8-K
false000182647000018264702023-03-222023-03-22

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 22, 2023

 

 

Petco Health and Wellness Company, Inc.

(Exact name of Registrant as Specified in Its Charter)

 

 

Delaware

001-39878

81-1005932

(State or Other Jurisdiction
of Incorporation)

(Commission File Number)

(IRS Employer
Identification No.)

 

 

 

 

 

10850 Via Frontera

 

San Diego, California

 

92127

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (858) 453-7845

 

 

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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


Title of each class

 

Trading
Symbol(s)

 


Name of each exchange on which registered

Class A common stock, par value $0.001 per share

 

WOOF

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company

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

 

 


Item 2.02 Results of Operations and Financial Condition.

On March 22, 2023, Petco Health and Wellness Company, Inc. (the “Company”) issued a press release disclosing its financial results for the quarter and year ended January 28, 2023. The full text of the press release is attached to this Current Report on Form 8-K as Exhibit 99.1.

Item 7.01 Regulation FD Disclosure.

The Company has scheduled a webcast call at 8:00 a.m. Eastern Time on March 22, 2023 to discuss the Company’s financial results for the quarter and year ended January 28, 2023. In addition to the press release, an earnings presentation, infographic, and earnings supplement will be made available on the Company’s investor relations page at ir.petco.com. A replay of the webcast will also be made available on the Company’s investor relations page through April 5, 2023 at approximately 5:00 p.m. Eastern Time.

 

The information being furnished pursuant to Item 2.02, including Exhibit 99.1, and Item 7.01 of this Current Report on Form 8-K shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise be subject to the liability of that section, and shall not be incorporated by reference into any other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

Exhibit Number

Description

99.1

Press Release, dated March 22, 2023

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 


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 hereunto duly authorized.

 

 

 

Petco Health and Wellness Company, Inc.

 

 

 

 

Date:

March 22, 2023

By:

/s/ Ilene Eskenazi

 

 

Name:

Ilene Eskenazi

 

 

Title:

Chief Legal and Human Resources Officer and Secretary

 


EX-99

 

FOR IMMEDIATE RELEASE: March 22, 2023

 

Petco Health + Wellness Company, Inc. Reports Fourth Quarter and Full Year 2022 Earnings, Issues 2023 Outlook

 

Q4 2022 Highlights

Comparable sales grew 5.3 percent year over year and 18.8 percent on a two-year basis, resulting in the seventeenth consecutive quarter of comparable sales growth
Net revenue of $1.58 billion increased 4.2 percent year over year
Delivered net income of $32.7 million, an increase of 12.9 percent year over year, and Adjusted EBITDA1 of $170.3 million, a decrease of 1.1 percent year over year
Earnings per share of $0.12, an increase of $0.01 from prior year; Adjusted Earnings Per Share1 of $0.23, a decline of $0.05 from prior year
Generated $136.5 million of operating cash flow, an increase of 95.7 percent year over year
Delivered $70.6 million of Free Cash Flow1, an increase of $75.6 million year over year

 

Full Year 2022 Highlights

Comparable sales grew 4.5 percent year over year and 23.5 percent on a two-year basis
Net revenue of $6.04 billion increased 3.9 percent year over year
Delivered net income of $90.8 million, a decrease of 44.8 percent year over year, and Adjusted EBITDA1 of $582.3 million, a decrease of 1.5 percent year over year
Earnings per share of $0.34, a decline of $0.28 year over year; Adjusted Earnings Per Share1 of $0.75, a decline of $0.16 year over year
Generated $346.0 million of operating cash flow, a decrease of 3.4 percent year over year
Delivered $68.0 million of Free Cash Flow1, a decrease of $51.1 million year over year

 

San Diego, March 22, 2023 – Petco Health and Wellness Company, Inc. (Nasdaq: WOOF), a complete partner in pet health and wellness, today announced its fourth quarter and full year 2022 financial results.

 

In the fourth quarter of 2022, Petco delivered net revenue of $1.58 billion, up 4.2 percent versus prior year, driven by strength in the company’s consumables business, up 12.1 percent versus prior year, and services and other business, up 17.0 percent versus prior year, which was partially offset by its supplies and companion animal business, down 7.8 percent versus prior year. Net income was $32.7 million or $0.12 per share, compared to $29.0 million or $0.11 per share in the prior year. Adjusted Net Income1 was $62.0 million or $0.23 per share, compared to $75.1 million or $0.28 per share in the prior year. Adjusted EBITDA1 was $170.3 million compared to $172.2 million in the prior year.

 

For the full year 2022, Petco delivered net revenue of $6.04 billion, up 3.9 percent versus prior year. Revenue growth was driven by strength in the company’s consumables business, up 12.9 percent versus prior year, and services and other business, up 20.2 percent versus prior year, and partially offset by its supplies and companion animal business, down 8.9 percent versus prior year. Net income was $90.8 million or $0.34 per share, compared to $164.4 million or $0.62 per share in the prior year. Adjusted Net Income1 was $200.8 million or $0.75 per share, compared to $241.1 million or $0.91 per share in the prior year. Adjusted EBITDA1 was $582.3 million compared to $591.5 million in the prior year.


 

In March 2023, Petco paid down $35 million on its term loan, $31 million more than the required quarterly payment and is targeting $100 million total in principal payments for 2023.

 

“Record fourth quarter sales, with cash flow exceeding expectations, rounded out a solid fiscal year, once again demonstrating the enduring strength of the pet category and Petco’s ability to grow through economic cycles,” said Petco CEO Ron Coughlin. “I’m grateful for our incredible partners and their ongoing commitment to Petco’s mission of improving the lives of pets, pet parents, and the partners who work at Petco. As we look ahead, the pet category remains resilient and growing, and we'll continue to execute day-in and day-out while we progress our differentiated long-term growth strategy.”

 

Q4 2022 Operating Results:

Comparisons are fourth quarter of fiscal 2022 ended January 28, 2023 versus fourth quarter of fiscal 2021 ended January 29, 2022 unless otherwise noted.

 

Net revenue increased 4.2 percent to $1.58 billion driven by comparable sales growth of 5.3 percent
Net income increased $3.7 million to $32.7 million or $0.12 per share
Adjusted Net Income1 decreased $13.1 million to $62.0 million or $0.23 per share
Adjusted EBITDA1 decreased $1.9 million to $170.3 million
Operating cash flow increased 95.7 percent to $136.5 million
Free Cash Flow1 increased $75.6 million to $70.6 million

 

Fiscal 2022 Operating Results:

Comparisons are fiscal year ended January 28, 2023 versus fiscal year ended January 29, 2022 unless otherwise noted.

 

Net revenue increased 3.9 percent to $6.04 billion driven by comparable sales growth of 4.5 percent
Net income decreased $73.6 million to $90.8 million or $0.34 per share
Adjusted Net Income1 decreased $40.3 million to $200.8 million or $0.75 per share
Adjusted EBITDA1 decreased $9.1 million to $582.3 million
Operating cash flow decreased 3.4 percent to $346.0 million
Free Cash Flow1 decreased $51.1 million to $68.0 million

 

(1)
Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, and Free Cash Flow are non-GAAP financial measures. Beginning in fiscal 2023, the company has made certain changes to how it defines these metrics that impact the comparability to prior periods. See “Changes in non-GAAP Definitions and Fiscal 2023 Outlook” and “Non-GAAP Financial Measures” for additional information on changes to these non-GAAP financial measures, a reconciliation to the most comparable GAAP measures, and a reconciliation between the differences in metric definitions pre- and post-fiscal 2023 for all periods presented.

 

Changes in non-GAAP Definitions and Fiscal 2023 Outlook

Beginning in fiscal 2023, Petco has made certain changes to its definitions for Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS that impact the comparability of the metrics to prior periods. Specifically, Petco will no longer include store pre-opening expenses, store closing expenses, non-cash occupancy costs, and certain other costs in its non-GAAP add-backs. Accordingly, Petco’s 2023 Adjusted EBITDA and Adjusted EPS guidance reflects Petco’s updated definition of Adjusted EBITDA and Adjusted EPS. See “Non-GAAP Financial Measures” below for additional details of these changes and a reconciliation of the definitions prior to fiscal 2023 to allow for like-for-like comparisons to the new definitions for all periods presented.

Furthermore, Fiscal 2023 will be a 53-week year for Petco, leading to an incremental week of operations


relative to Fiscal 2022.

Given the foregoing, inclusive of Petco’s expected 53rd week of operations, the company expects:

 

Metric*

2023

Guidance, YoY

Net Revenue

$6.150 billion to $6.275 billion

Adjusted EBITDA

Down approx. $10 million to up approx. $10 million

Adjusted EPS

Down $0.21 to down $0.13

Capital Expenditures

$225 million to $250 million

 

In light of the current macroeconomic environment, the company is providing one-time commentary on its debt paydown expectations. In Fiscal 2023, the company expects to make a total of $100 million in principal payments on its term loan, which is inclusive of the $35 million paid in March detailed above.

 

*Assumptions in the guidance include that economic conditions, currency rates and the tax and regulatory landscape remain generally consistent. Adjusted EPS guidance assumes approximately $145 to $155 million of interest expense, an estimated $44 to $54 million increase in interest expense, a 26 percent tax rate, and a 273 million weighted average diluted share count. The Company estimates that the increase in interest expense will impact Adjusted EPS by approximately $0.12 to $0.15 per share. Adjusted EBITDA and Adjusted EPS are non-GAAP financial measures and have not been reconciled to the most comparable GAAP outlook because it is not possible to do so without unreasonable efforts due to the uncertainty and potential variability of reconciling items, which are dependent on future events and often outside of management’s control and which could be significant. Because such items cannot be reasonably predicted with the level of precision required, we are unable to provide outlook for the comparable GAAP measures. Forward-looking estimates of Adjusted EBITDA and Adjusted EPS are made in a manner consistent with the relevant definitions and assumptions noted herein and in our filings with the SEC.

Earnings Conference Call Webcast Information:

 

Management will host an earnings conference call on March 22, 2023 at 8:00 AM Eastern Time to discuss the company’s financial results. The conference call will be accessible through live webcast. Interested investors and other individuals can access the webcast, earnings release, earnings presentation, infographic, and earnings supplement via the company’s investor relations page at ir.petco.com. A replay of the webcast will be archived on the company’s investor relations page through April 5, 2023 until approximately 5:00 PM Eastern Time.

 

About Petco, The Health + Wellness Co.:

 

Founded in 1965, Petco is a category-defining health and wellness company focused on improving the lives of pets, pet parents and our own Petco partners. We’ve consistently set new standards in pet care while delivering comprehensive pet wellness products, services and solutions, and creating communities that deepen the pet-pet parent bond. We operate more than 1,500 pet care centers across the U.S., Mexico and Puerto Rico, which offer merchandise, companion animals, grooming, training and a growing network of on-site veterinary hospitals and mobile veterinary clinics. Our complete pet health and wellness ecosystem is accessible through our pet care centers and digitally at petco.com and on the Petco app. 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’ve helped find homes for nearly 7 million animals.


 

Forward-Looking Statements:

 

This earnings release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not statements of historical fact, including statements regarding our fiscal year 2023 guidance. Such forward-looking statements can generally be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “intends,” “will,” “shall,” “should,” “anticipates,” “opportunity,” “illustrative”, or the negative thereof or other variations thereon or comparable terminology. Although Petco believes that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to be correct or that any forward-looking results will occur or be realized. Nothing contained in this earnings release is, or should be relied upon as, a promise or representation or warranty as to any future matter, including any matter in respect of the operations or business or financial condition of Petco. All forward-looking statements are based on current expectations and assumptions about future events that may or may not be correct or necessarily take place and that are by their nature subject to significant uncertainties and contingencies, many of which are outside the control of Petco. Forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause actual results or events to differ materially from the potential results or events discussed in the forward-looking statements, including, without limitation, those identified in this earnings release as well as the following: (i) increased competition (including from multi-channel retailers and e-Commerce providers); (ii) reduced consumer demand for our products and/or services; (iii) our reliance on key vendors; (iv) our ability to attract and retain qualified employees; (v) risks arising from statutory, regulatory and/or legal developments; (vi) macroeconomic pressures in the markets in which we operate, including inflation and prevailing interest rates; (vii) failure to effectively manage our costs; (viii) our reliance on our information technology systems; (ix) our ability to prevent or effectively respond to a 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 identified under “Risk Factors” and elsewhere in Petco’s Securities and Exchange Commission filings. The occurrence of any such factors could significantly alter the results set forth in these statements.

 

Petco cautions that the foregoing list of risks, uncertainties and other factors is not complete, and forward-looking statements speak only as of the date they are made. Petco undertakes no duty to update publicly any such forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by applicable law, regulation or other competent legal authority.


PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited and subject to reclassification)

 

 

 

13 Weeks Ended

 

 

52 Weeks Ended

 

 

 

January 28,
2023

 

 

January 29,
2022

 

 

Percent
Change

 

 

January 28,
2023

 

 

January 29,
2022

 

 

Percent
Change

 

Net sales

 

$

1,577,959

 

 

$

1,514,357

 

 

 

4

%

 

$

6,035,967

 

 

$

5,807,149

 

 

 

4

%

Cost of sales

 

 

950,680

 

 

 

878,851

 

 

 

8

%

 

 

3,608,860

 

 

 

3,380,539

 

 

 

7

%

Gross profit

 

 

627,279

 

 

 

635,506

 

 

 

(1

%)

 

 

2,427,107

 

 

 

2,426,610

 

 

 

0

%

Selling, general and administrative expenses

 

 

549,719

 

 

 

552,601

 

 

 

(1

%)

 

 

2,201,548

 

 

 

2,160,539

 

 

 

2

%

Operating income

 

 

77,560

 

 

 

82,905

 

 

 

(6

%)

 

 

225,559

 

 

 

266,071

 

 

 

(15

%)

Interest income

 

 

(745

)

 

 

(9

)

 

 

8,178

%

 

 

(1,032

)

 

 

(62

)

 

 

1,565

%

Interest expense

 

 

32,882

 

 

 

18,893

 

 

 

74

%

 

 

101,643

 

 

 

77,397

 

 

 

31

%

Loss on extinguishment and modification of debt

 

 

 

 

 

 

 

N/M

 

 

 

 

 

 

20,838

 

 

 

(100

%)

Other non-operating loss (income)

 

 

3,298

 

 

 

30,437

 

 

 

(89

%)

 

 

12,667

 

 

 

(34,497

)

 

N/M

 

Income before income taxes and income from
   equity method investees

 

 

42,125

 

 

 

33,584

 

 

 

25

%

 

 

112,281

 

 

 

202,395

 

 

 

(45

%)

Income tax expense

 

 

14,548

 

 

 

9,689

 

 

 

50

%

 

 

35,347

 

 

 

53,473

 

 

 

(34

%)

Income from equity method investees

 

 

(5,155

)

 

 

(3,393

)

 

 

52

%

 

 

(12,976

)

 

 

(10,883

)

 

 

19

%

Net income

 

 

32,732

 

 

 

27,288

 

 

 

20

%

 

 

89,910

 

 

 

159,805

 

 

 

(44

%)

Net loss attributable to noncontrolling interest

 

 

 

 

 

(1,706

)

 

 

(100

%)

 

 

(891

)

 

 

(4,612

)

 

 

(81

%)

Net income attributable to Class A and B-1 common
   stockholders

 

$

32,732

 

 

$

28,994

 

 

 

13

%

 

$

90,801

 

 

$

164,417

 

 

 

(45

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.12

 

 

$

0.11

 

 

 

12

%

 

$

0.34

 

 

$

0.62

 

 

 

(45

%)

Diluted

 

$

0.12

 

 

$

0.11

 

 

 

13

%

 

$

0.34

 

 

$

0.62

 

 

 

(45

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing net income per Class A
   and B-1 common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

265,918

 

 

 

264,384

 

 

 

1

%

 

 

265,522

 

 

 

264,261

 

 

 

0

%

Diluted

 

 

266,297

 

 

 

265,785

 

 

 

0

%

 

 

265,951

 

 

 

265,338

 

 

 

0

%

 


PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited and subject to reclassification)

 

 

January 28,
2023

 

January 29,
2022

 

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

201,901

 

$

211,602

 

Receivables, less allowance for credit losses1

 

49,580

 

 

55,618

 

Merchandise inventories, net

 

652,430

 

 

675,111

 

Prepaid expenses

 

51,274

 

 

42,355

 

Other current assets

 

60,809

 

 

86,091

 

Total current assets

 

1,015,994

 

 

1,070,777

 

Fixed assets, net

 

803,327

 

 

726,922

 

Operating lease right-of-use assets

 

1,397,761

 

 

1,338,465

 

Goodwill

 

2,193,941

 

 

2,183,991

 

Trade name

 

1,025,000

 

 

1,025,000

 

Other long-term assets

 

176,806

 

 

152,786

 

Total assets

$

6,612,829

 

$

6,497,941

 

LIABILITIES AND EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable and book overdrafts

$

381,213

 

$

403,976

 

Accrued salaries and employee benefits

 

89,929

 

 

150,630

 

Accrued expenses and other liabilities

 

217,556

 

 

210,872

 

Current portion of operating lease liabilities

 

309,766

 

 

265,897

 

Current portion of long-term debt and other lease liabilities

 

22,794

 

 

21,764

 

Total current liabilities

 

1,021,258

 

 

1,053,139

 

Senior secured credit facilities, net, excluding current portion

 

1,628,331

 

 

1,640,390

 

Operating lease liabilities, excluding current portion

 

1,148,155

 

 

1,096,133

 

Deferred taxes, net

 

303,121

 

 

318,355

 

Other long-term liabilities

 

130,487

 

 

134,105

 

Total liabilities

 

4,231,352

 

 

4,242,122

 

Commitments and contingencies

 

 

 

 

Stockholders' equity:

 

 

 

 

Class A common stock2

 

228

 

 

227

 

Class B-1 common stock3

 

38

 

 

38

 

Class B-2 common stock4

 

 

 

 

Preferred stock5

 

 

 

 

Additional paid-in-capital

 

2,152,342

 

 

2,133,821

 

Retained earnings

 

232,967

 

 

142,166

 

Accumulated other comprehensive loss

 

(4,098

)

 

(2,238

)

Total stockholders’ equity

 

2,381,477

 

 

2,274,014

 

Noncontrolling interest

 

 

 

(18,195

)

Total equity

 

2,381,477

 

 

2,255,819

 

Total liabilities and equity

$

6,612,829

 

$

6,497,941

 

 

(1)
Allowances for credit losses are $952 and $931, respectively
(2)
Class A common stock, $0.001 par value: Authorized - 1.0 billion shares; Issued and outstanding - 228.3 million and 227.2 million shares, respectively
(3)
Class B-1 common stock, $0.001 par value: Authorized - 75.0 million shares; Issued and outstanding - 37.8 million shares
(4)
Class B-2 common stock, $0.000001 par value: Authorized - 75.0 million shares; Issued and outstanding - 37.8 million shares
(5)
Preferred stock, $0.001 par value: Authorized - 25.0 million shares; Issued and outstanding - none

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited and subject to reclassification)

 

 

52 Weeks Ended

 

 

January 28,
2023

 

January 29,
2022

 

Cash flows from operating activities:

 

 

 

 

Net income

$

89,910

 

$

159,805

 

Adjustments to reconcile net income to net cash provided by
  operating activities:

 

 

 

 

Depreciation and amortization

 

193,828

 

 

172,431

 

Amortization of debt discounts and issuance costs

 

4,940

 

 

5,796

 

Provision for deferred taxes

 

(893

)

 

37,741

 

Equity-based compensation

 

60,784

 

 

49,265

 

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

 

1,992

 

 

10,918

 

Loss on extinguishment and modification of debt

 

 

 

20,838

 

Income from equity method investees

 

(12,976

)

 

(10,883

)

Amounts reclassified out of accumulated other comprehensive income

 

168

 

 

 

Non-cash operating lease costs

 

422,792

 

 

422,465

 

Other non-operating loss (income)

 

12,667

 

 

(34,497

)

Changes in assets and liabilities:

 

 

 

 

Receivables

 

6,038

 

 

(13,791

)

Merchandise inventories

 

22,681

 

 

(136,404

)

Prepaid expenses and other assets

 

(5,933

)

 

(17,664

)

Accounts payable and book overdrafts

 

(22,763

)

 

71,775

 

Accrued salaries and employee benefits

 

(51,427

)

 

10,679

 

Accrued expenses and other liabilities

 

13,616

 

 

42,899

 

Operating lease liabilities

 

(386,259

)

 

(418,210

)

Other long-term liabilities

 

(3,162

)

 

(14,948

)

Net cash provided by operating activities

 

346,003

 

 

358,215

 

Cash flows from investing activities:

 

 

 

 

Cash paid for fixed assets

 

(278,020

)

 

(239,110

)

Cash paid for acquisitions, net of cash acquired

 

(9,640

)

 

(4,334

)

Cash paid for interest in veterinary joint venture

 

(35,000

)

 

 

Proceeds from investments

 

 

 

6,135

 

Proceeds from sale of assets

 

2,336

 

 

226

 

Net cash used in investing activities

 

(320,324

)

 

(237,083

)

Cash flows from financing activities:

 

 

 

 

Borrowings under long-term debt agreements

 

123,000

 

 

1,700,000

 

Repayments of long-term debt

 

(140,000

)

 

(1,690,861

)

Debt refinancing costs

 

 

 

(24,665

)

Payments for finance lease liabilities

 

(5,083

)

 

(3,564

)

Proceeds from employee stock purchase plan and stock option exercises

 

3,796

 

 

4,185

 

Tax withholdings on stock-based awards

 

(15,555

)

 

(33

)

Payment of offering costs

 

 

 

(3,844

)

Net cash used in financing activities

 

(33,842

)

 

(18,782

)

 

 

 

 

 

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

 

(8,163

)

 

102,350

 

Cash, cash equivalents and restricted cash at beginning of period

 

221,890

 

 

119,540

 

Cash, cash equivalents and restricted cash at end of period

$

213,727

 

$

221,890

 

 


 

NON-GAAP FINANCIAL MEASURES

 

The following information provides definitions and reconciliations of the non-GAAP financial measures presented in this earnings release to the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles (GAAP). The company has provided this non-GAAP financial information, which is not calculated or presented in accordance with GAAP, as information supplemental and in addition to the financial measures presented in this earnings release that are calculated and presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for or alternative to, and should be considered in conjunction with, the GAAP financial measures presented in this earnings release. The non-GAAP financial measures in this earnings release may differ from similarly titled measures used by other companies.

 

Beginning in fiscal 2023, Petco has made certain changes to how it defines Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS that impact the comparability of the metrics to prior periods. Specifically, Petco will no longer include store pre-opening expenses, store closing expenses, non-cash occupancy costs, and certain other costs in its non-GAAP add-backs. Details of these changes and a reconciliation of the definitions prior to fiscal 2023 to the go-forward definition is presented in the tables and related footnotes below. The tables below reflect the calculation of Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS, as applicable, for the thirteen and fifty-two weeks ended January 28, 2023 compared to the thirteen and fifty-two weeks ended January 29, 2022, respectively.

 

Adjusted EBITDA and Trailing Twelve Month Adjusted EBITDA

 

Adjusted EBITDA, including Trailing Twelve Month Adjusted EBITDA, is considered a non-GAAP financial measure under the Securities and Exchange Commission’s (SEC) rules because it excludes certain amounts included in net income calculated in accordance with GAAP. Management believes that Adjusted EBITDA is a meaningful measure to share with investors because it facilitates comparison of the current period performance with that of the comparable prior period. In addition, Adjusted EBITDA affords investors a view of what management considers to be Petco’s core operating performance as well as the ability to make a more informed assessment of such operating performance as compared with that of the prior period. Please see the company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022 filed with the SEC on March 24, 2022 for additional information on Adjusted EBITDA.

 


(dollars in thousands)

13 Weeks Ended

 

52 Weeks Ended

 

Reconciliation of Net Income Attributable to Class A and B-1
   Common Stockholders to Adjusted EBITDA

January 28,
2023

 

January 29,
2022

 

January 28,
2023

 

January 29,
2022

 

Net income attributable to Class A and B-1 common stockholders

$

32,732

 

$

28,994

 

$

90,801

 

$

164,417

 

Add (deduct):

 

 

 

 

 

 

 

 

Interest expense, net

 

32,137

 

 

18,884

 

 

100,611

 

 

77,335

 

Income tax expense

 

14,548

 

 

9,689

 

 

35,347

 

 

53,473

 

Depreciation and amortization

 

50,229

 

 

46,794

 

 

193,828

 

 

172,431

 

Income from equity method investees

 

(5,155

)

 

(3,393

)

 

(12,976

)

 

(10,883

)

Loss on debt extinguishment and modification

 

 

 

 

 

 

 

20,838

 

(Gains) losses on sale of assets, impairments and write-offs

 

(307

)

 

5,000

 

 

1,992

 

 

10,918

 

Equity-based compensation

 

19,892

 

 

12,774

 

 

60,784

 

 

49,265

 

Other non-operating loss (income)

 

3,298

 

 

30,437

 

 

12,667

 

 

(34,497

)

Mexico joint venture EBITDA (1)

 

9,265

 

 

8,314

 

 

29,584

 

 

26,837

 

Store pre-opening expenses (2)

 

3,900

 

 

3,026

 

 

14,993

 

 

14,765

 

Store closing expenses (2)

 

1,117

 

 

1,699

 

 

5,168

 

 

5,028

 

Non-cash occupancy-related costs (3)

 

1,456

 

 

2,550

 

 

8,432

 

 

8,114

 

Acquisition-related integration costs (4)

 

627

 

 

 

 

15,314

 

 

 

Other costs (5)

 

6,535

 

 

7,382

 

 

25,790

 

 

33,437

 

Adjusted EBITDA, as defined through fiscal 2022

$

170,274

 

$

172,150

 

$

582,335

 

$

591,478

 

 

 

 

 

 

 

 

 

 

Store pre-opening expenses (2)

 

(3,900

)

 

(3,026

)

 

(14,993

)

 

(14,765

)

Store closing expenses (2)

 

(1,117

)

 

(1,699

)

 

(5,168

)

 

(5,028

)

Non-cash occupancy-related costs (3)

 

(1,456

)

 

(2,550

)

 

(8,432

)

 

(8,114

)

Other costs (5)

 

(5,912

)

 

(7,378

)

 

(22,973

)

 

(15,202

)

Adjusted EBITDA, as defined beginning fiscal 2023

$

157,889

 

$

157,497

 

$

530,769

 

$

548,369

 

 

 

 

 

 

 

 

 

 

Net sales

$

1,577,959

 

$

1,514,357

 

$

6,035,967

 

$

5,807,149

 

Net margin (6)

 

2.1

%

 

1.9

%

 

1.5

%

 

2.8

%

Adjusted EBITDA Margin, as defined through fiscal 2022 (6)

 

10.8

%

 

11.4

%

 

9.6

%

 

10.2

%

Adjusted EBITDA Margin, as defined beginning fiscal 2023 (6)

 

10.0

%

 

10.4

%

 

8.8

%

 

9.4

%

 


Adjusted Net Income and Adjusted EPS

 

Adjusted Net Income and Adjusted diluted earnings per share attributable to Petco common stockholders (Adjusted EPS) are considered non-GAAP financial measures under the SEC’s rules because they exclude certain amounts included in the net income attributable to Petco common stockholders and diluted earnings per share attributable to Petco common stockholders calculated in accordance with GAAP. Management believes that Adjusted Net Income and Adjusted EPS are meaningful measures to share with investors because they facilitate comparison of the current period performance with that of the comparable prior period. In addition, Adjusted Net Income and Adjusted EPS afford investors a view of what management considers to be Petco’s core earnings performance as well as the ability to make a more informed assessment of such earnings performance with that of the prior period.

 

(in thousands, except per share amounts)

13 Weeks Ended

 

Reconciliation of Diluted EPS to Adjusted EPS

January 28, 2023

 

January 29, 2022

 

 

Amount

 

Per share

 

Amount

 

Per share

 

Net income attributable to common stockholders / diluted EPS

$

32,732

 

$

0.12

 

$

28,994

 

$

0.11

 

Add (deduct):

 

 

 

 

 

 

 

 

Income tax expense

 

14,548

 

 

0.05

 

 

9,689

 

 

0.04

 

(Gains) losses on sale of assets, impairments and write-offs

 

(307

)

 

(0.00

)

 

5,000

 

 

0.02

 

Equity-based compensation

 

19,892

 

 

0.08

 

 

12,774

 

 

0.05

 

Other non-operating loss

 

3,298

 

 

0.01

 

 

30,437

 

 

0.11

 

Store pre-opening expenses (2)

 

3,900

 

 

0.02

 

 

3,026

 

 

0.01

 

Store closing expenses (2)

 

1,117

 

 

0.00

 

 

1,699

 

 

0.01

 

Non-cash occupancy-related costs (3)

 

1,456

 

 

0.01

 

 

2,550

 

 

0.01

 

Acquisition-related integration costs (4)

 

627

 

 

0.00

 

 

 

 

 

Other costs (5)

 

6,535

 

 

0.02

 

 

7,382

 

 

0.02

 

Adjusted pre-tax income / diluted earnings per share

$

83,798

 

$

0.31

 

$

101,551

 

$

0.38

 

Income tax expense at 26% normalized tax rate

 

21,787

 

 

0.08

 

 

26,403

 

 

0.10

 

Adjusted Net Income / Adjusted EPS, as defined through fiscal 2022

$

62,011

 

$

0.23

 

$

75,148

 

$

0.28

 

 

 

 

 

 

 

 

 

 

Store pre-opening expenses (2)

 

(3,900

)

 

(0.02

)

 

(3,026

)

 

(0.01

)

Store closing expenses (2)

 

(1,117

)

 

(0.00

)

 

(1,699

)

 

(0.01

)

Non-cash occupancy-related costs (3)

 

(1,456

)

 

(0.01

)

 

(2,550

)

 

(0.01

)

Other costs (5)

 

(5,912

)

 

(0.01

)

 

(7,378

)

 

(0.02

)

Income tax effect of above items at 26% normalized tax rate

 

3,220

 

 

0.01

 

 

3,810

 

 

0.01

 

Adjusted Net Income / Adjusted EPS, as defined beginning fiscal 2023

$

52,846

 

$

0.20

 

$

64,305

 

$

0.24

 

 

 


(in thousands, except per share amounts)

52 Weeks Ended

 

Reconciliation of Diluted EPS to Adjusted EPS

January 28, 2023

 

January 29, 2022

 

 

Amount

 

Per share

 

Amount

 

Per share

 

Net income attributable to common stockholders / diluted EPS

$

90,801

 

$

0.34

 

$

164,417

 

$

0.62

 

Add (deduct):

 

 

 

 

 

 

 

 

Income tax expense

 

35,347

 

 

0.13

 

 

53,473

 

 

0.20

 

Loss on debt extinguishment and modification

 

 

 

 

 

20,838

 

 

0.08

 

(Gains) losses on sale of assets, impairments and write-offs

 

1,992

 

 

0.01

 

 

10,918

 

 

0.04

 

Equity-based compensation

 

60,784

 

 

0.22

 

 

49,265

 

 

0.19

 

Other non-operating loss (income)

 

12,667

 

 

0.05

 

 

(34,497

)

 

(0.13

)

Store pre-opening expenses (2)

 

14,993

 

 

0.06

 

 

14,765

 

 

0.06

 

Store closing expenses (2)

 

5,168

 

 

0.02

 

 

5,028

 

 

0.02

 

Non-cash occupancy-related costs (3)

 

8,432

 

 

0.03

 

 

8,114

 

 

0.03

 

Acquisition-related integration costs (4)

 

15,314

 

 

0.06

 

 

 

 

 

Other costs (5)

 

25,790

 

 

0.10

 

 

33,437

 

 

0.12

 

Adjusted pre-tax income / diluted earnings per share

$

271,288

 

$

1.02

 

$

325,758

 

$

1.23

 

Income tax expense at 26% normalized tax rate

 

70,535

 

 

0.27

 

 

84,697

 

 

0.32

 

Adjusted Net Income / Adjusted EPS, as defined through fiscal 2022

$

200,753

 

$

0.75

 

$

241,061

 

$

0.91

 

 

 

 

 

 

 

 

 

 

Store pre-opening expenses (2)

 

(14,993

)

 

(0.06

)

 

(14,765

)

 

(0.06

)

Store closing expenses (2)

 

(5,168

)

 

(0.02

)

 

(5,028

)

 

(0.02

)

Non-cash occupancy-related costs (3)

 

(8,432

)

 

(0.03

)

 

(8,114

)

 

(0.03

)

Other costs (5)

 

(22,973

)

 

(0.08

)

 

(15,202

)

 

(0.05

)

Income tax effect of above items at 26% normalized tax rate

 

13,407

 

 

0.05

 

 

11,208

 

 

0.04

 

Adjusted Net Income / Adjusted EPS, as defined beginning fiscal 2023

$

162,594

 

$

0.61

 

$

209,160

 

$

0.79

 

 

Free Cash Flow

 

Free Cash Flow is a non-GAAP financial measure that is calculated as net cash provided by operating activities less cash paid for fixed assets. Management believes that Free Cash Flow, which measures the ability to generate additional cash from business operations, is an important financial measure for use in evaluating the company’s financial performance.

 

The table below reflects the calculation of Free Cash Flow for the thirteen and fifty-two weeks ended January 28, 2023 and January 29, 2022, respectively.

 

(in thousands)

 

13 Weeks Ended

 

 

52 Weeks Ended

 

 

 

January 28,
2023

 

 

January 29,
2022

 

 

January 28,
2023

 

 

January 29,
2022

 

Net cash provided by operating activities

 

$

136,540

 

 

$

69,771

 

 

$

346,003

 

 

$

358,215

 

Cash paid for fixed assets

 

 

(65,946

)

 

 

(74,780

)

 

 

(278,020

)

 

 

(239,110

)

Free Cash Flow

 

$

70,594

 

 

$

(5,009

)

 

$

67,983

 

 

$

119,105

 

 

Adjusted EBITDA, Adjusted Net Income and Adjusted EPS Footnotes

 


 

(1)
Mexico Joint Venture EBITDA represents 50 percent of the entity’s operating results for all periods, as adjusted to reflect the results on a basis comparable to Adjusted EBITDA. In the financial statements, this joint venture is accounted for as an equity method investment and reported net of depreciation and income taxes. Because such a presentation would not reflect the adjustments made in the calculation of Adjusted EBITDA, we include the 50 percent interest in the company’s Mexico joint venture on an Adjusted EBITDA basis to ensure consistency. The table below presents a reconciliation of Mexico joint venture net income to Mexico joint venture EBITDA.

 

 

 

13 Weeks Ended

 

 

52 Weeks Ended

 

(in thousands)

 

January 28,
2023

 

 

January 29,
2022

 

 

January 28,
2023

 

 

January 29,
2022

 

Net income

 

$

10,309

 

 

$

6,786

 

 

$

24,757

 

 

$

21,773

 

Depreciation

 

 

5,954

 

 

 

5,218

 

 

 

19,820

 

 

 

15,679

 

Income tax expense

 

 

1,065

 

 

 

2,702

 

 

 

9,409

 

 

 

11,390

 

Foreign currency (gain) loss

 

 

(253

)

 

 

116

 

 

 

(268

)

 

 

(431

)

Interest expense, net

 

 

1,455

 

 

 

1,806

 

 

 

5,449

 

 

 

5,263

 

EBITDA

 

$

18,530

 

 

$

16,628

 

 

$

59,167

 

 

$

53,674

 

50% of EBITDA

 

$

9,265

 

 

$

8,314

 

 

$

29,584

 

 

$

26,837

 

 

(2)
Store pre-opening and closing expenses were adjusted for periods prior to fiscal 2023. Beginning in fiscal 2023, such expenses will no longer be adjusted.

 

(3)
Non-cash occupancy-related costs include the difference between cash and straight-line rent and were adjusted for periods prior to fiscal 2023. Beginning in fiscal 2023, such expenses will no longer be adjusted.

 

(4)
Acquisition/integration costs include direct costs resulting from acquiring and integrating businesses. These include third-party professional and legal fees and other integration-related costs that would not have otherwise been incurred as part of the company’s operations. For the thirteen weeks ended January 28, 2023, approximately $0.6 million of Thrive integration costs were recorded in cost of sales and $0.1 million of integration costs were recorded in selling, general and administrative expenses. For the fifty-two weeks ended January 28, 2023, approximately $8.2 million of Thrive integration costs were recorded in cost of sales and $7.1 million of integration costs were recorded in selling, general and administrative expenses.
 
(5)
Other costs prior to fiscal 2023 included: severance; legal reserves and related fees; one-time consulting and other costs associated with our strategic transformation initiatives; discontinuation and liquidation costs; and costs related to our initial public offering and refinancing. Other costs beginning in fiscal 2023 will include as incurred: restructuring costs and restructuring-related severance costs; legal reserves associated with significant, non-ordinary course legal or regulatory matters; and costs related to certain significant strategic transactions.

 

(6)
We define net margin as net income attributable to Class A and B-1 common stockholders divided by net sales and Adjusted EBITDA margin as Adjusted EBITDA divided by net sales.