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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 April 30, 2022

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 June 7, 2022 was 227,628,622 .

The number of shares of the registrant’s Class B-1 Common Stock outstanding as of June 7, 2022 was 37,790,781.

The number of shares of the registrant’s Class B-2 Common Stock outstanding as of June 7, 2022 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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

Item 4.

Controls and Procedures

23

 

 

 

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

25

Item 3.

Defaults Upon Senior Securities

25

Item 4.

Mine Safety Disclosures

25

Item 5.

Other Information

25

Item 6.

Exhibits

26

Signatures

27

 

 

1


 

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (this “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. Forward-looking and other statements in this Form 10-Q may also address our progress, plans, and goals with respect to sustainability initiatives, and the inclusion of such statements is not an indication that these contents are necessarily material to investors or required to be disclosed in our filings with the U.S. Securities and Exchange Commission (the “SEC”). Such plans and goals may change, and statements regarding such plans and goals are not guarantees or promises that they will be met. In addition, historical, current, and forward-looking sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future.

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 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 many risks, uncertainties and other factors that could cause actual results or events to differ materially from the potential results or events discussed in such forward-looking statements, including, without limitation, those identified in this 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, 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 our other filings with the SEC. 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.

In addition, statements such as “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Form 10-Q. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

2


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

 

 

 

April 30,

2022

 

 

January 29,

2022

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

190,893

 

 

$

211,602

 

Receivables, less allowance for credit losses ($1,114 and $931, respectively)

 

 

42,221

 

 

 

55,618

 

Merchandise inventories, net

 

 

682,040

 

 

 

675,111

 

Prepaid expenses

 

 

52,129

 

 

 

42,355

 

Other current assets

 

 

81,602

 

 

 

86,091

 

Total current assets

 

 

1,048,885

 

 

 

1,070,777

 

Fixed assets

 

 

1,792,202

 

 

 

1,745,691

 

Less accumulated depreciation

 

 

(1,056,858

)

 

 

(1,018,769

)

Fixed assets, net

 

 

735,344

 

 

 

726,922

 

Operating lease right-of-use assets

 

 

1,356,879

 

 

 

1,338,465

 

Goodwill

 

 

2,183,991

 

 

 

2,183,991

 

Trade name

 

 

1,025,000

 

 

 

1,025,000

 

Other long-term assets

 

 

155,688

 

 

 

152,786

 

Total assets

 

$

6,505,787

 

 

$

6,497,941

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and book overdrafts

 

$

392,662

 

 

$

403,976

 

Accrued salaries and employee benefits

 

 

125,616

 

 

 

150,630

 

Accrued expenses and other liabilities

 

 

213,396

 

 

 

210,872

 

Current portion of operating lease liabilities

 

 

258,349

 

 

 

265,897

 

Current portion of long-term debt and other lease liabilities

 

 

21,789

 

 

 

21,764

 

Total current liabilities

 

 

1,011,812

 

 

 

1,053,139

 

Senior secured credit facilities, net, excluding current portion

 

 

1,637,365

 

 

 

1,640,390

 

Operating lease liabilities, excluding current portion

 

 

1,114,268

 

 

 

1,096,133

 

Deferred taxes, net

 

 

322,626

 

 

 

318,355

 

Other long-term liabilities

 

 

132,009

 

 

 

134,105

 

Total liabilities

 

 

4,218,080

 

 

 

4,242,122

 

Commitments and contingencies (Notes 3 and 6)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

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

    Issued and outstanding - 227.5 million and 227.2 million shares, respectively

 

 

227

 

 

 

227

 

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

 

 

2,143,505

 

 

 

2,133,821

 

Retained earnings

 

 

166,859

 

 

 

142,166

 

Accumulated other comprehensive loss

 

 

(3,836

)

 

 

(2,238

)

Total stockholders’ equity

 

 

2,306,793

 

 

 

2,274,014

 

Noncontrolling interest

 

 

(19,086

)

 

 

(18,195

)

Total equity

 

 

2,287,707

 

 

 

2,255,819

 

Total liabilities and equity

 

$

6,505,787

 

 

$

6,497,941

 

 

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

 

 

 

April 30,

2022

 

 

May 1,

2021

 

Net sales

 

$

1,475,991

 

 

$

1,414,994

 

Cost of sales

 

 

868,317

 

 

 

818,009

 

Gross profit

 

 

607,674

 

 

 

596,985

 

Selling, general and administrative expenses

 

 

557,735

 

 

 

549,236

 

Operating income

 

 

49,939

 

 

 

47,749

 

Interest income

 

 

(20

)

 

 

(21

)

Interest expense

 

 

19,634

 

 

 

20,529

 

Loss on extinguishment and modification of debt

 

 

 

 

 

20,838

 

Other non-operating income

 

 

(314

)

 

 

 

Income before income taxes and income

   from equity method investees

 

 

30,639

 

 

 

6,403

 

Income tax expense

 

 

10,000

 

 

 

2,679

 

Income from equity method investees

 

 

(3,163

)

 

 

(2,425

)

Net income

 

 

23,802

 

 

 

6,149

 

Net loss attributable to noncontrolling interest

 

 

(891

)

 

 

(1,411

)

Net income attributable to Class A and B-1

   common stockholders

 

$

24,693

 

 

$

7,560

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Basic

 

$

0.09

 

 

$

0.03

 

Diluted

 

$

0.09

 

 

$

0.03

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing net

    income per Class A and B-1 common share:

 

 

 

 

 

 

 

 

Basic

 

 

265,050

 

 

 

264,215

 

Diluted

 

 

265,701

 

 

 

265,028

 

 

 

See accompanying notes to consolidated financial statements.

4


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands) (Unaudited)

 

 

 

Thirteen weeks ended

 

 

 

April 30,

2022

 

 

May 1,

2021

 

Net income

 

$

23,802

 

 

$

6,149

 

Net loss attributable to noncontrolling interest

 

 

(891

)

 

 

(1,411

)

Net income attributable to Class A and B-1

   common stockholders

 

 

24,693

 

 

 

7,560

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(1,598

)

 

 

(786

)

Total other comprehensive loss, net of tax

 

 

(1,598

)

 

 

(786

)

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

22,204

 

 

 

5,363

 

Comprehensive loss attributable to noncontrolling

   interest

 

 

(891

)

 

 

(1,411

)

Comprehensive income attributable to Class A and

   B-1 common stockholders

 

$

23,095

 

 

$

6,774

 

 

See accompanying notes to consolidated financial statements.

5


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands) (Unaudited)

 

 

 

Common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class

A

(shares)

 

 

Class

B-1

(shares)

 

 

Class

B-2

(shares)

 

 

Amount

 

 

Additional paid-in capital

 

 

Retained earnings

 

 

Accumulated

other

comprehensive

loss

 

 

Total

stockholders’

equity

 

 

Noncontrolling

interest

 

 

Total

equity

 

Balance at January 29, 2022

 

 

227,187

 

 

 

37,791

 

 

 

37,791

 

 

$

265

 

 

$

2,133,821

 

 

$

142,166

 

 

$

(2,238

)

 

$

2,274,014

 

 

$

(18,195

)

 

$

2,255,819

 

Equity-based compensation expense

   (Note 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,055

 

 

 

 

 

 

 

 

 

12,055

 

 

 

 

 

 

12,055

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,693

 

 

 

 

 

 

24,693

 

 

 

(891

)

 

 

23,802

 

Foreign currency translation

   adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,598

)

 

 

(1,598

)

 

 

 

 

 

(1,598

)

Issuance of common stock,

   net of tax withholdings

 

 

291

 

 

 

 

 

 

 

 

 

 

 

 

(2,371

)

 

 

 

 

 

 

 

 

(2,371

)

 

 

 

 

 

(2,371

)

Balance at April 30, 2022

 

 

227,478

 

 

 

37,791

 

 

 

37,791

 

 

$

265

 

 

$

2,143,505

 

 

$

166,859

 

 

$

(3,836

)

 

$

2,306,793

 

 

$

(19,086

)

 

$

2,287,707

 

 

 

 

Common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class

A

(shares)

 

 

Class

B-1

(shares)

 

 

Class

B-2

(shares)

 

 

Amount

 

 

Additional paid-in capital

 

 

Accumulated

deficit

 

 

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 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

See accompanying notes to consolidated financial statements.

6


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

 

 

 

Thirteen weeks ended

 

 

 

April 30,

2022

 

 

May 1,

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

23,802

 

 

$

6,149

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

46,967

 

 

 

41,607

 

Amortization of debt discounts and issuance costs

 

 

1,224

 

 

 

2,165

 

Provision for deferred taxes

 

 

4,832

 

 

 

1,708

 

Equity-based compensation

 

 

12,222

 

 

 

11,604

 

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

 

 

162

 

 

 

947

 

Loss on extinguishment and modification of debt

 

 

 

 

 

20,838

 

Income from equity method investees

 

 

(3,163

)

 

 

(2,425

)

Non-cash operating lease costs

 

 

105,249

 

 

 

105,188

 

Other non-operating income

 

 

(314

)

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

13,397

 

 

 

3,748

 

Merchandise inventories

 

 

(6,930

)

 

 

(36,008

)

Prepaid expenses and other assets

 

 

(9,896

)

 

 

(9,140

)

Accounts payable and book overdrafts

 

 

(11,314

)

 

 

20,119

 

Accrued salaries and employee benefits

 

 

(16,478

)

 

 

(2,483

)

Accrued expenses and other liabilities

 

 

11,290

 

 

 

66,120

 

Operating lease liabilities

 

 

(112,272

)

 

 

(116,994

)

Other long-term liabilities

 

 

(1,259

)

 

 

1,859

 

Net cash provided by operating activities

 

 

57,519

 

 

 

115,002

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Cash paid for fixed assets

 

 

(65,910

)

 

 

(47,351

)

Net cash used in investing activities

 

 

(65,910

)

 

 

(47,351

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings under long-term debt agreements

 

 

 

 

 

1,700,000

 

Repayments of long-term debt

 

 

(4,250

)

 

 

(1,678,111

)

Debt refinancing costs

 

 

 

 

 

(24,665

)

Payments for finance lease liabilities

 

 

(1,022

)

 

 

(593

)

Proceeds from employee stock purchase plan and stock option exercises

 

 

1,453

 

 

 

 

Tax withholdings on stock-based awards

 

 

(11,441

)

 

 

 

Payment of offering costs

 

 

 

 

 

(3,844

)

Net cash used in financing activities

 

 

(15,260

)

 

 

(7,213

)

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

 

 

(23,651

)

 

 

60,438

 

Cash, cash equivalents and restricted cash at beginning of year

 

 

221,890

 

 

 

119,540

 

Cash, cash equivalents and restricted cash at end of year

 

$

198,239

 

 

$

179,978

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Interest paid, net

 

$

17,203

 

 

$

6,958

 

Capitalized interest

 

$

55

 

 

$

47

 

Income taxes paid

 

$

669

 

 

$

218

 

Supplemental non-cash investing and financing activities disclosure:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses for capital expenditures

 

$

27,083

 

 

$

23,386

 

 

See accompanying notes to consolidated financial statements.

7


 

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 category-defining health and wellness company focused on improving the lives of pets, pet parents, and its own partners. The Company manages its business as one reportable operating segment.

In the opinion of management, the accompanying 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 29, 2022.

The accompanying consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Interim financial results are not necessarily indicative of results anticipated for the full year. The accompanying consolidated financial statements and these Notes to Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022, from which the prior year balance sheet information herein was derived.

Veterinary Joint Venture

As of April 30, 2022, the Company held a 50% investment in a joint venture with a domestic partner to build and operate veterinary clinics in Petco locations. The joint venture was a variable interest entity for which the Company was the primary beneficiary, and accordingly, the joint venture’s results of operations and statements of financial position are included in the Company’s consolidated financial statements. In May 2022, the Company completed the purchase of the remaining 50% of the issued and outstanding membership interests of the joint venture, which is now a wholly owned subsidiary of the Company, for cash consideration of $35.0 million. Direct transaction costs related to this purchase were not material.

Use of Estimates

The preparation of these 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 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.  

8


 

Cash and Cash Equivalents

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

 

 

 

April 30,

2022

 

 

January 29,

2022

 

Cash and cash equivalents

 

$

190,893

 

 

$

211,602

 

Restricted cash included in other current assets

 

 

7,346

 

 

 

10,288

 

Total cash, cash equivalents and restricted cash in

   the statement of cash flows

 

$

198,239

 

 

$

221,890

 

 

Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2020-04 – Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships, and other transactions affected by the anticipated transition from LIBOR. As a result of the reference rate reform initiative, certain widely used reference rates such as LIBOR are expected to be discontinued. The guidance is designed to simplify how entities account for contracts, such as receivables, debt, leases, derivative instruments and hedging, that are modified to replace LIBOR or other benchmark interest rates with new rates. The guidance is effective upon issuance and may be applied through December 31, 2022. The Company is currently evaluating the impact of this accounting standard, but does not expect it to have a material impact on the consolidated financial statements and related disclosures.

2. Revenue Recognition

Net sales by product type and services were as follows (in thousands):

 

 

Thirteen weeks ended

 

 

April 30,

2022

 

 

May 1,

2021

 

Consumables

$

685,930

 

 

$

595,132

 

Supplies and companion animals

 

599,179

 

 

 

658,172

 

Services and other

 

190,882

 

 

 

161,690

 

Net sales

$

1,475,991

 

 

$

1,414,994

 

 

3. Senior Secured Credit Facilities

The Company previously had a senior secured term loan facility (the “Amended Term Loan Facility”), which was fully repaid on March 4, 2021, and a senior secured asset-based revolving credit facility (the “Amended Revolving Credit Facility”), which was terminated on March 4, 2021. On March 4, 2021, the Company entered into a $1,700.0 million secured term loan facility maturing on March 4, 2028 (the “First Lien Term Loan”) and a secured asset-based revolving credit facility with availability of up to $500.0 million, subject to a borrowing base, maturing on March 4, 2026 (the “ABL Revolving Credit Facility”).

As of April 30, 2022, the Company was in compliance with its covenants under the First Lien Term Loan and the ABL Revolving Credit Facility.

Term Loan Facilities

 On March 4, 2021, the Company entered into the First Lien Term Loan and repaid all outstanding principal and interest on the Amended Term Loan Facility. Interest on the First Lien Term Loan is based on, at the Company’s option, either a base rate or Adjusted LIBOR, subject to a 0.75% floor, payable upon maturity of the LIBOR contract, in either case, plus the applicable rate. The base rate is the greater of the bank prime rate, federal

9


 

funds effective rate plus 0.5% or Adjusted LIBOR plus 1.0%. The applicable rate is 2.25% per annum for a base rate loan or 3.25% per annum for an Adjusted LIBOR loan. Principal and interest payments commenced on June 30, 2021. Principal payments are $4.25 million quarterly.

In connection with the March 4, 2021 transaction described above, the Company recognized a loss on debt extinguishment and modification of $19.6 million on the term loan facilities, which consisted of a $6.5 million write-off of unamortized debt discount and issuance costs on the Amended Term Loan Facility and $13.1 million of third-party expenses.

Fees relating to the Company’s entry into the First Lien Term Loan consisted of arranger fees and other third-party expenses. Of those fees, $3.2 million was capitalized as debt issuance costs, along with $4.3 million of original issue discount. The remaining portion of original issue discount and debt issuance costs of the Amended Term Loan Facility previously capitalized is being amortized over the contractual term of the First Lien Term Loan to interest expense using the effective interest rate in effect on the date of issuance, as these amounts represent the portion that was not substantially modified.

As of April 30, 2022, the outstanding principal balance of the First Lien Term Loan was $1,683.0 million ($1,658.8 million, net of the unamortized discount and debt issuance costs). As of January 29, 2022, the outstanding principal balance of the First Lien Term Loan was $1,687.3 million ($1,662.1 million, net of the unamortized discount and debt issuance costs). The weighted average interest rate on the borrowings outstanding was 4.3% and 4.1% as of April 30, 2022 and January 29, 2022, respectively. Debt issuance costs are being amortized over the contractual term to interest expense using the effective interest rate in effect at issuance. As of April 30, 2022 and January 29, 2022, the estimated fair value of the First Lien Term Loan was approximately $1,662.0 million and $1,687.3 million, respectively, based upon Level 2 fair value hierarchy inputs.

Revolving Credit Facilities

On March 4, 2021, the Company entered into the ABL Revolving Credit Facility and terminated the Amended Revolving Credit Facility. The ABL Revolving Credit Faci