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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 1, 2021

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 001-39878

 

Petco Health and Wellness Company, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

81-1005932

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

10850 Via Frontera

San Diego, California

92127

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (858453-7845

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock, par value $0.001 per share

 

WOOF

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes  ☒    No  

The number of shares of Registrant’s Class A Common Stock outstanding as of June 8, 2021 was 226,479,442.

The number of shares of Registrant’s Class B-1 Common Stock outstanding as of June 8, 2021 was 37,790,781.

The number of shares of Registrant’s Class B-2 Common Stock outstanding as of June 8, 2021 was 37,790,781.

 

 

 

 


 

 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

2

 

 

 

Item 1.

Financial Statements (Unaudited)

2

 

Consolidated Balance Sheets

2

 

Consolidated Statements of Operations

3

 

Consolidated Statements of Comprehensive Income (Loss)

4

 

Consolidated Statements of Stockholders' / Members' Equity

5

 

Consolidated Statements of Cash Flows

6

 

Notes to Unaudited Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

24

 

 

 

PART II.

OTHER INFORMATION

25

 

 

 

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 3.

Defaults Upon Senior Securities

28

Item 4.

Mine Safety Disclosures

28

Item 5.

Other Information

28

Item 6.

Exhibits

29

Signatures

30

 

 

1


 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

 

 

 

May 1,

2021

 

 

January 30,

2021

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

174,034

 

 

$

111,402

 

Receivables, less allowance for credit losses ($2,217 and $3,267, respectively)

 

 

38,079

 

 

 

41,827

 

Merchandise inventories, net

 

 

574,683

 

 

 

538,675

 

Prepaid expenses

 

 

46,724

 

 

 

40,032

 

Other current assets

 

 

42,355

 

 

 

45,613

 

Total current assets

 

 

875,875

 

 

 

777,549

 

Fixed assets

 

 

1,535,617

 

 

 

1,487,987

 

Less accumulated depreciation

 

 

(896,195

)

 

 

(860,440

)

Fixed assets, net

 

 

639,422

 

 

 

627,547

 

Operating lease right-of-use assets

 

 

1,330,816

 

 

 

1,328,108

 

Goodwill

 

 

2,179,310

 

 

 

2,179,310

 

Trade name

 

 

1,025,000

 

 

 

1,025,000

 

Other intangible assets

 

 

4,793

 

 

 

4,793

 

Less accumulated amortization

 

 

(4,164

)

 

 

(4,079

)

Other intangible assets, net

 

 

629

 

 

 

714

 

Other long-term assets

 

 

142,347

 

 

 

137,474

 

Total assets

 

$

6,193,399

 

 

$

6,075,702

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and book overdrafts

 

$

352,401

 

 

$

339,485

 

Accrued salaries and employee benefits

 

 

127,000

 

 

 

129,484

 

Accrued expenses and other liabilities

 

 

218,926

 

 

 

145,846

 

Current portion of operating lease liabilities

 

 

276,619

 

 

 

258,289

 

Current portion of long-term debt and other lease liabilities

 

 

20,234

 

 

 

2,203

 

Total current liabilities

 

 

995,180

 

 

 

875,307

 

Senior secured credit facilities, net, excluding current portion

 

 

1,649,509

 

 

 

1,646,281

 

Operating lease liabilities, excluding current portion

 

 

1,056,059

 

 

 

1,083,575

 

Deferred taxes, net

 

 

282,350

 

 

 

280,920

 

Other long-term liabilities

 

 

138,069

 

 

 

134,354

 

Total liabilities

 

 

4,121,167

 

 

 

4,020,437

 

Commitments and contingencies (Notes 3, 4 and 8)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Class A common stock, $0.001 par value: Authorized - 1.0 billion shares;

    Issued and outstanding - 226.5 million shares as of May 1, 2021

    and 226.4 million shares as of January 30, 2021

 

 

226

 

 

 

226

 

Class B-1 common stock, $0.001 par value: Authorized - 75.0 million shares;

    Issued and outstanding - 37.8 million shares

 

 

38

 

 

 

38

 

Class B-2 common stock, $0.000001 par value: Authorized - 75.0 million shares;

    Issued and outstanding - 37.8 million shares

 

 

 

 

 

 

Preferred stock, $0.001 par value: Authorized - 25.0 million shares;

    Issued and outstanding - none

 

 

 

 

 

 

Additional paid-in-capital

 

 

2,103,714

 

 

 

2,092,110

 

Accumulated deficit

 

 

(14,691

)

 

 

(22,251

)

Accumulated other comprehensive loss

 

 

(2,061

)

 

 

(1,275

)

Total stockholders’ equity

 

 

2,087,226

 

 

 

2,068,848

 

Noncontrolling interest

 

 

(14,994

)

 

 

(13,583

)

Total equity

 

 

2,072,232

 

 

 

2,055,265

 

Total liabilities and equity

 

$

6,193,399

 

 

$

6,075,702

 

 

See accompanying notes to consolidated financial statements.

2


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts) (Unaudited)

 

 

 

Thirteen weeks ended

 

 

 

May 1,

2021

 

 

May 2,

2020

 

Net sales

 

$

1,414,994

 

 

$

1,113,521

 

Cost of sales

 

 

818,009

 

 

 

647,239

 

Gross profit

 

 

596,985

 

 

 

466,282

 

Selling, general and administrative expenses

 

 

549,236

 

 

 

449,917

 

Operating income

 

 

47,749

 

 

 

16,365

 

Interest income

 

 

(21

)

 

 

(184

)

Interest expense

 

 

20,529

 

 

 

60,808

 

Loss on extinguishment and modification of debt

 

 

20,838

 

 

 

 

Income (loss) before income taxes and income from

   equity method investees

 

 

6,403

 

 

 

(44,259

)

Income tax expense (benefit)

 

 

2,679

 

 

 

(10,555

)

Income from equity method investees

 

 

(2,425

)

 

 

(332

)

Net income (loss)

 

 

6,149

 

 

 

(33,372

)

Net loss attributable to noncontrolling interest

 

 

(1,411

)

 

 

(2,204

)

Net income (loss) attributable to Class A and B-1 common

   stockholders

 

$

7,560

 

 

$

(31,168

)

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Basic

 

$

0.03

 

 

$

(0.15

)

Diluted

 

$

0.03

 

 

$

(0.15

)

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing net income (loss) per Class A

   and B-1 common share (1):

 

 

 

 

 

 

 

 

Basic

 

 

264,215

 

 

 

209,015

 

Diluted

 

 

265,028

 

 

 

209,015

 

 

(1)

Amounts for periods prior to the Company’s conversion to a Delaware corporation have been retrospectively adjusted to give effect to the organizational transactions described in Note 1. See Note 7 for further discussion.

 

See accompanying notes to consolidated financial statements.

3


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands) (Unaudited)

 

 

 

Thirteen weeks ended

 

 

 

May 1,

2021

 

 

May 2,

2020

 

Net income (loss)

 

$

6,149

 

 

$

(33,372

)

Net loss attributable to noncontrolling interest

 

 

(1,411

)

 

 

(2,204

)

Net income (loss) attributable to Class A and B-1 common

   stockholders

 

 

7,560

 

 

 

(31,168

)

 

 

 

 

 

 

 

 

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(786

)

 

 

(4,970

)

Unrealized loss on derivatives

 

 

 

 

 

(52

)

Losses on derivatives reclassified to income

 

 

 

 

 

1,728

 

Total other comprehensive loss, net of tax

 

 

(786

)

 

 

(3,294

)

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

 

5,363

 

 

 

(36,666

)

Comprehensive loss attributable to noncontrolling

   interest

 

 

(1,411

)

 

 

(2,204

)

Comprehensive income (loss) attributable to Class A and B-1

   common stockholders

 

$

6,774

 

 

$

(34,462

)

 

See accompanying notes to consolidated financial statements.

4


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ / MEMBERS’ EQUITY

(In thousands) (Unaudited)

 

 

 

 

 

 

 

Common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Members’

interest (1)

 

 

Class

A

(shares)

 

 

Class

B-1

(shares)

 

 

Class

B-2

(shares)

 

 

Amount

 

 

Additional paid-in capital

 

 

Accumulated

deficit (1)

 

 

Accumulated

other

comprehensive

loss

 

 

Total

stockholders’

equity

 

 

Noncontrolling

interest

 

 

Total

equity

 

Balance at January 30, 2021

 

$

 

 

 

226,424

 

 

 

37,791

 

 

 

37,791

 

 

$

264

 

 

$

2,092,110

 

 

$

(22,251

)

 

$

(1,275

)

 

$

2,068,848

 

 

$

(13,583

)

 

$

2,055,265

 

Equity-based compensation expense

   (Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,604

 

 

 

 

 

 

 

 

 

11,604

 

 

 

 

 

 

11,604

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,560

 

 

 

 

 

 

7,560

 

 

 

(1,411

)

 

 

6,149

 

Foreign currency translation

   adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(786

)

 

 

(786

)

 

 

 

 

 

(786

)

Issuance of restricted stock awards

 

 

 

 

 

55

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at May 1, 2021

 

$

 

 

 

226,479

 

 

 

37,791

 

 

 

37,791

 

 

$

264

 

 

$

2,103,714

 

 

$

(14,691

)

 

$

(2,061

)

 

$

2,087,226

 

 

$

(14,994

)

 

$

2,072,232

 

 

 

 

 

 

 

 

Common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Members’

interest (1)

 

 

Class

A

(shares)

 

 

Class

B-1

(shares)

 

 

Class

B-2

(shares)

 

 

Amount

 

 

Additional paid-in capital

 

 

Accumulated

deficit (1)

 

 

Accumulated

other

comprehensive

loss

 

 

Total

members’

equity

 

 

Noncontrolling

interest

 

 

Total

equity

 

Balance at February 1, 2020

 

$

1,358,130

 

 

 

 

 

 

 

 

 

 

 

$

 

 

$

 

 

$

(780,466

)

 

$

(8,273

)

 

$

569,391

 

 

$

(8,330

)

 

$

561,061

 

Equity-based compensation expense

   (Note 7)

 

 

2,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,305

 

 

 

 

 

 

2,305

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31,168

)

 

 

 

 

 

(31,168

)

 

 

(2,204

)

 

 

(33,372

)

Foreign currency translation

   adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,970

)

 

 

(4,970

)

 

 

 

 

 

(4,970

)

Unrealized loss on derivatives,

   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(52

)

 

 

(52

)

 

 

 

 

 

(52

)

Losses on derivatives reclassified to

   income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,728

 

 

 

1,728

 

 

 

 

 

 

1,728

 

Balance at May 2, 2020

 

$

1,360,435

 

 

 

 

 

 

 

 

 

 

 

$

 

 

$

 

 

$

(811,634

)

 

$

(11,567

)

 

$

537,234

 

 

$

(10,534

)

 

$

526,700

 

 

(1)

Balances prior to the Company's conversion to a Delaware corporation were reclassified to additional paid-in capital to give effect to the organizational transactions described in Note 1.

 

 

See accompanying notes to consolidated financial statements.

5


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

 

 

 

Thirteen weeks ended

 

 

 

May 1,

2021

 

 

May 2,

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

6,149

 

 

$

(33,372

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

41,607

 

 

 

43,567

 

Amortization of debt discounts and issuance costs

 

 

2,165

 

 

 

6,028

 

Provision for deferred taxes

 

 

1,708

 

 

 

(11,680

)

Equity-based compensation

 

 

11,604

 

 

 

2,305

 

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

 

 

947

 

 

 

3,409

 

Loss on extinguishment and modification of debt

 

 

20,838

 

 

 

 

Income from equity method investees

 

 

(2,425

)

 

 

(332

)

Amounts reclassified out of accumulated other comprehensive income

   (Note 5)

 

 

 

 

 

2,337

 

Change in contingent consideration obligation

 

 

 

 

 

(553

)

Non-cash operating lease costs

 

 

105,188

 

 

 

108,841

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

3,748

 

 

 

(3,767

)

Merchandise inventories

 

 

(36,008

)

 

 

(3,307

)

Prepaid expenses and other assets

 

 

(9,140

)

 

 

(6,302

)

Accounts payable and book overdrafts

 

 

20,119

 

 

 

(74,074

)

Accrued salaries and employee benefits

 

 

(2,483

)

 

 

(10,153

)

Accrued expenses and other liabilities

 

 

66,120

 

 

 

5,853

 

Operating lease liabilities

 

 

(116,994

)

 

 

(64,188

)

Other long-term liabilities

 

 

1,859

 

 

 

3,099

 

Net cash provided by (used in) operating activities

 

 

115,002

 

 

 

(32,289

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Cash paid for fixed assets

 

 

(47,351

)

 

 

(27,895

)

Net cash used in investing activities

 

 

(47,351

)

 

 

(27,895

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings under long-term debt agreements

 

 

1,700,000

 

 

 

397,000

 

Repayments of long-term debt

 

 

(1,678,111

)

 

 

(142,313

)

Debt refinancing costs

 

 

(24,665

)

 

 

 

Payments for finance lease liabilities

 

 

(593

)

 

 

(935

)

Payment of offering costs

 

 

(3,844

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(7,213

)

 

 

253,752

 

Net increase in cash, cash equivalents and restricted cash

 

 

60,438

 

 

 

193,568

 

Cash, cash equivalents and restricted cash at beginning of year

 

 

119,540

 

 

 

154,718

 

Cash, cash equivalents and restricted cash at end of year

 

$

179,978

 

 

$

348,286

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Interest paid, net

 

$

6,958

 

 

$

49,527

 

Capitalized interest

 

$

47

 

 

$

56

 

Income taxes paid

 

$

218

 

 

$

288

 

Supplemental non-cash investing and financing activities disclosure:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses for capital expenditures

 

$

23,386

 

 

$

15,946

 

 

See accompanying notes to consolidated financial statements.

6


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

Petco Health and Wellness Company, Inc. (together with its consolidated subsidiaries, the “Company”) is a national specialty retailer of premium pet consumables, supplies and companion animals and services. The Company manages its business as one reportable operating segment.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary for a fair presentation as prescribed by accounting principles generally accepted in the United States (“GAAP”). All adjustments were comprised of normal recurring adjustments, except as noted in these Notes to Consolidated Financial Statements.

There have been no significant changes from the significant accounting policies disclosed in Note 1 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2021.

The results of operations for the thirteen weeks ended May 1, 2021 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending January 29, 2022.

Corporate Conversion and Initial Public Offering

The Company previously operated as a Delaware limited liability company under the name PET Acquisition LLC. In January 2021, the Company converted to a Delaware corporation pursuant to a statutory conversion and changed its name to Petco Health and Wellness Company, Inc. The existing balances of members’ interest and accumulated deficit prior to this conversion were reclassified to additional paid-in capital in the condensed consolidated balance sheets. This reclassification had no effect on the Company’s results of operations.

On January 19, 2021, the Company completed its initial public offering of 55.2 million newly-issued shares of its Class A common stock. The offering price was $18.00 per share. The net proceeds from the initial public offering were used to pay a portion of the principal amount and accrued interest on the Company’s debt obligations. Refer to Note 3 and Note 4 for further discussion on the Company’s use of proceeds from the initial public offering.

Subsequent Event

On June 1, 2021, Scooby Aggregator, LP, the Company’s principal stockholder, completed the sale of 22 million existing shares of Class A common stock in connection with a secondary offering. The offering price to the public was $24.00 per share. The Company received no proceeds from the secondary offering. Expenses incurred by the Company related to the secondary offering were not material.

Use of Estimates

The preparation of these condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates are based on information that is currently available and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions or conditions.  

7


 

Cash and Cash Equivalents

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the condensed consolidated balance sheets to the total amounts reported in the condensed consolidated statements of cash flows.

 

 

 

May 1,

2021

 

 

January 30,

2021

 

Cash and cash equivalents

 

$

174,034