UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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.
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☐ |
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Smaller reporting company |
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Emerging growth company |
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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
The number of shares of the registrant’s Class A Common Stock outstanding as of December 6, 2022 was
The number of shares of the registrant’s Class B-1 Common Stock outstanding as of December 6, 2022 was
The number of shares of the registrant’s Class B-2 Common Stock outstanding as of December 6, 2022 was
Table of Contents
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Page |
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PART I. |
3 |
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Item 1. |
3 |
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3 |
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4 |
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5 |
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6 |
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8 |
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9 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 |
Item 3. |
25 |
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Item 4. |
25 |
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PART II. |
27 |
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Item 1. |
27 |
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Item 1A. |
27 |
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Item 2. |
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Item 3. |
27 |
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Item 4. |
27 |
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Item 5. |
27 |
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Item 6. |
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29 |
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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 certain macroeconomic factors, including inflationary pressures, global supply chain constraints and global economic and geopolitical developments, 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; (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 referred to under “Risk Factors” and identified elsewhere in this Form 10-Q and 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)
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October 29, |
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January 29, |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Receivables, less allowance for credit losses ($ |
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Merchandise inventories, net |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Fixed assets |
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Less accumulated depreciation |
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( |
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( |
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Fixed assets, net |
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Operating lease right-of-use assets |
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Goodwill |
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Trade name |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable and book overdrafts |
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$ |
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$ |
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Accrued salaries and employee benefits |
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Accrued expenses and other liabilities |
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Current portion of operating lease liabilities |
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Current portion of long-term debt and other lease liabilities |
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Total current liabilities |
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Senior secured credit facilities, net, excluding current portion |
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Operating lease liabilities, excluding current portion |
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Deferred taxes, net |
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Other long-term liabilities |
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Total liabilities |
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Stockholders' equity: |
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Class A common stock, $ |
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Class B-1 common stock, $ |
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Class B-2 common stock, $ |
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Preferred stock, $ |
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Additional paid-in-capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
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( |
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Total stockholders’ equity |
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Noncontrolling interest |
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— |
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( |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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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)
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Thirteen weeks ended |
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Thirty-nine weeks ended |
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October 29, |
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October 30, |
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October 29, |
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October 30, |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Selling, general and administrative expenses |
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Operating income |
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Interest income |
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( |
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( |
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( |
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( |
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Interest expense |
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Loss on extinguishment and modification of debt |
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Other non-operating (income) loss |
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( |
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( |
) |
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( |
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Income before income taxes and income |
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Income tax expense |
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Income from equity method investees |
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( |
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( |
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( |
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( |
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Net income |
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Net loss attributable to noncontrolling interest |
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( |
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( |
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( |
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Net income attributable to Class A and B-1 |
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$ |
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$ |
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$ |
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$ |
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Net income per Class A and B-1 common share: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average shares used in computing net |
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Basic |
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Diluted |
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See accompanying notes to consolidated financial statements.
4
PETCO HEALTH AND WELLNESS COMPANY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands) (Unaudited)
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Thirteen weeks ended |
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Thirty-nine weeks ended |
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October 29, |
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October 30, |
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October 29, |
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October 30, |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Net loss attributable to noncontrolling interest |
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( |
) |
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( |
) |
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( |
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Net income attributable to Class A and B-1 |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustment |
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( |
) |
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( |
) |
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( |
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Total other comprehensive income (loss), net of tax |
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( |
) |
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( |
) |
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( |
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Comprehensive income |
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Comprehensive loss attributable to noncontrolling |
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( |
) |
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( |
) |
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( |
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Comprehensive income attributable to Class A and |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
5
PETCO HEALTH AND WELLNESS COMPANY, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands) (Unaudited)
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Common stock |
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Class |
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Class |
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Class |
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Amount |
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Additional paid-in capital |
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Retained earnings |
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Accumulated |
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Total |
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Noncontrolling |
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Total |
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Balance at January 29, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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Equity-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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|||
Foreign currency translation |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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— |
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( |
) |
Issuance of common stock, |
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— |
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— |
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— |
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( |
) |
|
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— |
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|
— |
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( |
) |
|
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— |
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( |
) |
|
Balance at April 30, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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||||||||
Equity-based compensation expense |
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— |
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— |
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— |
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— |
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|
|
— |
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|
— |
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|
|
|
|
— |
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|||
Net income |
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|
— |
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|
— |
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|
— |
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|
— |
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|
— |
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|
— |
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|
|
— |
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|||
Foreign currency translation |
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|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
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( |
) |
Investment in veterinary joint venture |
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— |
|
|
|
— |
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|
|
— |
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|
|
— |
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|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Issuance of common stock, |
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|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
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|
|||||
Balance at July 30, 2022 |
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|
|
|
|
|
|
|
|
|
$ |
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|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
— |
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|
$ |
|
||||||||
Equity-based compensation expense |
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— |
|
|
|
— |
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|
|
— |
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|
|
— |
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|
|
|
|
|
— |
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|
|
— |
|
|
|
|
|
|
— |
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|||
Net income |
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— |
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|
|
— |
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— |
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— |
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— |
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— |
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|
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— |
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|||
Foreign currency translation |
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— |
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|
— |
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— |
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— |
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— |
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— |
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— |
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|||
Deferred tax effect of investment |
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— |
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— |
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— |
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— |
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|
— |
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— |
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— |
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|||
Issuance of common stock, |
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— |
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|
|
— |
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|
|
— |
|
|
|
( |
) |
|
|
— |
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|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Balance at October 29, 2022 |
|
|
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|
|
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$ |
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|
$ |
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$ |
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|
$ |
( |
) |
|
$ |
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|
$ |
— |
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|
$ |
|
||||||||
|
|
Common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
Class |
|
|
Class |
|
|
Class |
|
|
Amount |
|
|
Additional paid-in capital |
|
|
(Accumulated |
|
|
Accumulated |
|
|
Total |
|
|
Noncontrolling |
|
|
Total |
|
||||||||||
Balance at January 30, 2021 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||||
Equity-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
|||
6
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Issuance of restricted stock awards |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Balance at May 1, 2021 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||||
Equity-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Issuance of common stock |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Balance at July 31, 2021 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||||
Equity-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Issuance of common stock, |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
||
Balance at October 30, 2021 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||||
See accompanying notes to consolidated financial statements.
7
PETCO HEALTH AND WELLNESS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
|
|
Thirty-nine weeks ended |
|
|||||
|
|
October 29, |
|
|
October 30, |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to net cash provided by operating |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Amortization of debt discounts and issuance costs |
|
|
|
|
|
|
||
Provision for deferred taxes |
|
|
( |
) |
|
|
|
|
Equity-based compensation |
|
|
|
|
|
|
||
Impairments, write-offs and losses on sale of fixed and other assets |
|
|
|
|
|
|
||
Loss on extinguishment and modification of debt |
|
|
|
|
|
|
||
Income from equity method investees |
|
|
( |
) |
|
|
( |
) |
Non-cash operating lease costs |
|
|
|
|
|
|
||
Other non-operating loss (income) |
|
|
|
|
|
( |
) |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
||
Receivables |
|
|
|
|
|
( |
) |
|
Merchandise inventories |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses and other assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable and book overdrafts |
|
|
( |
) |
|
|
|
|
Accrued salaries and employee benefits |
|
|
( |
) |
|
|
|
|
Accrued expenses and other liabilities |
|
|
|
|
|
|
||
Operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
Other long-term liabilities |
|
|
( |
) |
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
Cash paid for fixed assets |
|
|
( |
) |
|
|
( |
) |
Cash paid for acquisitions, net of cash acquired |
|
|
( |
) |
|
|
( |
) |
Cash paid for interest in veterinary joint venture |
|
|
( |
) |
|
|
|
|
Proceeds from sale of assets |
|
|
|
|
|
|
||
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Borrowings under long-term debt agreements |
|
|
|
|
|
|
||
Repayments of long-term debt |
|
|
( |
) |
|
|
( |
) |
Debt refinancing costs |
|
|
|
|
|
( |
) |
|
Payments for finance lease liabilities |
|
|
( |
) |
|
|
( |
) |
Proceeds from employee stock purchase plan and stock option exercises |
|
|
|
|
|
|
||
Tax withholdings on stock-based awards |
|
|
( |
) |
|
|
( |
) |
Payment of offering costs |
|
|
|
|
|
( |
) |
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
|
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
Supplemental cash flow disclosures: |
|
|
|
|
|
|
||
Interest paid, net |
|
$ |
|
|
$ |
|
||
Capitalized interest |
|
$ |
|
|
$ |
|
||
Income taxes paid |
|
$ |
|
|
$ |
|
||
Supplemental non-cash investing and financing activities disclosure: |
|
|
|
|
|
|
||
Accounts payable and accrued expenses for capital expenditures |
|
$ |
|
|
$ |
|
||
See accompanying notes to consolidated financial statements.
8
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
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.
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.
Veterinary Joint Venture
The Company previously held a
Derivative Instruments
In November 2022, the Company entered into a series of interest rate cap agreements to limit the maximum interest on a portion of the Company’s variable-rate debt and decrease its exposure to interest rate variability when the three-month Secured Overnight Financing Rate as published by CME Group exceeds
9
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):
|
|
October 29, |
|
|
January 29, |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash included in |
|
|
|
|
|
|
||
Total cash, cash equivalents and restricted cash in |
|
$ |
|
|
$ |
|
||
Recent Accounting Pronouncements
In March 2020, the 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 for 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 |
|
|
Thirty-nine weeks ended |
|
||||||||||
|
October 29, |
|
|
October 30, |
|
|
October 29, |
|
|
October 30, |
|
||||
Consumables |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Supplies and companion animals |
|
|
|
|
|
|
|
|
|
|
|
||||
Services and other |
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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
As of October 29, 2022,
Term Loan Facilities
On
10
Company’s option, either a base rate or Adjusted LIBOR, subject to a
In connection with the March 4, 2021 transaction described above, the Company recognized a loss on debt extinguishment and modification of $
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, $
As of October 29, 2022, the outstanding principal balance of the First Lien Term Loan was $
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 Facility has availability of up to $
Fees relating to the Company’s entry into the ABL Revolving Credit Facility consisted of arranger fees and other third-party expenses. Of those fees, $
As of October 29, 2022 and January 29, 2022,
The ABL Revolving Credit Facility has availability of up to $
Interest on the ABL Revolving Credit Facility is based on, at the Company’s option, either the base rate or Adjusted LIBOR subject to a floor of
11
currently equal to
The applicable margin is adjusted quarterly based on the average historical excess availability as a percentage of the Line Cap, which represents the lesser of the aggregate ABL Revolving Credit Facility and the borrowing base, as follows:
Average Historical Excess Availability |
|
Applicable |
|
|
Applicable |
|
||
Less than |
|
|
% |
|
|
% |
||
Less than |
|
|
% |
|
|
% |
||
Greater than or equal to |
|
|
% |
|
|
% |
||
The ABL Revolving Credit Facility is subject to an unused commitment fee. If the actual daily utilized portion exceeds 50%, the unused commitment fee is
4. Fair Value Measurements
Assets and Liabilities Measured on a Recurring Basis
The following table presents information about assets and liabilities that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value (in thousands):
|
|
October 29, 2022 |
|
|||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||
Assets (liabilities): |
|
|
|
|
|
|
|
|
|
|||
Money market mutual funds |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Investments of officers' life insurance |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Non-qualified deferred compensation plan |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Investment in Rover Group, Inc. |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
January 29, 2022 |
|
|||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||
Assets (liabilities): |
|
|
|
|
|
|
|
|
|
|||
Money market mutual funds |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Investments of officers' life insurance |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Non-qualified deferred compensation plan |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Investment in Rover Group, Inc. |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The fair value of money market mutual funds is based on quoted market prices, such as quoted net asset values published by the fund as supported in an active market. Money market mutual funds included in the Company’s cash and cash equivalents were $
The Company maintains a deferred compensation plan for key executives and other members of management, which is funded by investments in officers’ life insurance. The fair value of this obligation is based on participants’ elected investments, which reflect the closing market prices of similar assets.
The Company previously held an equity investment, in the form of multiple series of preferred stock, in A Place for Rover, Inc., an online marketplace for pet care, which was historically accounted for as an equity security
12
without a readily determinable fair value. In July 2021, A Place for Rover, Inc. completed a business combination with Nebula Caravel Acquisition Corp., a publicly-traded special purpose acquisition company. The combined entity was renamed to Rover Group, Inc. (“Rover”), and the Company’s equity investment was converted into shares of Rover Class A common stock. In September 2021, the Company received additional shares of Rover Class A common stock in accordance with certain earnout provisions from the July 2021 business combination. The Company now remeasures the fair value of its investment on a quarterly basis, and the resulting gains or losses are included in other non-operating income in the consolidated statements of operations. On November 23, 2021, the Company completed the sale of approximately
In February 2022, the Company amended a collaboration agreement with a vendor, and as part of the amendment the Company was granted a right to receive equity and warrants for common shares of the vendor that is subject to certain performance conditions and other contingencies. The Company evaluated the agreement under FASB ASC 705-20, Consideration Received from a Vendor, and no material consideration was recognized during the thirty-nine week period ended October 29, 2022.
Assets Measured on a Non-Recurring Basis
The Company’s non-financial assets, which primarily consist of goodwill, other intangible assets, fixed assets and equity and other investments, are reported at carrying value, or at fair value as of the date of the Company’s acquisition of Petco Holdings, Inc. LLC on January 26, 2016, and are not required to be measured at fair value on a recurring basis. However, on a periodic basis (at least annually for goodwill and indefinite-lived intangibles or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable), non-financial assets are assessed for impairment. If impaired, the carrying values of the assets are written down to fair value using Level 3 inputs.
There were no triggering events identified and no indication of impairment of the Company’s goodwill, indefinite-lived trade name, other intangible assets or equity and other investments during the thirteen or thirty-nine week periods ended October 29, 2022 and October 30, 2021. During the thirteen and thirty-nine week periods ended October 29, 2022, the Company recorded fixed asset and right-of-use asset impairment charges of $
5. Stockholders’ Equity
Equity-Based Compensation
Equity-based compensation awards under the Company’s current equity incentive plan (the “2021 Equity Incentive Plan”) include restricted stock units (“RSUs,” which include performance-based stock units), restricted stock awards (“RSAs”), non-qualified stock options, and other equity compensation awards. The Company also has an employee stock purchase plan (“ESPP”).
The Company’s controlling parent, Scooby LP, also maintains an incentive plan (the “2016 Incentive Plan”) under which it has awarded partnership unit awards to certain current and former employees, consultants, and non-employee directors of the Company that are restricted profit interests in Scooby LP subject to a distribution threshold (“Series C Units”).
13
|
|
Thirteen weeks ended |
|
|
Thirty-nine weeks ended |
|
||||||||||
|
|
October 29, |
|
|
October 30, |
|
|
October 29, |
|
|
October 30, |
|
||||
RSUs and RSAs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
ESPP |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other awards |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total equity-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Activity under the 2021 Equity Incentive Plan was as follows (shares and dollars in thousands):
|
|
RSUs and RSAs |
|
|
Options |
|
||
Nonvested/outstanding, January 29, 2022 |
|
|
|
|
|
|
||
Granted |
|
|
|
|
|
|
||
Vested and delivered/exercised |
|
|
( |
) |
|
|
( |
) |
Forfeited/expired |
|
|
( |
) |
|
|
( |
) |
Nonvested/outstanding, October 29, 2022 |
|
|
|
|
|
|
||
Unrecognized compensation expense as of October 29, 2022 |
|
$ |
|
|
$ |
|
||
Weighted average remaining expense period as of October 29, 2022 |
|
|
|
|
||||
RSA activity has not been material and relates to an RSA of Class A common stock granted to an executive in March 2021. For this grant,
The ESPP allows eligible employees to contribute up to
Series C Unit activity under the 2016 Incentive Plan was as follows (in thousands):
|
|
Units |
|
|
Outstanding, January 29, 2022 |
|
|
|
|
Granted |
|
|
|
|
Forfeited |
|
|
( |
) |
Outstanding, October 29, 2022 |
|
|
|
|
Vested, October 29, 2022 |
|
|
|
|
Earnings (Loss) Per Share
Potentially dilutive securities include potential Class A common shares related to outstanding stock options, unvested RSUs and RSAs, and the ESPP, calculated using the treasury stock method. The calculation of diluted shares outstanding excludes securities where the combination of the exercise or purchase price (in the case of
14
options and the ESPP) and the associated unrecognized compensation expense is greater than the average market price of Class A common shares because the inclusion of these securities would be anti-dilutive.
There were approximately
6. Commitments and Contingencies
The Company is involved in legal proceedings and is subject to other claims and litigation, in each case, arising in the ordinary course of its business. The Company has made accruals with respect to certain of these matters, where appropriate, which are reflected in the Company’s consolidated financial statements but are not, individually or in the aggregate, considered material. For other matters, the Company has not made accruals because management has not yet determined that a loss is probable or because the amount of loss cannot be reasonably estimated. While the ultimate outcome of the matters cannot be determined, the Company currently does not expect that these matters will have a material adverse effect on its consolidated financial statements. The outcome of any litigation is inherently uncertain, however, and if decided adversely to the Company, or if the Company determines that settlement of particular litigation is appropriate, the Company may be subject to liability that could have a material adverse effect on its consolidated financial statements.
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”), as well as the corresponding Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022 (the “2021 Form 10-K”). The discussion and analysis below contains certain forward-looking statements about our business and operations that are subject to the risks, uncertainties, and other factors referred to in Part II, Item 1A, “Risk Factors” of this Form 10-Q. These risks, uncertainties, and other factors could cause our actual results to differ materially from those expressed in, or implied by, the forward-looking statements. The risks described in this Form 10-Q and in other documents we file from time to time with the U.S. Securities and Exchange Commission (the “SEC”), including the section entitled “Forward-Looking Statements” in this Form 10-Q, should be carefully reviewed. All amounts herein are unaudited.
Overview
Founded in 1965, Petco Health and Wellness Company, Inc. (“Petco”, the “Company”, “we”, “our” and “us”) is a category-defining health and wellness company focused on improving the lives of pets, pet parents, and our own partners. We have 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. In recent years, we have transformed our business from a successful yet traditional retailer to a disruptive, fully integrated, omnichannel provider of holistic pet health and wellness offerings, including premium products, services, and veterinary care. Through our integrated ecosystem, we provide our over 25 million total active customers with a comprehensive offering of differentiated products and services to fulfill their pets’ health and wellness needs through our more than 1,500 pet care centers in the U.S., Mexico, and Puerto Rico, including a growing network of more than 225 in-store veterinary hospitals, our digital channel, and our flexible fulfillment options.
Our multicategory, go-to-market strategy integrates our strong digital assets with our nationwide physical footprint to meet the needs of pet parents who are looking for a single source for all their pet’s needs. Our e-commerce site and personalized mobile app serve as hubs for pet parents to manage their pets’ health, wellness, and merchandise needs, while enabling them to shop wherever, whenever, and however they want. By leveraging our extensive physical network of pet care centers, we are able to offer our comprehensive product and service offering in a localized manner with a meaningful last-mile advantage over much of our competition. The full value of our health and wellness ecosystem is realized for customers through our Vital Care membership program. From the nutrition and supplies pets need each day, to the services that keep them at optimal health, Vital Care makes it easier and more affordable for pet parents to care for their pet’s whole health all in one place. Vital Care memberships are at the top of our integrated loyalty programs, followed by our perks programs that provide rewards for frequent purchasing and our Pals Rewards loyalty program.
We strive to be a truly unique company, one that is saving and improving millions of pet lives and tangibly improving the lives of pet parents and the partners who work for us, while at the same time executing our differentiated strategy with excellence. In tandem with Petco Love (formerly the Petco Foundation), an independent nonprofit organization, we work with and support thousands of local animal welfare groups across the country and, through in-store adoption events, we have helped find homes for more than 6.6 million animals.
Macroeconomic factors, including the prolonged COVID-19 pandemic, inflationary pressures, supply chain constraints and global economic and geopolitical developments, have varying impacts on our results of operations that are difficult to isolate and quantify. We cannot predict the duration or ultimate severity of these macroeconomic factors or the ultimate impact on the broader economy or our operations and liquidity. Please refer to the risk factors referred to in Part II, Item 1A, “Risk Factors” of this Form 10-Q.
How We Assess the Performance of Our Business
In assessing our performance, we consider a variety of performance and financial measures, including the following:
16
Comparable Sales
Comparable sales is an important measure throughout the retail industry and includes both retail and digital sales of products and services. A new location or digital site is included in comparable sales beginning on the first day of the fiscal month following 12 full fiscal months of operation and is subsequently compared to like time periods from the previous year. Relocated pet care centers become comparable pet care centers on the first day of operation if the original pet care center was open longer than 12 full fiscal months. If, during the period presented, a pet care center was closed, sales from that pet care center are included up to the first day of the month of closing. There may be variations in the way in which some of our competitors and other retailers calculate comparable sales. As a result, data in this filing regarding our comparable sales may not be comparable to similar data made available by other retailers.
Comparable sales allow us to evaluate how our overall ecosystem is performing by measuring the change in period-over-period net sales from locations and digital sites that have been open for the applicable period. We intend to improve comparable sales by continuing initiatives aimed to increase customer retention, frequency of visits, and basket size. General macroeconomic and retail business trends are also a key driver of changes in comparable sales.
Non-GAAP Financial Measures
Management and our board of directors review, in addition to GAAP (as defined herein) measures, certain non-GAAP financial measures, including Adjusted EBITDA, and Free Cash Flow, to evaluate our operating performance, generate future operating plans, and make strategic decisions regarding the allocation of capital. Further explanations of these non-GAAP measures, along with reconciliations to their most comparable GAAP measures, are presented below under “Reconciliation of Non-GAAP Financial Measures to GAAP Measures.”
Executive Summary
The financial results for the thirteen weeks ended October 29, 2022 reflect continued business and customer growth and operational execution, while investing in strategic growth initiatives. Comparing the thirteen weeks ended October 29, 2022 with the thirteen weeks ended October 30, 2021 (unless otherwise noted), our results included the following:
17
Results of Operations
The following tables summarize our results of operations and the percent of net sales of line items included in our consolidated statements of operations (dollars in thousands):
|
|
Thirteen weeks ended |
|
|
Thirty-nine weeks ended |
|
||||||||||
|
|
October 29, |
|
|
October 30, |
|
|
October 29, |
|
|
October 30, |
|
||||
Net sales |
|
$ |
1,501,220 |
|
|
$ |
1,443,264 |
|
|
$ |
4,458,008 |
|
|
$ |
4,292,792 |
|
Cost of sales |
|
|
903,543 |
|
|
|
848,555 |
|
|
|
2,658,180 |
|
|
|
2,501,688 |
|
Gross profit |
|
|
597,677 |
|
|
|
594,709 |
|
|
|
1,799,828 |
|
|
|
1,791,104 |
|
Selling, general and administrative expenses |
|
|
549,622 |
|
|
|
532,760 |
|
|
|
1,651,829 |
|
|
|
1,607,938 |
|
Operating income |
|
|
48,055 |
|
|
|
61,949 |
|
|
|
147,999 |
|
|
|
183,166 |
|
Interest income |
|
|
(130 |
) |
|
|
(18 |
) |
|
|
(287 |
) |
|
|
(53 |
) |
Interest expense |
|
|
27,307 |
|
|
|
18,769 |
|
|
|
68,761 |
|
|
|
58,504 |
|
Loss on extinguishment and modification of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20,838 |
|
Other non-operating (income) loss |
|
|
(576 |
) |
|
|
(19,773 |
) |
|
|
9,369 |
|
|
|
(64,934 |
) |
Income before income taxes and income |
|
|
21,454 |
|
|
|
62,971 |
|
|
|
70,156 |
|
|
|
168,811 |
|
Income tax expense |
|
|
4,161 |
|
|
|
14,095 |
|
|
|
20,799 |
|
|
|
43,784 |
|
Income from equity method investees |
|
|
(2,627 |
) |
|
|
(2,637 |
) |
|
|
(7,821 |
) |
|
|
(7,490 |
) |
Net income |
|
|
19,920 |
|
|
|
51,513 |
|
|
|
57,178 |
|
|
|
132,517 |
|
Net loss attributable to noncontrolling interest |
|
|
— |
|
|
|
(1,239 |
) |
|
|
(891 |
) |
|
|
(2,906 |
) |
Net income attributable to Class A and B-1 |
|
$ |
19,920 |
|
|
$ |
52,752 |
|
|
$ |
58,069 |
|
|
$ |
135,423 |
|
|
|
Thirteen weeks ended |
|
|
Thirty-nine weeks ended |
|
||||||||||
|
|
October 29, |
|
|
October 30, |
|
|
October 29, |
|
|
October 30, |
|
||||
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of sales |
|
|
60.2 |
|
|
|
58.8 |
|
|
|
59.6 |
|
|
|
58.3 |
|
Gross profit |
|
|
39.8 |
|
|
|
41.2 |
|
|
|
40.4 |
|
|
|
41.7 |
|
Selling, general and administrative expenses |
|
|
36.6 |
|
|
|
36.9 |
|
|
|
37.1 |
|
|
|
37.5 |
|
Operating income |
|
|
3.2 |
|
|
|
4.3 |
|
|
|
3.3 |
|
|
|
4.2 |
|
Interest income |
|
|
(0.0 |
) |
|
|
(0.0 |
) |
|
|
(0.0 |
) |
|
|
(0.0 |
) |
Interest expense |
|
|
1.8 |
|
|
|
1.3 |
|
|
|
1.5 |
|
|
|
1.3 |
|
Loss on extinguishment and modification of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.5 |
|
Other non-operating (income) loss |
|
|
(0.0 |
) |
|
|
(1.4 |
) |
|
|
0.2 |
|
|
|
(1.5 |
) |
Income before income taxes and income |
|
|
1.4 |
|
|
|
4.4 |
|
|
|
1.6 |
|
|
|
3.9 |
|
Income tax expense |
|
|
0.3 |
|
|
|
1.0 |
|
|
|
0.5 |
|
|
|
1.0 |
|
Income from equity method investees |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
Net income |
|
|
1.3 |
|
|
|
3.6 |
|
|
|
1.3 |
|
|
|
3.1 |
|
Net loss attributable to noncontrolling interest |
|
|
— |
|
|
|
(0.1 |
) |
|
|
(0.0 |
) |
|
|
(0.1 |
) |
Net income attributable to Class A and B-1 |
|
|
1.3 |
% |
|
|
3.7 |
% |
|
|
1.3 |
% |
|
|
3.2 |
% |
|
|
Thirteen weeks ended |
|
|
Thirty-nine weeks ended |
|
||||||||||
|
|
October 29, |
|
|
October 30, |
|
|
October 29, |
|
|
October 30, |
|
||||
Operational Data: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Comparable sales increase |
|
|
4.1 |
% |
|
|
15.5 |
% |
|
|
4.3 |
% |
|
|
20.9 |
% |
Total pet care centers at end of period |
|
|
1,428 |
|
|
|
1,449 |
|
|
|
1,428 |
|
|
|
1,449 |
|
Adjusted EBITDA (in thousands) |
|
$ |
137,555 |
|
|
$ |
138,509 |
|
|
$ |
412,061 |
|
|
$ |
419,328 |
|
18
Thirteen and Thirty-nine Weeks Ended October 29, 2022 Compared with Thirteen and Thirty-nine Weeks Ended October 30, 2021
Net Sales and Comparable Sales
|
Thirteen weeks ended |
|
|
Thirty-nine weeks ended |
|
||||||||||||||||||||||||||
(dollars in thousands) |
October 29, |
|
|
October 30, |
|
|
$ |
|
|
% |
|
|
October 29, |
|
|
October 30, |
|
|
$ |
|
|
% |
|
||||||||
Consumables |
$ |
720,512 |
|
|
$ |
643,125 |
|
|
$ |
77,387 |
|
|
|
12.0 |
% |
|
$ |
2,093,510 |
|
|
$ |
1,850,203 |
|
|
$ |
243,307 |
|
|
|
13.2 |
% |
Supplies and companion animals |
|
575,259 |
|
|
|
635,278 |
|
|
|
(60,019 |
) |
|
|
(9.4 |
%) |
|
|
1,775,149 |
|
|
|
1,957,022 |
|
|
|
(181,873 |
) |
|
|
(9.3 |
%) |
Services and other |
|
205,449 |
|
|
|
164,861 |
|
|
|
40,588 |
|
|
|
24.6 |
% |
|
|
589,349 |
|
|
|
485,567 |
|
|
|
103,782 |
|
|
|
21.4 |
% |
Net sales |
$ |
1,501,220 |
|
|
$ |
1,443,264 |
|
|
$ |
57,956 |
|
|
|
4.0 |
% |
|
$ |
4,458,008 |
|
|
$ |
4,292,792 |
|
|
$ |
165,216 |
|
|
|
3.8 |
% |
Net sales increased $58.0 million, or 4.0%, to $1.50 billion in the thirteen weeks ended October 29, 2022 compared to net sales of $1.44 billion in the thirteen weeks ended October 30, 2021, driven by a 4.1% increase in our comparable sales. Net sales increased $165.2 million, or 3.8%, to $4.46 billion in the thirty-nine weeks ended October 29, 2022 compared to net sales of $4.29 billion in the thirty-nine weeks ended October 30, 2021, driven by a 4.3% increase in our comparable sales. Our sales growth period-over-period was driven by our strong execution and differentiated model across digital and in our pet care centers and continued growth in our active customer base. Our total sales mix remains strong, led by continued momentum in consumables and services, whose customers shop more frequently and have among our highest long-term value. This growth is slightly offset by a decrease in supplies and companion animals sales driven by softening in discretionary spend associated with the current inflationary macroeconomic environment and the lapping of a stimulus-driven prior year. We have made certain pricing actions to partially offset cost increases during the thirty-nine weeks ended October 29, 2022.
The increase in consumables sales between the periods was driven in part by the increase in new pets, our strategic investments in customer acquisition and retention, continued expansion of our product assortment and a mix shift to more premium consumables, including fresh and frozen food. The decrease in supplies and companion animals sales is due in part to a strong stimulus driven thirty-nine week period ended October 30, 2021 and a decrease in spending on certain non-essential items. The increase in services and other was due in part to the increase in new pets, growth in our membership offerings like Vital Care, and growth in our grooming services and veterinary hospital business in which we now operate over 225 veterinary hospitals – an increase of over 55 since October 30, 2021.
For the thirteen and thirty-nine weeks ended October 29, 2022, pet care center merchandise delivered growth of 1.0% and 1.1%, respectively, led by strong growth in consumables. E-commerce and digital sales increased 9.9% and 10.1% during the thirteen and thirty-nine weeks ended October 29, 2022, respectively, driven by strength in our online initiatives such as repeat delivery, buy online pick up in-store (“BOPUS”), ship from store, and same day delivery as well as an increase in average basket. Services sales, which include veterinary hospitals, increased 14.4% and 15.4% during the thirteen and thirty-nine weeks ended October 29, 2022, respectively, reflecting expansion of our veterinary hospital footprint and strong growth in veterinary and grooming customers.
Gross Profit
Gross profit increased $3.0 million, or 0.5%, to $597.7 million in the thirteen weeks ended October 29, 2022 compared to gross profit of $594.7 million for the thirteen weeks ended October 30, 2021. As a percentage of sales, our gross profit rate was 39.8% for the thirteen weeks ended October 29, 2022 compared with 41.2% for the thirteen weeks ended October 30, 2021. Gross profit increased $8.7 million, or 0.5%, to $1,799.8 million in the thirty-nine weeks ended October 29, 2022 compared to gross profit of $1,791.1 million for the thirty-nine weeks ended October 30, 2021. As a percentage of sales, our gross profit rate was 40.4% for the thirty-nine weeks ended October 29, 2022 compared with 41.7% for the thirty-nine weeks ended October 30, 2021. The decrease in gross profit rate between the periods was primarily due to the mix impact of strong consumables sales and lower supplies and companion animal sales during the thirteen and thirty-nine weeks ended October 29, 2022. Sales channel impacts driven by strength in our digital and services business, moderate increases in distribution costs, and one-time integration costs relating to the purchase of the remaining stake in our veterinary joint venture also contributed to the decrease in gross profit rate during the thirteen and thirty-nine weeks ended October 29, 2022 as compared to the prior year periods.
19
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses increased $16.9 million, or 3.2%, to $549.6 million for the thirteen weeks ended October 29, 2022 compared to $532.8 million for the thirteen weeks ended October 30, 2021. As a percentage of net sales, SG&A expenses were 36.6% for the thirteen weeks ended October 29, 2022 compared with 36.9% for the thirteen weeks ended October 30, 2021. The increase in SG&A expenses period-over-period was to support our growth as we continue to invest in infrastructure and our people, along with higher variable costs on increased sales.
SG&A expenses increased $43.9 million, or 2.7%, to $1,651.8 million for the thirty-nine weeks ended October 29, 2022 compared to $1,607.9 million for the thirty-nine weeks ended October 30, 2021. As a percentage of net sales, SG&A expenses were 37.1% for the thirty-nine weeks ended October 29, 2022 compared with 37.5% for the thirty-nine weeks ended October 30, 2021, reflecting operating leverage from net sales growth. The increase in SG&A expenses period-over-period was to support our growth as we continue to invest in infrastructure and our people and was partially offset by a decrease in advertising expenses, primarily due to investments that were made during the thirty-nine week period ended October 30, 2021 for our rebranding campaign, inclusive of a TV launch and associated advertisements.
Interest Expense
Interest expense increased $8.5 million, or 45.5%, to $27.3 million in the thirteen weeks ended October 29, 2022 compared with $18.8 million in the thirteen weeks ended October 30, 2021. Interest expense increased $10.3 million, or 17.5%, to $68.8 million in the thirty-nine weeks ended October 29, 2022 compared with $58.5 million in the thirty-nine weeks ended October 30, 2021. The increase was primarily driven by higher interest rates on the First Lien Term Loan. For more information on these obligations, refer to Note 3, “Senior Secured Credit Facilities,” to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Loss on Extinguishment and Modification of Debt
Loss on extinguishment and modification of debt was $20.8 million for the thirty-nine weeks ended October 30, 2021. This loss was recognized in conjunction with the March 2021 refinancing of the Amended Term Loan Facility and Amended Revolving Credit Facility. There was no loss on debt extinguishment and modification for the thirteen weeks ended October 30, 2021 or the thirteen and thirty-nine weeks ended October 29, 2022. For more information regarding these activities, refer to Note 3, “Senior Secured Credit Facilities,” to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Other Non-Operating (Income) Loss
Other non-operating income was $0.6 million for the thirteen weeks ended October 29, 2022, and other non-operating loss was $9.4 million for the thirty-nine weeks ended October 29, 2022. Other non-operating income was $19.8 million and $64.9 million for the thirteen and thirty-nine weeks ended October 30, 2021, respectively. These losses and gains relate to non-cash remeasurements of the fair value of our investment in Rover Group, Inc. For more information regarding this activity, refer to Note 4, “Fair Value Measurements,” to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Income Tax Expense
Our effective tax rates were 17.3% and 26.4%, resulting in income tax expense of $4.2 million and $20.8 million for the thirteen and thirty-nine weeks ended October 29, 2022, respectively, compared to effective tax rates of 21.1% and 24.4%, resulting in income tax expense of $14.1 million and $43.8 million for the thirteen and thirty-nine weeks ended October 30, 2021, respectively. The decrease in effective tax rate for the thirteen weeks ended October 29, 2022 is primarily driven by an increase in federal tax credits. The increase in effective tax rate for the thirty-nine weeks ended October 29, 2022 is primarily driven by a decrease in earnings in the thirty-nine weeks ended October 29, 2022 and the recognition of professional fees and other transaction costs incurred by the Company in connection with its initial public offering during the thirteen and thirty-nine weeks ended October 30, 2021.
20
Reconciliation of Non-GAAP Financial Measures to GAAP Measures
The following information provides definitions and reconciliations of certain non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. Such non-GAAP financial measures are not calculated in accordance with GAAP and should not be considered superior to, as a substitute for or alternative to, and should be considered in conjunction with, the most comparable GAAP measures. The non-GAAP financial measures presented may differ from similarly-titled measures used by other companies.
Adjusted EBITDA
We present Adjusted EBITDA, a non-GAAP financial measure, because we believe it enhances an investor’s understanding of our financial and operational performance by excluding certain material non-cash items, unusual or non-recurring items that we do not expect to continue in the future, and certain other adjustments we believe are or are not reflective of our ongoing operations and performance. Adjusted EBITDA enables operating performance to be reviewed across reporting periods on a consistent basis. We use Adjusted EBITDA as one of the principal measures to evaluate and monitor our operating financial performance and to compare our performance to others in our industry. We also use Adjusted EBITDA in connection with establishing discretionary annual incentive compensation targets, to make budgeting decisions, to make strategic decisions regarding the allocation of capital, and to report our quarterly results as defined in our debt agreements, although under such agreements the measure is calculated differently and is used for different purposes.
Adjusted EBITDA is not a substitute for net income (loss), the most comparable GAAP measure, and is subject to a number of limitations as a financial measure, so it should be used in conjunction with GAAP financial measures and not in isolation. There can be no assurances that we will not modify the presentation of Adjusted EBITDA in the future. In addition, other companies in our industry may define Adjusted EBITDA differently, limiting its usefulness as a comparative measure. Refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reconciliation of Non-GAAP Financial Measures to GAAP Measures” included in the 2021 Form 10-K for more information regarding how we define Adjusted EBITDA.
21
The table below reflects the calculation of Adjusted EBITDA and Adjusted EBITDA Margin for the periods presented:
|
|
Thirteen weeks ended |
|
|
Thirty-nine weeks ended |
|
||||||||||
(dollars in thousands) |
|
October 29, |
|
|
October 30, |
|
|
October 29, |
|
|
October 30, |
|
||||
Net income attributable to Class A and B-1 |
|
$ |
19,920 |
|
|
$ |
52,752 |
|
|
$ |
58,069 |
|
|
$ |
135,423 |
|
Interest expense, net |
|
|
27,177 |
|
|
|
18,751 |
|
|
|
68,474 |
|
|
|
58,451 |
|
Income tax expense |
|
|
4,161 |
|
|
|
14,095 |
|
|
|
20,799 |
|
|
|
43,784 |
|
Depreciation and amortization |
|
|
48,029 |
|
|
|
42,792 |
|
|
|
143,599 |
|
|
|
125,637 |
|
Income from equity method investees |
|
|
(2,627 |
) |
|
|
(2,637 |
) |
|
|
(7,821 |
) |
|
|
(7,490 |
) |
Loss on debt extinguishment and modification |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20,838 |
|
Asset impairments and write offs |
|
|
930 |
|
|
|
3,228 |
|
|
|
2,299 |
|
|
|
5,918 |
|
Equity-based compensation |
|
|
15,775 |
|
|
|
13,381 |
|
|
|
40,892 |
|
|
|
36,491 |
|
Other non-operating (income) loss |
|
|
(576 |
) |
|
|
(19,773 |
) |
|
|
9,369 |
|
|
|
(64,934 |
) |
Mexico joint venture EBITDA (1) |
|
|
7,040 |
|
|
|
6,661 |
|
|
|
20,319 |
|
|
|
18,523 |
|
Store pre-opening expenses |
|
|
3,931 |
|
|
|
4,222 |
|
|
|
11,093 |
|
|
|
11,739 |
|
Store closing expenses |
|
|
1,310 |
|
|
|
1,264 |
|
|
|
4,051 |
|
|
|
3,329 |
|
Non-cash occupancy-related costs (2) |
|
|
2,496 |
|
|
|
1,540 |
|
|
|
6,976 |
|
|
|
5,564 |
|
Acquisition-related integration costs (3) |
|
|
1,592 |
|
|
|
— |
|
|
|
14,687 |
|
|
|
— |
|
Other costs (4) |
|
|
8,397 |
|
|
|
2,233 |
|
|
|
19,255 |
|
|
|
26,055 |
|
Adjusted EBITDA |
|
$ |
137,555 |
|
|
$ |
138,509 |
|
|
$ |
412,061 |
|
|
$ |
419,328 |
|
Net sales |
|
$ |
1,501,220 |
|
|
$ |
1,443,264 |
|
|
$ |
4,458,008 |
|
|
$ |
4,292,792 |
|
Net margin (5) |
|
|
1.3 |
% |
|
|
3.7 |
% |
|
|
1.3 |
% |
|
|
3.2 |
% |
Adjusted EBITDA Margin (5) |
|
|
9.2 |
% |
|
|
9.6 |
% |
|
|
9.2 |
% |
|
|
9.8 |
% |
|
|
Thirteen weeks ended |
|
|
Thirty-nine weeks ended |
|
||||||||||
(dollars in thousands) |
|
October 29, |
|
|
October 30, |
|
|
October 29, |
|
|
October 30, |
|
||||
Net income |
|
$ |
5,251 |
|
|
$ |
5,274 |
|
|
$ |
14,448 |
|
|
$ |
14,987 |
|
Depreciation |
|
|
4,861 |
|
|
|
3,660 |
|
|
|
13,866 |
|
|
|
10,461 |
|
Income tax expense |
|
|
2,957 |
|
|
|
3,277 |
|
|
|
8,344 |
|
|
|
8,688 |
|
Foreign currency gain |
|
|
(395 |
) |
|
|
(60 |
) |
|
|
(15 |
) |
|
|
(547 |
) |
Interest expense, net |
|
|
1,406 |
|
|
|
1,171 |
|
|
|
3,994 |
|
|
|
3,457 |
|
EBITDA |
|
$ |
14,080 |
|
|
$ |
13,322 |
|
|
$ |
40,637 |
|
|
$ |
37,046 |
|
50% of EBITDA |
|
$ |
7,040 |
|
|
$ |
6,661 |
|
|
$ |
20,319 |
|
|
$ |
18,523 |
|
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 our ability to
22
generate additional cash from our business operations, is an important financial measure for use in evaluating the Company’s financial performance.
The table below reflects the calculation of Free Cash Flow for the periods presented:
|
|
Thirty-nine weeks ended |
|
|||||
|
|
October 29, |
|
|
October 30, |
|
||
(dollars in thousands) |
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
$ |
209,463 |
|
|
$ |
288,444 |
|
Cash paid for fixed assets |
|
|
(212,074 |
) |
|
|
(164,330 |
) |
Free Cash Flow |
|
$ |
(2,611 |
) |
|
$ |
124,114 |
|
Liquidity and Capital Resources
Overview
Our primary sources of liquidity are funds generated by operating activities and available capacity for borrowings on our $500 million secured asset-based revolving credit facility maturing March 4, 2026 (the “ABL Revolving Credit Facility”). Our ability to fund our operations, to make planned capital investments, to make scheduled debt payments and to repay or refinance indebtedness depends on our future operating performance and cash flows, which are subject to prevailing economic conditions and financial, business, and other factors, some of which are beyond our control. Our liquidity as of October 29, 2022 was $592.6 million, inclusive of cash and cash equivalents of $148.7 million and $443.9 million of availability on the ABL Revolving Credit Facility.
We are a party to contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. We believe that our current resources, together with anticipated cash flows from operations and borrowing capacity under the ABL Revolving Credit Facility will be sufficient to finance our operations, meet our current cash requirements, and fund anticipated capital investments for at least the next 12 months. We may, however, seek additional financing to fund future growth or refinance our existing indebtedness through the debt capital markets, but we cannot be assured that such financing will be available on favorable terms, or at all.
Cash Flows
The following table summarizes our consolidated cash flows:
|
|
Thirty-nine weeks ended |
|
|||||
(dollars in thousands) |
|
October 29, |
|
|
October 30, |
|
||
Total cash provided by (used in): |
|
|
|
|
|
|
||
Operating activities |
|
$ |
209,463 |
|
|
$ |
288,444 |
|
Investing activities |
|
|
(252,697 |
) |
|
|
(167,770 |
) |
Financing activities |
|
|
(27,033 |
) |
|
|
(14,863 |
) |
Net (decrease) increase in cash, cash equivalents |
|
$ |
(70,267 |
) |
|
$ |
105,811 |
|
Operating Activities
Our primary source of operating cash is sales of products and services to customers, which are substantially all on a cash basis, and therefore provide us with a significant source of liquidity. Our primary uses of cash in operating activities include: purchases of inventory; freight and warehousing costs; employee-related expenditures; occupancy-related costs for our pet care centers, distribution centers and corporate support centers; credit card fees; interest under our debt agreements; and marketing expenses. Net cash provided by operating activities is impacted by our net income adjusted for certain non-cash items, including: depreciation, amortization, impairments and write-offs; amortization of debt discounts and issuance costs; deferred income taxes; equity-based compensation; impairments of goodwill and intangible assets; other non-operating loss (income); and the effect of changes in operating assets and liabilities.
23
Net cash provided by operating activities was $209.5 million in the thirty-nine weeks ended October 29, 2022 compared with net cash provided by operating activities of $288.4 million in the thirty-nine weeks ended October 30, 2021. The decrease in operating cash flow was due to lower operating income, an increase in cash paid for inventory, higher payroll and fringe benefits including payouts of prior year accrued incentive bonuses. This was partially offset by timing differences in accounts payable as well as lower cash payments on operating leases due to the timing of rent payments.
Investing Activities
Cash used in investing activities consists of capital expenditures, which in the thirty-nine weeks ended October 29, 2022 and the thirty-nine weeks ended October 30, 2021 primarily supported our transformation initiatives. Net cash used in investing activities was $252.7 million and $167.8 million for the thirty-nine weeks ended October 29, 2022 and October 30, 2021, respectively. The increase in capital expenditures between the periods was predominantly due to the expansion of our veterinary hospitals, investments in digital assets and innovation in response to our sales growth. In addition, in May 2022, we completed the purchase of the remaining 50% stake in our veterinary joint venture for $35.0 million, which is now a wholly owned subsidiary.
Financing Activities
Net cash used in financing activities was $27.0 million for the thirty-nine weeks ended October 29, 2022, compared with $14.9 million used in financing activities in the thirty-nine weeks ended October 30, 2021.
Financing cash flows in the thirty-nine weeks ended October 29, 2022 primarily consisted of borrowings and repayments under the ABL Revolving Credit Facility, quarterly term loan repayments, and payments for tax withholdings on stock-based awards.
Financing cash flows in the thirty-nine weeks ended October 30, 2021 primarily consisted of borrowings and repayments of debt in connection with the March 4, 2021 debt refinancing transaction discussed under “Sources of Liquidity” below. For more information regarding these activities, refer to Note 3 “Senior Secured Credit Facilities,” to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Sources of Liquidity
On March 4, 2021, the Company completed a refinancing transaction by repaying the Amended Term Loan Facility and entering into a new $1,700 million secured term loan facility maturing on March 4, 2028 (the “First Lien Term Loan”) and the ABL Revolving Credit Facility, which matures on March 4, 2026 and has availability of up to $500.0 million, subject to a borrowing base. Interest under 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 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 payments are $4.25 million quarterly and commenced on June 30, 2021. The terms under the ABL Revolving Credit Facility are substantially similar to those of the Amended Revolving Credit Facility.
In November 2022, the Company entered into a series of interest rate cap agreements to limit the maximum interest on a portion of the Company’s variable-rate debt and decrease its exposure to interest rate variability when the three-month Secured Overnight Financing Rate as published by CME Group exceeds 4.5%. The interest rate caps are forward-starting with an effective date of December 30, 2022 and expire on December 31, 2024.
For more information regarding this indebtedness, refer to Note 3, “Senior Secured Credit Facilities,” to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make assumptions and estimates about future results and
24
apply judgments that affect the reported amounts of assets, liabilities, net sales, expenses and related disclosures. We base our estimates and judgments on historical experience, current trends and other factors that we believe to be relevant at the time our consolidated financial statements are prepared. On an ongoing basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in the 2021 Form 10-K.
Recent Accounting Pronouncements
Refer to Note 1, “Summary of Significant Accounting Policies,” to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for information regarding recently issued accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are subject to market risks arising from transactions in the normal course of our business. These risks are primarily associated with interest rate fluctuations, as well as changes in our credit standing, based on the capital and credit markets, which are not predictable. We do not currently hold any instruments for trading purposes.
Interest Rate Risk
We are subject to interest rate risk in connection with the First Lien Term Loan and the ABL Revolving Credit Facility. As of October 29, 2022, we had $1,674.5 million outstanding under the First Lien Term Loan and no amounts outstanding under the ABL Revolving Credit Facility. The First Lien Term Loan and the ABL Revolving Credit Facility each bear interest at variable rates. An increase of 100 basis points in the variable rates on the First Lien Term Loan and the ABL Revolving Credit Facility as of October 29, 2022 would have increased annual cash interest in the aggregate by approximately $17.0 million. In November 2022, we entered into a series of interest rate cap agreements to limit the maximum interest on a portion of our variable-rate debt and decrease our exposure to interest rate variability when the three-month Secured Overnight Financing Rate as published by CME Group exceeds 4.5%. The interest rate caps are forward-starting with an effective date of December 30, 2022 and expire on December 31, 2024.
We cannot predict market fluctuations in interest rates and their impact on our debt, nor can there be any assurance that long-term fixed-rate debt will be available at favorable rates, if at all. Consequently, future results may differ materially from estimated results due to adverse changes in interest rates or debt availability.
Credit Risk
As of October 29, 2022, our cash and cash equivalents were maintained at major financial institutions in the United States, and our current deposits are likely in excess of insured limits. We believe these institutions have sufficient assets and liquidity to conduct their operations in the ordinary course of business with little or no credit risk to us.
Foreign Currency Risk
Substantially all of our business is currently conducted in U.S. dollars. We do not believe that an immediate 10% increase or decrease in the relative value of the U.S. dollar as compared to other currencies would have a material effect on our operating results.
Item 4. Controls and Procedures.
Management’s Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the
25
“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosure.
As of the end of the period covered by this Form 10-Q, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of October 29, 2022.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended October 29, 2022, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based on certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
26
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 6, “Commitments and Contingencies,” to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for a description of legal proceedings, which is incorporated herein by reference.
Item 1A. Risk Factors.
Reference is made to Part I, Item 1A, “Risk Factors” included in the 2021 Form 10-K for information concerning risk factors. There have been no material changes with respect to the risk factors disclosed in the 2021 Form 10-K. You should carefully consider such factors, which could materially and adversely affect our business, financial condition and/or results of operations. The risks described in the 2021 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
27
Item 6. Exhibits.
The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q:
Exhibit Number |
|
Description |
|
|
|
10.1†
|
|
|
|
|
|
10.2† |
|
|
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1* |
|
|
|
|
|
32.2* |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
|
|
† |
Management contract or compensatory plan or arrangement. |
* Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Petco Health and Wellness Company, Inc. |
|
|
|
|
|
Date: December 8, 2022 |
By: |
|
/s/ Brian LaRose |
|
|
|
Brian LaRose |
|
|
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
|
|
|
|
|
29
Exhibit 10.2
SEPARATION AGREEMENT
AND GENERAL RELEASE OF CLAIMS
This SEPARATION AGREEMENT AND GENERAL RELEASE OF CLAIMS (this “Agreement”) is entered into by and between Petco Animal Supplies Stores, Inc. (the “Company”), Michael Nuzzo (“Executive”) and solely for purposes of Sections 2 and 7, Scooby LP (“Scooby”). Executive, the Company and Scooby are each referred to herein as a “Party” and collectively as the “Parties.”
WHEREAS, Executive’s employment with the Company terminated effective as of August 13, 2022 (the “Separation Date”);
WHEREAS, Executive was granted the Common Series C Units in Scooby set forth on Exhibit A hereto (the “Units”) pursuant to those Common Series C Unit Award Agreements between Executive and Scooby (collectively, the “Award Agreements”), which are vested and unvested as of the Separation Date as set forth on Exhibit A;
WHEREAS, Executive and the Company are parties to that certain Employment Agreement dated April 8, 2015, as amended by that certain Amendment to Employment Agreement dated January 26, 2016 (collectively, the “Employment Agreement”);
WHEREAS, the Company and Scooby wish to provide Executive with certain separation benefits, which are conditioned upon Executive’s execution, delivery and non-revocation of this Agreement; and
WHEREAS, the Parties wish to resolve any and all claims that Executive has or may have against the Company, Scooby and the other Company Parties (as defined below), including any claims that Executive has or may have arising from or relating to Executive’s employment, or the end of Executive’s employment, with any Company Party.
NOW, THEREFORE, in consideration of the promises set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Executive and the Company, the Parties hereby agree as follows:
Executive acknowledges and agrees that the consideration referenced in this Section 2 represents the entirety of the amounts Executive is eligible to receive as severance pay and benefits from the Company or any other Company Party. Executive further acknowledges that as of the Separation Date, (i) Executive will automatically forfeit all unvested restricted stock units and stock options granted under the Petco Health and Wellness Company, Inc. 2021 Equity Incentive Plan, and such awards shall terminate automatically and without any further action by the Company and at no cost to the Company, and (ii) all Units which remain unvested after giving effect to Section 2(b) shall be forfeited upon the Separation Date for no consideration, and Executive shall have no rights with respect thereto.
2
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.
Executive waives all rights under Section 1542 or any other law or statute of similar effect in any jurisdiction with respect to the Released Claims. Executive acknowledges that Executive understands the significance and specifically assumes the risk regarding the consequences of such release and such specific waiver of Section 1542.
3
4
5
6
7
Exhibit 10.2
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the dates set forth beneath their names below, effective for all purposes as provided above.
EXECUTIVE
/s/ Michael Nuzzo
Michael Nuzzo
Date: 8/25/2022
PETCO ANIMAL SUPPLIES STORES, INC.
By: /s/ Ronald Coughlin, Jr.
Name: Ronald Coughlin, Jr.
Title: Chief Executive Officer
Date: 8/30/2022
SCOOBY LP
By: /s/ Cameron Breitner
Name: Cameron Breitner
Title: Authorized Signatory
Date: 8/29/2022
AGREEMENT SHALL NOT BE ENTERED UNTIL ON OR AFTER
AUGUST 13, 2022, AS PROVIDED HEREIN.
Exhibit 10.2
EXHIBIT A
COMMON SERIES C UNITS
Date of Grant |
Distribution Threshold |
Vested as of Separation Date |
Unvested as of Separation Date |
Accelerated under Section 2(b) |
1/26/2016 |
$0.75 |
5,000,000 |
0 |
0 |
1/26/2016 |
$0.75 |
1,161,114 |
0 |
0 |
1/26/2016 |
$0.50 |
4,000,000 |
1,000,000 |
1,000,000 |
1/26/2016 |
$0.50 |
1,161,114 |
0 |
0 |
9/16/2020 |
$1.00 |
600,000 |
2,400,000 |
1,472,055 |
*Executive is fully vested as of Separation Date in 90,000 Common Series “B” Units of Scooby
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ronald Coughlin, Jr., certify that:
Date: December 8, 2022 |
|
By: |
/s/ Ronald Coughlin, Jr. |
|
|
|
Ronald Coughlin, Jr. |
|
|
|
Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brian LaRose, certify that:
Date: December 8, 2022 |
|
By: |
/s/ Brian LaRose |
|
|
|
Brian LaRose |
|
|
|
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-Q of Petco Health and Wellness Company, Inc. (the “Company”) for the quarter ended October 29, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ronald Coughlin, Jr., Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: December 8, 2022 |
|
By: |
/s/ Ronald Coughlin, Jr. |
|
|
|
Ronald Coughlin, Jr. |
|
|
|
Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-Q of Petco Health and Wellness Company, Inc. (the “Company”) for the quarter ended October 29, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian LaRose, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: December 8, 2022 |
|
By: |
/s/ Brian LaRose |
|
|
|
Brian LaRose |
|
|
|
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |