Petco Health + Wellness Company, Inc. Reports First Quarter 2024 Earnings Results

Q1 2024 Overview

  • Net revenue of $1.5 billion decreased 1.7 percent year over year
  • Comparable sales declined 1.2 percent year over year and increased 4.1 percent on a two-year basis
  • GAAP net loss of $46.5 million, or $(0.17) per share, compared to GAAP net loss of $1.9 million, or $(0.01) per share in the prior year
  • Adjusted Net Income1 of $(11.8) million, or $(0.04) per share, compared to $14.9 million, or $0.06 per share in the prior year
  • Adjusted EBITDA1 of $75.6 million compared to $111.0 million in the prior year
  • Operating Cash Flow of $(8.4) million compared to $37.7 million in the prior year
  • Free Cash Flow 1 of $(41.1) million compared to $(24.4) million in the prior year

SAN DIEGO, May 22, 2024 /PRNewswire/ — Petco Health and Wellness Company, Inc. (Nasdaq: WOOF), a complete partner in pet health and wellness, today announced its first quarter 2024 financial results.

In the first quarter of 2024, Petco delivered net revenue of $1.5 billion, down 1.7 percent versus prior year. On an as-reported basis, the company’s consumables business was up 0.1 percent versus prior year, and services and other business was up 4.2 percent versus prior year. Growth in the company’s consumables and services and other business was offset by the company’s supplies and companion animal business, down 6.8 percent versus prior year. GAAP net loss in the first quarter of 2024 was $46.5 million or $(0.17) per share, compared to GAAP net loss of $1.9 million or $(0.01) per share in the prior year. Adjusted Net Income1 was $(11.8) million or $(0.04) per share, compared to $14.9 million or $0.06 per share in the prior year. Adjusted EBITDA1 was $75.6 million compared to $111.0 million in the prior year.

“In Q1 we made meaningful progress against our strategy to reposition the business for sustainable and profitable growth,” said Mike Mohan, Petco’s Interim Chief Executive Officer. “The underlying value proposition of this iconic and trusted brand remains strong, and I’m confident that a renewed focus on retail fundamentals and effective delivery of cost transformation will restore profitability and amplify the competitive advantages of our differentiated approach within the pet category.”

(1)

Adjusted EBITDA, Adjusted Net Income, Adjusted Earnings Per Share (“Adjusted EPS”), and Free Cash Flow are non-GAAP financial measures. See “Non-GAAP Financial Measures” for additional information on non-GAAP financial measures and a reconciliation to the most comparable GAAP measures.

Fiscal Q2 2024 Outlook

The company is providing Q2 guidance for revenue, Adjusted EBITDA, and Adjusted EPS, in addition to reaffirming full year interest, share count, and capital expenditure expectations.

For Fiscal Q2 2024, the company expects:

Metric*

FQ2 2024

Guidance

Net Revenue

~ $1.525 billion

Adjusted EBITDA

~ $80 million

Adjusted EPS

~ $(0.02)

 

For Fiscal 2024 (a 52-week year), the company expects:

Metric*

2024

Guidance, YoY

Net interest expense

~$145 million

Capital Expenditures

~$140 million

 

*Assumptions in the guidance include that economic conditions, currency rates and the tax and regulatory landscape remain generally consistent. For fiscal 2024, our guidance anticipates a 26 percent tax rate, and 272 million weighted average diluted share count.  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 Securities and Exchange Commission.

Earnings Conference Call Webcast Information:

Management will host an earnings conference call on May 22, 2024 at 8:00 AM Eastern Time to discuss the company’s financial results. The conference call will be accessible through a live webcast. Interested  investors and other individuals can access the webcast, earnings release, and earnings presentation 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 June 5, 2024 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, a life-changing 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, but not limited to, statements regarding our Q2 2024 guidance, operational reset of our business, our competitive positioning, profitability, cost action plans and associated cost-savings. 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 data 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 conflicts in Ukraine and the Middle East), 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; (xx) impairments of the carrying value of our goodwill and other intangible assets; (xxi) our ability to successfully implement our operational adjustments, achieve the expected benefits of our cost action plans and drive improved profitability; and (xxii) 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.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited and subject to reclassification)

13 Weeks Ended

May 4,

2024

April 29,

2023

Percent

Change

Net sales:

Products

$ 1,279,731

$ 1,316,596

(3 %)

Services and other

249,409

239,312

4 %

Total net sales

1,529,140

1,555,908

(2 %)

Cost of sales:

Products

792,722

805,759

(2 %)

Services and other

157,758

145,667

8 %

Total cost of sales

950,480

951,426

(0 %)

Gross profit

578,660

604,482

(4 %)

Selling, general and administrative expenses

595,442

576,865

3 %

Goodwill impairment

N/M

Operating (loss) income

(16,782)

27,617

N/M

Interest income

(418)

(1,177)

(64 %)

Interest expense

36,817

37,202

(1 %)

Loss on partial extinguishment of debt

441

(100 %)

Other non-operating loss (income)

2,665

(2,819)

N/M

Loss before income taxes and income from

   equity method investees

(55,846)

(6,030)

826 %

Income tax benefit

(4,477)

(1,008)

344 %

Income from equity method investees

(4,886)

(3,130)

56 %

Net loss attributable to Class A and B-1 common

   stockholders

$      (46,483)

$        (1,892)

2,357 %

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

Basic

$        (0.17)

$        (0.01)

2,327 %

Diluted

$        (0.17)

$        (0.01)

2,327 %

Weighted average shares used in computing net loss per Class A

   and B-1 common share:

Basic

269,768

266,485

1 %

Diluted

269,768

266,485

1 %

 

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited and subject to reclassification)

 May 4,

2024

 February 3,

2024

ASSETS

Current assets:

Cash and cash equivalents

$     89,717

$    125,428

Receivables, less allowance for credit losses1

42,081

44,369

Merchandise inventories, net

681,020

684,502

Prepaid expenses

64,983

58,615

Other current assets

26,254

38,830

Total current assets

904,055

951,744

Fixed assets

2,177,472

2,173,015

Less accumulated depreciation

(1,398,944)

(1,356,648)

Fixed assets, net

778,528

816,367

Operating lease right-of-use assets

1,357,576

1,384,050

Goodwill

980,064

980,297

Trade name

1,025,000

1,025,000

Other long-term assets

213,819

205,694

Total assets

$ 5,259,042

$  5,363,152

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable and book overdrafts

$    464,524

$    485,131

Accrued salaries and employee benefits

95,027

101,265

Accrued expenses and other liabilities

198,219

200,278

Current portion of operating lease liabilities

307,989

310,507

Current portion of long-term debt and other lease liabilities

3,680

15,962

Total current liabilities

1,069,439

1,113,143

Senior secured credit facilities, net, excluding current portion

1,574,486

1,576,223

Operating lease liabilities, excluding current portion

1,093,136

1,116,615

Deferred taxes, net

240,653

251,629

Other long-term liabilities

119,019

121,113

Total liabilities

4,096,733

4,178,723

Commitments and contingencies

Stockholders’ equity:

Class A common stock2

233

231

Class B-1 common stock3

38

38

Class B-2 common stock4

Preferred stock5

Additional paid-in-capital

2,246,756

2,229,582

Accumulated deficit

(1,093,726)

(1,047,243)

Accumulated other comprehensive income

9,008

1,821

Total stockholders’ equity

1,162,309

1,184,429

Total liabilities and stockholders’ equity

$ 5,259,042

$  5,363,152

(1)

Allowances for credit losses are $1,821 and $1,806, respectively

(2)

Class A common stock, $0.001 par value: Authorized – 1.0 billion shares; Issued and outstanding – 233.0 million and 231.2 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

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