguishment of debt |
305 |
— |
|||
Asset impairments and write offs |
1,031 |
1,207 |
|||
Equity-based compensation |
24,119 |
12,895 |
|||
Other non-operating (income) loss |
(1,795) |
10,259 |
|||
|
8,544 |
6,501 |
|||
Acquisition-related integration costs (2) |
— |
10,859 |
|||
Other costs (3) |
6,183 |
3,427 |
|||
Adjusted EBITDA |
$ 112,578 |
$ 133,497 |
|||
Net sales |
|
|
|||
Net margin (4) |
(1.0 %) |
0.9 % |
|||
Adjusted EBITDA Margin |
7.4 % |
9.0 % |
(dollars in thousands) |
Trailing Twelve Months |
|||||||||||
Reconciliation of Net Income Attributable to Class A and B-1 |
|
|
|
|||||||||
Net income attributable to Class A and B-1 common stockholders |
$ |
36,154 |
$ |
90,801 |
$ |
119,895 |
||||||
Add (deduct): |
||||||||||||
Interest expense, net |
132,068 |
100,611 |
78,932 |
|||||||||
Income tax expense |
24,433 |
35,347 |
40,422 |
|||||||||
Depreciation and amortization |
196,177 |
193,828 |
185,156 |
|||||||||
Income from equity method investees |
(14,240) |
(12,976) |
(11,224) |
|||||||||
Loss on partial extinguishment of debt |
746 |
— |
— |
|||||||||
Asset impairments and write offs |
1,658 |
1,992 |
9,597 |
|||||||||
Equity-based compensation |
81,915 |
60,784 |
51,272 |
|||||||||
Other non-operating (income) loss |
(1,892) |
12,667 |
20,609 |
|||||||||
|
33,583 |
29,584 |
28,254 |
|||||||||
Acquisition-related integration costs (2) |
2,219 |
15,314 |
13,095 |
|||||||||
Other costs (3) |
8,860 |
2,817 |
3,448 |
|||||||||
Adjusted EBITDA |
$ |
501,681 |
$ |
530,769 |
$ |
539,456 |
||||||
Net sales |
$ |
6,165,821 |
$ |
6,035,967 |
$ |
5,914,409 |
||||||
Net margin (4) |
0.6 |
% |
1.5 |
% |
2.0 |
% |
||||||
Adjusted EBITDA Margin |
8.1 |
% |
8.8 |
% |
9.1 |
% |
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
(in thousands, except per share amounts) |
13 Weeks Ended |
|||||||||||||||
Reconciliation of Diluted EPS to Adjusted EPS |
|
|
||||||||||||||
Amount |
Per share |
Amount |
Per share |
|||||||||||||
Net (loss) income attributable to common stockholders / diluted EPS |
$ |
(14,606) |
$ |
(0.05) |
$ |
13,456 |
$ |
0.05 |
||||||||
Add (deduct): |
||||||||||||||||
Income tax expense |
6,732 |
0.02 |
6,638 |
0.02 |
||||||||||||
Loss on partial extinguishment of debt |
305 |
0.00 |
— |
— |
||||||||||||
Asset impairments and write offs |
1,031 |
0.01 |
1,207 |
0.01 |
||||||||||||
Equity-based compensation |
24,119 |
0.09 |
12,895 |
0.05 |
||||||||||||
Other non-operating (income) loss |
(1,795) |
(0.01) |
10,259 |
0.04 |
||||||||||||
Acquisition-related integration costs (2) |
— |
— |
10,859 |
0.04 |
||||||||||||
Other costs (3) |
6,183 |
0.02 |
3,427 |
0.01 |
||||||||||||
Adjusted pre-tax income / diluted earnings per share |
$ |
21,969 |
$ |
0.08 |
$ |
58,741 |
$ |
0.22 |
||||||||
Income tax expense at 26% normalized tax rate |
5,712 |
0.02 |
15,273 |
0.06 |
||||||||||||
Adjusted Net Income / Adjusted EPS |
$ |
16,257 |
$ |
0.06 |
$ |
43,468 |
$ |
0.16 |
Free Cash Flow
Free Cash Flow is a non-GAAP financial measure that is calculated as net cash provided by operating activities less cash paid for fixed assets. Management believes that Free Cash Flow, which measures the ability to generate additional cash from business operations, is an important financial measure for use in evaluating the company's financial performance.
(in thousands) |
13 Weeks Ended |
||||
|
|
||||
Net cash provided by operating activities |
$ 96,614 |
$ 42,569 |
|||
Cash paid for fixed assets |
(51,973) |
(70,280) |
|||
Free Cash Flow |
$ 44,641 |
$ (27,711) |
Non-GAAP Financial Measures 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 |
13 Weeks Ended |
|||||
(in thousands) |
|
|
|||
Net income |
$ 6,656 |
$ 4,064 |
|||
Depreciation |
6,443 |
4,711 |
|||
Income tax expense |
2,364 |
2,390 |
|||
Foreign currency loss |
395 |
444 |
|||
Interest expense, net |
1,230 |
1,392 |
|||
EBITDA |
$ 17,088 |
$ 13,001 |
|||
50% of EBITDA |
$ 8,544 |
$ 6,501 |
(2) |
Acquisition-related 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. |
(3) |
Other costs include, as incurred: restructuring costs and restructuring-related severance costs; legal reserves associated with significant, non-ordinary course legal or regulatory matters; and costs related to certain significant strategic transactions. |
(4) |
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. |
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SOURCE Petco - Investor Relations
Investor Relations, Cathy Yao, cathy.yao@petco.com; Media Relations: Benjamin Thiele-Long, benjamin.thiele-long@petco.com