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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 October 30, 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, a 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    

The number of shares of the registrant’s Class A Common Stock outstanding as of November 29, 2021 was 226,621,760.

The number of shares of the registrant’s Class B-1 Common Stock outstanding as of November 29, 2021 was 37,790,781.

The number of shares of the registrant’s Class B-2 Common Stock outstanding as of November 29, 2021 was 37,790,781.

 

 

 

 

 


 

 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

3

 

 

 

Item 1.

Financial Statements (Unaudited)

3

 

Consolidated Balance Sheets

3

 

Consolidated Statements of Operations

4

 

Consolidated Statements of Comprehensive Income (Loss)

5

 

Consolidated Statements of Stockholders' / Members' Equity

6

 

Consolidated Statements of Cash Flows

7

 

Notes to Unaudited Consolidated Financial Statements

8

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

26

 

 

 

PART II.

OTHER INFORMATION

27

 

 

 

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3.

Defaults Upon Senior Securities

27

Item 4.

Mine Safety Disclosures

27

Item 5.

Other Information

27

Item 6.

Exhibits

28

Signatures

29

 

 

1


 

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q 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 expectations with respect to our revenue, expenses, profitability, and other operating results; our growth plans; our ability to compete effectively in the markets in which we participate; the execution on our transformation initiatives; and the impact of the COVID-19 pandemic on our business.

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 we believe 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 Quarterly Report on Form 10-Q is, or should be relied upon as, a promise or representation or warranty as to any future matter, including any matter in respect of our operations or business or financial condition. 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 of our control.

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 Quarterly Report on Form 10-Q 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; (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 strategic ventures, alliances or acquisitions; (xi) economic or regulatory developments that might affect our ability to provide attractive promotional financing; (xii) interruptions and other supply chain issues; (xiii) catastrophic events, 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 our other filings with the Securities and Exchange Commission. The occurrence of any such factors could significantly alter the results set forth in these statements.

We caution 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. We undertake 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.

 

2


 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

 

 

 

October 30,

2021

 

 

January 30,

2021

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

221,484

 

 

$

111,402

 

Receivables, less allowance for credit losses ($1,617 and $3,267, respectively)

 

 

45,478

 

 

 

41,827

 

Merchandise inventories, net

 

 

644,389

 

 

 

538,675

 

Prepaid expenses

 

 

37,762

 

 

 

40,032

 

Other current assets

 

 

40,761

 

 

 

45,613

 

Total current assets

 

 

989,874

 

 

 

777,549

 

Fixed assets

 

 

1,657,876

 

 

 

1,487,987

 

Less accumulated depreciation

 

 

(975,456

)

 

 

(860,440

)

Fixed assets, net

 

 

682,420

 

 

 

627,547

 

Operating lease right-of-use assets

 

 

1,369,231

 

 

 

1,328,108

 

Goodwill

 

 

2,183,202

 

 

 

2,179,310

 

Trade name

 

 

1,025,000

 

 

 

1,025,000

 

Other intangible assets

 

 

4,793

 

 

 

4,793

 

Less accumulated amortization

 

 

(4,336

)

 

 

(4,079

)

Other intangible assets, net

 

 

457

 

 

 

714

 

Other long-term assets

 

 

219,362

 

 

 

137,474

 

Total assets

 

$

6,469,546

 

 

$

6,075,702

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and book overdrafts

 

$

380,174

 

 

$

339,485

 

Accrued salaries and employee benefits

 

 

159,705

 

 

 

129,484

 

Accrued expenses and other liabilities

 

 

214,525

 

 

 

145,846

 

Current portion of operating lease liabilities

 

 

256,831

 

 

 

258,289

 

Current portion of long-term debt and other lease liabilities

 

 

20,303

 

 

 

2,203

 

Total current liabilities

 

 

1,031,538

 

 

 

875,307

 

Senior secured credit facilities, net, excluding current portion

 

 

1,643,423

 

 

 

1,646,281

 

Operating lease liabilities, excluding current portion

 

 

1,128,201

 

 

 

1,083,575

 

Deferred taxes, net

 

 

309,072

 

 

 

280,920

 

Other long-term liabilities

 

 

136,399

 

 

 

134,354

 

Total liabilities

 

 

4,248,633

 

 

 

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 October 30, 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

 

 

2,126,294

 

 

 

2,092,110

 

Retained earnings (accumulated deficit)

 

 

113,172

 

 

 

(22,251

)

Accumulated other comprehensive loss

 

 

(2,328

)

 

 

(1,275

)

Total stockholders’ equity

 

 

2,237,402

 

 

 

2,068,848

 

Noncontrolling interest

 

 

(16,489

)

 

 

(13,583

)

Total equity

 

 

2,220,913

 

 

 

2,055,265

 

Total liabilities and equity

 

$

6,469,546

 

 

$

6,075,702

 

 

See accompanying notes to consolidated financial statements.

3


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

 

 

 

Thirteen weeks ended

 

 

Thirty-nine weeks ended

 

 

 

October 30,

2021

 

 

October 31,

2020

 

 

October 30,

2021

 

 

October 31,

2020

 

Net sales

 

$

1,443,264

 

 

$

1,259,997

 

 

$

4,292,792

 

 

$

3,582,489

 

Cost of sales

 

 

848,555

 

 

 

718,559

 

 

 

2,501,688

 

 

 

2,045,016

 

Gross profit

 

 

594,709

 

 

 

541,438

 

 

 

1,791,104

 

 

 

1,537,473

 

Selling, general and administrative expenses

 

 

532,760

 

 

 

495,401

 

 

 

1,607,938

 

 

 

1,410,024

 

Operating income

 

 

61,949

 

 

 

46,037

 

 

 

183,166

 

 

 

127,449

 

Interest income

 

 

(18

)

 

 

(49

)

 

 

(53

)

 

 

(332

)

Interest expense

 

 

18,769

 

 

 

53,795

 

 

 

58,504

 

 

 

169,096

 

Loss on extinguishment and modification of debt

 

 

 

 

 

 

 

 

20,838

 

 

 

 

Other non-operating income

 

 

(19,773

)

 

 

 

 

 

(64,934

)

 

 

 

Income (loss) before income taxes and income

   from equity method investees

 

 

62,971

 

 

 

(7,709

)

 

 

168,811

 

 

 

(41,315

)

Income tax expense (benefit)

 

 

14,095

 

 

 

(7,940

)

 

 

43,784

 

 

 

(13,537

)

Income from equity method investees

 

 

(2,637

)

 

 

(1,875

)

 

 

(7,490

)

 

 

(2,952

)

Net income (loss)

 

 

51,513

 

 

 

2,106

 

 

 

132,517

 

 

 

(24,826

)

Net loss attributable to noncontrolling interest

 

 

(1,239

)

 

 

(1,297

)

 

 

(2,906

)

 

 

(4,502

)

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

   common stockholders

 

$

52,752

 

 

$

3,403

 

 

$

135,423

 

 

$

(20,324

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

    share (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.20

 

 

$

0.02

 

 

$

0.51

 

 

$

(0.10

)

Diluted

 

$

0.20

 

 

$

0.02

 

 

$

0.51

 

 

$

(0.10

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing net

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

264,228

 

 

 

209,015

 

 

 

264,220

 

 

 

209,015

 

Diluted

 

 

265,322

 

 

 

209,015

 

 

 

265,189

 

 

 

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.

4


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands) (Unaudited)

 

 

 

Thirteen weeks ended

 

 

Thirty-nine weeks ended

 

 

 

October 30,

2021

 

 

October 31,

2020

 

 

October 30,

2021

 

 

October 31,

2020

 

Net income (loss)

 

$

51,513

 

 

$

2,106

 

 

$

132,517

 

 

$

(24,826

)

Net loss attributable to noncontrolling interest

 

 

(1,239

)

 

 

(1,297

)

 

 

(2,906

)

 

 

(4,502

)

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

   common stockholders

 

 

52,752

 

 

 

3,403

 

 

 

135,423

 

 

 

(20,324

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(1,056

)

 

 

942

 

 

 

(1,053

)

 

 

(3,747

)

Unrealized loss on derivatives

 

 

 

 

 

(16

)

 

 

 

 

 

(77

)

Losses on derivatives reclassified to income

 

 

 

 

 

2,097

 

 

 

 

 

 

5,846

 

Total other comprehensive (loss) income, net of tax

 

 

(1,056

)

 

 

3,023

 

 

 

(1,053

)

 

 

2,022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

 

50,457

 

 

 

5,129

 

 

 

131,464

 

 

 

(22,804

)

Comprehensive loss attributable to noncontrolling

   interest

 

 

(1,239

)

 

 

(1,297

)

 

 

(2,906

)

 

 

(4,502

)

Comprehensive income (loss) attributable to Class A and

   B-1 common stockholders

 

$

51,696

 

 

$

6,426

 

 

$

134,370

 

 

$

(18,302

)

 

See accompanying notes to consolidated financial statements.

5


 

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) retained earnings (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

 

Equity-based compensation expense

   (Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,506

 

 

 

 

 

 

 

 

 

11,506

 

 

 

 

 

 

11,506

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

75,111

 

 

 

 

 

 

75,111

 

 

 

(256

)

 

 

74,855

 

Foreign currency translation

   adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

789

 

 

 

789

 

 

 

 

 

 

789

 

Issuance of common stock

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 31, 2021

 

$

 

 

 

226,491

 

 

 

37,791

 

 

 

37,791

 

 

$

264

 

 

$

2,115,220

 

 

$

60,420

 

 

$

(1,272

)

 

$

2,174,632

 

 

$

(15,250

)

 

$

2,159,382

 

Equity-based compensation expense

   (Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,087

 

 

 

 

 

 

 

 

 

11,087

 

 

 

 

 

 

11,087

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52,752

 

 

 

 

 

 

52,752

 

 

 

(1,239

)

 

 

51,513

 

Foreign currency translation

   adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,056

)

 

 

(1,056

)

 

 

 

 

 

(1,056

)

Issuance of common stock,

   including tax effects

 

 

 

 

 

1