Petco Health Wellness Company Inc

Previous wording

a decrease in net sales from $1.53 billion to $1.52 billion, representing a period-over-period decrease of 0.5%;

Current wording

an increase in net sales from $1.49 billion to $1.51 billion, representing a period-over-period increase of 1.2%;

Previous wording

operating income of $2.5 million, compared to operating income of $24.0 million in the prior year period;

Current wording

operating income of $4.0 million, compared to an operating loss of $1,232.1 million resulting primarily from goodwill impairment of $1,222.5 million in the prior year period;

Previous 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

Current wording

net loss attributable to Class A and B-1 common stockholders of $16.7 million, compared to net loss attributable to Class A and B-1 common stockholders of $1,241.1 million impacted by goodwill impairment in the prior year period; and

Previous wording

a decrease in Adjusted EBITDA from $112.6 million to $83.5 million.

Current wording

an increase in Adjusted EBITDA from $72.2 million to $81.2 million.

Previous wording

Thirteen and Twenty-six Weeks Ended August 3, 2024 Compared with Thirteen and Twenty-six Weeks Ended July 29, 2023

Current wording

Thirteen and Thirty-nine Weeks Ended November 2, 2024 Compared with Thirteen and Thirty-nine Weeks Ended October 28, 2023

Previous 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.

Current wording

Net sales increased $17.3 million, or 1.2%, to $1.51 billion in the thirteen weeks ended November 2, 2024 compared to net sales of $1.49 billion in the thirteen weeks ended October 28, 2023. Net sales decreased $16.5 million, or 0.4%, to $4.56 billion in the thirty-nine weeks ended November 2, 2024 compared to net sales of $4.58 billion in the thirty-nine weeks ended October 28, 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 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.

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 8.6% and 9.7% increase in service-related sales during the thirteen and thirty-nine week periods ended November 2, 2024, respectively, reflecting maturity of our veterinary hospital footprint and growth in our veterinary and grooming businesses.

Previous 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.

Current wording

Gross profit increased $25.8 million, or 4.7%, to $575.8 million in the thirteen weeks ended November 2, 2024 compared to gross profit of $550.0 million for the thirteen weeks ended October 28, 2023. As a percentage of sales, our gross profit rate was 38.1% for the thirteen weeks ended November 2, 2024 compared with 36.8% for the thirteen weeks ended October 28, 2023, reflecting improvement in product mix and continued progress on product cost management. Gross profit decreased $12.3 million, or 0.7%, to $1,735.1 million in the thirty-nine weeks ended November 2, 2024 compared to gross profit of $1,747.5 million for the thirty-nine weeks ended October 28, 2023. As a percentage of sales, our gross profit rate was 38.0% for the thirty-nine weeks ended November 2, 2024 compared with 38.1% for the thirty-nine weeks ended October 28, 2023. The decrease in gross profit rate between the thirty-nine week periods was primarily due to the mix impact of higher consumables and services sales and softer supplies and companion animal sales during the thirty-nine weeks ended November 2, 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 $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.

Current wording

SG&A expenses increased $12.2 million, or 2.2%, to $571.8 million for the thirteen weeks ended November 2, 2024 compared to $559.6 million for the thirteen weeks ended October 28, 2023. As a percentage of net sales, SG&A expenses were 37.8% for the thirteen weeks ended November 2, 2024 compared with 37.5% for the thirteen weeks ended October 28, 2023. The increase in SG&A expenses period-over-period included higher pet care center payroll and fringe benefits and bonuses, which was partially offset by a decrease in stock compensation and advertising expenses.

Previous wording

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 wording

SG&A expenses increased $40.0 million, or 2.3%, to $1,745.5 million for the thirty-nine weeks ended November 2, 2024 compared to $1,705.4 million for the thirty-nine weeks ended October 28, 2023. As a percentage of net sales, SG&A expenses were 38.2% for the thirty-nine weeks ended November 2, 2024 compared with 37.2% for the thirty-nine weeks ended October 28, 2023. The increase in SG&A expenses included higher pet care center payroll and fringe benefits, bonuses, and store occupancy costs. This increase was partially offset by a decrease in stock compensation and advertising expenses.

Previous 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.

Current wording

Interest expense decreased $0.8 million, or 2.1%, to $35.8 million in the thirteen weeks ended November 2, 2024 compared with $36.6 million in the thirteen weeks ended October 28, 2023. Interest expense decreased $1.9 million, or 1.6%, to $109.4 million in the thirty-nine weeks ended November 2, 2024 compared with $111.3 million in the thirty-nine weeks ended October 28, 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 thirty-nine week periods ended November 2, 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.

Previous 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.

Current wording

There was no loss on debt extinguishment and modification for the thirteen and thirty-nine weeks ended November 2, 2024. Loss on partial extinguishment of debt was $0.2 million and $0.9 million for the thirteen and thirty-nine weeks ended October 28, 2023, respectively. This loss was recognized in conjunction with the $35.0 million, $25.0 million and $15.0 million repayments on the First Lien Term Loan in March 2023, May 2023 and August 2023, respectively. 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.

Previous 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.

Current wording

Other non-operating income was $8.5 million and $5.8 million for the thirteen and thirty-nine weeks ended November 2, 2024, respectively, and were related to remeasurements of an equity investment without a readily determinable fair value. Other non-operating income was $0.1 million and 4.7 million for the thirteen and thirty-nine weeks ended October 28, 2023. 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.

Previous wording

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 wording

Our effective tax rates were 4.9% and 10.2%, resulting in income tax benefit of $0.9 million and $10.0 million for the thirteen and thirty-nine weeks ended November 2, 2024, respectively, compared to effective tax rates of 1.8% and 1.3%, resulting in income tax benefit of $22.9 million and $17.2 million for the thirteen and thirty-nine weeks ended October 28, 2023, respectively. The change in effective tax rates for the thirteen and thirty-nine weeks ended November 2, 2024 was primarily driven by non-deductible goodwill impaired during the third quarter ending October 28, 2023, in addition to a shortfall in tax deductions resulting from the exercise and vesting of equity-based compensation awards for the periods.

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 (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.

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 November 2, 2024 was $644.3 million, inclusive of cash and cash equivalents of $116.7 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 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.

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; and the effect of changes in operating assets and liabilities.

Previous 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.

Current wording

Net cash provided by operating activities was $81.7 million in the thirty-nine weeks ended November 2, 2024 compared with net cash provided by operating activities of $168.7 million in the thirty-nine weeks ended October 28, 2023. The decrease in operating cash flow was driven by an increase in cash paid for inventory, which was partially offset by decreases in cash paid for advertising, freight, and operating leases as well as other timing differences in accounts payable.

Previous wording

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 wording

Net cash used in investing activities was $89.5 million and $156.1 million for the thirty-nine weeks ended November 2, 2024 and October 28, 2023, respectively. This 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.

Previous 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.

Current wording

Net cash used in financing activities was $7.8 million for the thirty-nine weeks ended November 2, 2024, compared with $84.0 million used in financing activities in the thirty-nine weeks ended October 28, 2023.

Previous 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.

Current wording

Financing cash flows in the thirty-nine weeks ended November 2, 2024 primarily consisted of borrowings and repayments on the ABL Revolving Credit Facility.

Previous 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.

Current wording

Financing cash flows in the thirty-nine weeks ended October 28, 2023 primarily consisted of $75.0 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 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.

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 thirty-nine weeks ended October 28, 2023, the Company repaid $75.0 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.

Previous wording

For more information regarding 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.

Current wording

The Company entered into interest rate cap, collar and swap agreements to limit the maximum interest on a portion of the Company’s variable-rate debt and decrease its exposure to interest rate variability relating to three-month Term SOFR. For more information regarding 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.