Petco Health Wellness Company Inc
For the period ended Aug 3, 2024. Filed Sep 10, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Aug 3, 2024 · Filed Sep 10, 2024
WOOF$2.96-0.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-05-04; filed 2024-06-05.
0000950170-24-069337
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-08-03; filed 2024-09-10.
0000950170-24-105211
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 93 previous paragraphs and 95 current paragraphs.
68 unchanged; 20 reworded; 7 added; 4 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 8 previous and 8 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (7)
Current report
SG&A expenses increased $27.9 million, or 2.4%, to $1,173.7 million for the twenty-six weeks ended August 3, 2024 compared to $1,145.8 million for the twenty-six weeks ended July 29, 2023. As a percentage of net sales, SG&A expenses were 38.4% for the twenty-six weeks ended August 3, 2024 compared with 37.1% for the twenty-six weeks ended July 29, 2023. The increase in SG&A expenses included higher pet care center payroll and fringe benefits and depreciation expense. This increase was partially offset by a decrease in stock compensation and advertising expenses.
Current report
Other Non-Operating (Income) Loss
Current report
Income Tax (Benefit) Expense
Current report
Our effective tax rates were 14.7% and 11.3%, resulting in income tax benefit of $4.7 million and $9.1 million for the thirteen and twenty-six weeks ended August 3, 2024, respectively, compared to effective tax rates of -85.5% and -53.1%, resulting in income tax expense of $6.7 million and $5.7 million for the thirteen and twenty-six weeks ended July 29, 2023, respectively. The change in effective tax rates for the thirteen and twenty-six weeks ended August 3, 2024 was primarily driven by a change in earnings and a decrease in the amount of compensation associated expenses not expected to be deductible for corporate income tax purposes.
Current report
Net cash provided by operating activities was $61.0 million in the twenty-six weeks ended August 3, 2024 compared with net cash provided by operating activities of $134.3 million in the twenty-six weeks ended July 29,
Current report
Net cash used in investing activities was $58.1 million and $105.8 million for the twenty-six weeks ended August 3, 2024 and July 29, 2023, respectively. The decrease was primarily driven by reductions in capital spend, reflecting fewer anticipated hospital build-outs and a balanced approach between focused investments and cash flow.
Current report
In August 2024, the Company entered into an interest rate swap agreement to fix the interest rate on a portion of the Company’s variable-rate debt and decrease its exposure to interest rate variability relating to three-month Term SOFR. The interest rate swap becomes effective September 30, 2024 and expires on December 31, 2026.
Removed paragraphs (4)
Previous report
Other Non-Operating Loss (Income)
Previous report
Income Tax Benefit
Previous report
Our effective tax rate was 9.1% resulting in income tax benefit of $4.5 million for the thirteen weeks ended May 4, 2024, compared to an effective tax rate of 34.8% resulting in income tax benefit of $1.0 million for the thirteen weeks ended April 29, 2023. The decrease in effective tax rate for the thirteen weeks ended May 4, 2024 is primarily driven by a shortfall in tax deductions resulting from the exercise and vesting of equity-based compensation along with a change in pre-tax earnings.
Previous report
Cash used in investing activities consists of capital expenditures, which in the thirteen weeks ended May 4, 2024 and the thirteen weeks ended April 29, 2023 supported the continued build-out of our veterinary hospitals. Net cash used in investing activities was $31.7 million and $62.8 million for the thirteen weeks ended May 4, 2024 and April 29, 2023, respectively.
Reworded paragraphs (20)
Previous wording
Our multicategory strategy integrates our digital assets with our nationwide physical footprint to meet the needs of pet parents who are looking for a single source for all their pets' needs. Our e-commerce site and 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. The full value of our ecosystem can be realized through our Vital Care membership program, which has a two-tiered offering—Vital Care Core, our free membership tier, and Vital Care Premier, our paid membership tier. Sitting at the intersection of value and loyalty, Vital Care Premier makes it easier and more affordable for pet parents to care for their pet’s whole health and links pet parents with our merchandising and services offerings, while Vital Care Core provides pet parents with a suite of loyalty offerings.
Current wording
Our multicategory strategy integrates our digital assets with our nationwide physical footprint to meet the needs of pet parents who are looking for a single source for all their pets' needs. Our e-commerce site and 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.
Previous wording
a decrease in net sales from $1.56 billion to $1.53 billion, representing a period-over-period decrease of 1.7%;
Current wording
a decrease in net sales from $1.53 billion to $1.52 billion, representing a period-over-period decrease of 0.5%;
Previous wording
an operating loss of $16.8 million, compared to operating income of $27.6 million in the prior year period;
Current wording
operating income of $2.5 million, compared to operating income of $24.0 million in the prior year period;
Previous wording
net loss attributable to Class A and B-1 common stockholders of $46.5 million, compared to net loss attributable to Class A and B-1 common stockholders of $1.9 million in the prior year period; and
Current wording
net loss attributable to Class A and B-1 common stockholders of $24.8 million, compared to net loss attributable to Class A and B-1 common stockholders of $14.6 million in the prior year period; and
Previous wording
a decrease in Adjusted EBITDA from $111.0 million to $75.6 million.
Current wording
a decrease in Adjusted EBITDA from $112.6 million to $83.5 million.
Previous wording
Thirteen Weeks Ended May 4, 2024 Compared with Thirteen Weeks Ended April 29, 2023
Current wording
Thirteen and Twenty-six Weeks Ended August 3, 2024 Compared with Thirteen and Twenty-six Weeks Ended July 29, 2023
Previous wording
Net sales decreased $26.8 million, or 1.7%, to $1.53 billion in the thirteen weeks ended May 4, 2024 compared to net sales of $1.56 billion in the thirteen weeks ended April 29, 2023. We continue to experience momentum in consumables and services, although we have also experienced a decrease in supplies and companion animals sales driven by softening in discretionary spend associated with the current inflationary macroeconomic environment.
Current wording
Net sales decreased $7.0 million, or 0.5%, to $1.52 billion in the thirteen weeks ended August 3, 2024 compared to net sales of $1.53 billion in the thirteen weeks ended July 29, 2023. Net sales decreased $33.7 million, or 1.1%, to $3.05 billion in the twenty-six weeks ended August 3, 2024 compared to net sales of $3.09 billion in the twenty-six weeks ended July 29, 2023. We continue to experience momentum in consumables and services, although we have also experienced a decrease in supplies and companion animals sales driven by softening in discretionary spend associated with the current macroeconomic environment.
Previous wording
The comparison of consumables sales between the periods reflects the impact of prior year inflation, coupled with pricing actions taken in the third quarter of fiscal 2023.The decrease in supplies and companion animals sales is due to a decrease in spending on certain non-essential items. The increase in services and other was driven by ongoing strength in our veterinary hospitals, mobile clinics, and grooming businesses.
Current wording
The comparison of consumables sales between the periods reflects the impact of prior year inflation, coupled with pricing actions taken in the third quarter of fiscal 2023. The decrease in supplies and companion animals sales is primarily due to a decrease in spending on certain non-essential items. The increase in services and other sales was primarily driven by a 10.1% and 10.3% increase in service-related sales during the thirteen and twenty-six week periods ended August 3, 2024, respectively, reflecting maturity of our veterinary hospital footprint and growth in our veterinary and grooming businesses.
Previous wording
Gross profit decreased $25.8 million, or 4.3%, to $578.7 million in the thirteen weeks ended May 4, 2024 compared to gross profit of $604.5 million for the thirteen weeks ended April 29, 2023. As a percentage of sales, our gross profit rate was 37.8% for the thirteen weeks ended May 4, 2024 compared with 38.9% for the thirteen weeks ended April 29, 2023. The decrease in gross profit rate between the periods was primarily due to the mix impact of higher consumables and services sales and softer supplies sales during the thirteen weeks ended May 4, 2024. Sales channel impacts driven by strength in our services business also contributed to the decrease in gross profit rate during the thirteen weeks ended May 4, 2024 as compared to the prior year period. We are unable to quantify the factors impacting gross profit rate described above due to the fact that such factors are based on input measures or qualitative information that do not lend themselves to quantification.
Current wording
Gross profit decreased $12.3 million, or 2.1%, to $580.7 million in the thirteen weeks ended August 3, 2024 compared to gross profit of $593.0 million for the thirteen weeks ended July 29, 2023. As a percentage of sales, our gross profit rate was 38.1% for the thirteen weeks ended August 3, 2024 compared with 38.7% for the thirteen weeks ended July 29, 2023. Gross profit decreased $38.1 million, or 3.2%, to $1,159.4 million in the twenty-six weeks ended August 3, 2024 compared to gross profit of $1,197.5 million for the twenty-six weeks ended July 29, 2023. As a percentage of sales, our gross profit rate was 38.0% for the twenty-six weeks ended August 3, 2024 compared with 38.8% for the twenty-six weeks ended July 29, 2023. The decrease in gross profit rate between the periods was primarily due to the mix impact of higher consumables and services sales and softer supplies and companion animal sales during the thirteen and twenty-six weeks ended August 3, 2024. We are unable to quantify the factors impacting gross profit rate described above due to the fact that such factors are based on input measures or qualitative information that do not lend themselves to quantification.
Previous wording
SG&A expenses increased $18.6 million, or 3.2%, to $595.4 million for the thirteen weeks ended May 4, 2024 compared to $576.9 million for the thirteen weeks ended April 29, 2023. As a percentage of net sales, SG&A expenses were 38.9% for the thirteen weeks ended May 4, 2024 compared with 37.1% for the thirteen weeks ended April 29, 2023. The increase in SG&A expenses period-over-period included higher payroll and fringe benefits, severance-related charges, store occupancy costs, and depreciation expense.
Current wording
SG&A expenses increased $9.3 million, or 1.6%, to $578.3 million for the thirteen weeks ended August 3, 2024 compared to $569.0 million for the thirteen weeks ended July 29, 2023. As a percentage of net sales, SG&A expenses were 37.9% for the thirteen weeks ended August 3, 2024 compared with 37.2% for the thirteen weeks ended July 29, 2023. The increase in SG&A expenses period-over-period included higher pet care center payroll and fringe benefits and depreciation expense. This increase was partially offset by a decrease in stock compensation and advertising expenses.
Previous wording
Interest expense decreased $0.4 million, or 1.0%, to $36.8 million in the thirteen weeks ended May 4, 2024 compared with $37.2 million in the thirteen weeks ended April 29, 2023. The decrease was primarily driven by pre-tax gains recognized in interest expense related to the Company's cash flow hedges during the thirteen weeks ended May 4, 2024. For more information on derivative instruments, refer to Note 5, “Derivative Instruments,” to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Current wording
Interest expense decreased $0.7 million, or 1.8%, to $36.8 million in the thirteen weeks ended August 3, 2024 compared with $37.5 million in the thirteen weeks ended July 29, 2023. Interest expense decreased $1.1 million, or 1.4%, to $73.6 million in the twenty-six weeks ended August 3, 2024 compared with $74.7 million in the twenty-six weeks ended July 29, 2023. The decrease was primarily driven by pre-tax gains recognized in interest expense related to the Company's cash flow hedges during the thirteen and twenty-six week periods ended August 3, 2024. For more information on derivative instruments, refer to Note 4, “Derivative Instruments,” to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Previous wording
There was no loss on debt extinguishment and modification for the thirteen weeks ended May 4, 2024. During the thirteen weeks ended April 29, 2023, the Company recognized $0.4 million of losses on partial extinguishment of debt. For more information regarding these activities, refer to Note 4, “Senior Secured Credit Facilities,” to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Current wording
There was no loss on debt extinguishment and modification for the thirteen and twenty-six weeks ended August 3, 2024. Loss on partial extinguishment of debt was $0.3 million and $0.7 million for the thirteen and twenty-six weeks ended July 29, 2023, respectively. This loss was recognized in conjunction with the $35.0 million and $25.0 million repayments on the First Lien Term Loan in March 2023 and May 2023, respectively. 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.
Previous wording
Other non-operating loss was $2.7 million and other non-operating income was $2.8 million for the thirteen weeks ended May 4, 2024 and April 29, 2023, respectively. For more information regarding this activity, refer to Note 6,“Fair Value Measurements,”to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Current wording
There was no other non-operating income or loss for the thirteen weeks ended August 3, 2024. Other non-operating loss was $2.7 million for the twenty-six weeks ended August 3, 2024. Other non-operating income was $1.8 million and $4.6 million for the thirteen and twenty-six weeks ended July 29, 2023, respectively. For more information regarding this activity, refer to Note 5, “Fair Value Measurements,” to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Previous wording
Our primary sources of liquidity are funds generated by operating activities and available capacity for borrowings on our $581 million secured asset-based revolving credit facility (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 May 4, 2024 was $617.3 million, inclusive of cash and cash equivalents of $89.7 million and $527.6 million of availability on the ABL Revolving Credit Facility.
Current wording
Our primary sources of liquidity are funds generated by operating activities and available capacity for borrowings on our $581 million secured asset-based revolving credit facility (as amended, 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 August 3, 2024 was $655.2 million, inclusive of cash and cash equivalents of $127.6 million and $527.6 million of availability on the ABL Revolving Credit Facility.
Previous wording
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 (used in) provided by operating activities is impacted by our net loss 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.
Current wording
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 loss 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 (income) loss; and the effect of changes in operating assets and liabilities.
Previous wording
Net cash used in operating activities was $8.4 million in the thirteen weeks ended May 4, 2024 compared with net cash provided by operating activities of $37.7 million in the thirteen weeks ended April 29, 2023. The decrease in operating cash flow was driven by lower sales, an increase in cash paid for inventory and higher payroll and fringe benefits. This was partially offset by a decrease in cash paid for operating leases, effective management of accounts payable, and fewer payouts of prior year accrued incentive bonuses.
Current wording
The decrease in operating cash flow was driven by lower sales and an increase in cash paid for inventory, which was partially offset by a decrease in cash paid for operating leases and timing differences in accounts payable.
Previous wording
Net cash used in financing activities was $5.6 million for the thirteen weeks ended May 4, 2024, compared with $37.1 million used in financing activities in the thirteen weeks ended April 29, 2023.
Current wording
Net cash used in financing activities was $5.9 million for the twenty-six weeks ended August 3, 2024, compared with $65.8 million used in financing activities in the twenty-six weeks ended July 29, 2023.
Previous wording
Financing cash flows in the thirteen weeks ended May 4, 2024 primarily consisted of borrowings and repayments on the ABL Revolving Credit Facility.
Current wording
Financing cash flows in the twenty-six weeks ended August 3, 2024 primarily consisted of borrowings and repayments on the ABL Revolving Credit Facility.
Previous wording
Financing cash flows in the thirteen weeks ended April 29, 2023 primarily consisted of the $35.0 million principal repayment on the term loan.
Current wording
Financing cash flows in the twenty-six weeks ended July 29, 2023 primarily consisted of $60.0 million in principal repayments on the term loan.
Previous wording
Interest on the First Lien Term Loan is based on, at the Company’s option, either a base rate or Adjusted Term SOFR, subject to a 0.75% floor, payable upon maturity of the SOFR 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 Term SOFR plus 1.0%. The applicable rate is 2.25% per annum for a base rate loan or 3.25% per annum for an Adjusted Term SOFR loan. Principal and interest payments commenced on June 30, 2021. Principal payments are typically $4.25 million quarterly. During the thirteen weeks ended April 29, 2023, the Company repaid $35.0 million in principal of the First Lien Term Loan using existing cash on hand. The repayments were applied to remaining principal payments in order of scheduled payment date.
Current wording
Interest on the First Lien Term Loan is based on, at the Company’s option, either a base rate or Adjusted Term SOFR, subject to a 0.75% floor, payable upon maturity of the SOFR 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 Term SOFR plus 1.0%. The applicable rate is 2.25% per annum for a base rate loan or 3.25% per annum for an Adjusted Term SOFR loan. Principal and interest payments commenced on June 30, 2021. Principal payments are typically $4.25 million quarterly. During the thirteen and twenty-six weeks ended July 29, 2023, the Company repaid $35.0 million and $25.0 million in principal, respectively, of the First Lien Term Loan using existing cash on hand. The repayments were applied to remaining principal payments in order of scheduled payment date.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
The increase in services and other sales was primarily driven by a 10.5% increase in service-related sales during the thirteen weeks ended May 4, 2024, reflecting expansion and maturity of our veterinary hospital footprint and growth in our veterinary and grooming business.