Petco Health & Wellness Company, Inc. Q1 FY2025 earnings call

• Joel discussed the multi-phased approach to reinventing Petco, with Phase 1 complete and focus now on Phase 2 to improve retail fundamentals. • Progress in sourcing to preserve flexibility amidst tariff uncertainties, with cross-functional teams working on contingency plans. • Merchandise excellence efforts, including cat and dog category resets to align with consumer demand. • Services improvements, such as upgraded grooming software and vet scheduling systems, driving growth and margin expansion. • Operational efficiencies focus, including cost discipline and efficiency initiatives like marketing spend optimization and store labor model improvements. • Customer-facing changes in store offerings, marketing message, and a new membership program in development.

For the first quarter, comparable sales were down 1.3% with net sales down 2.3%. Gross margin rate expanded to 38.2%. Operating profit was $16.4 million, an increase of $33 million. Adjusted EBITDA increased $13.8 million to $89.4 million. Services is the fastest-growing business segment and continues to deliver positive growth.

• Full-year outlook: net sales down low single digits, adjusted EBITDA between $375 million and $390 million. • Second quarter outlook: net sales down low single digits versus prior year, adjusted EBITDA between $92 million and $94 million. • Reiteration of focus on executing retail fundamentals to drive profitability and financial performance.

• Tariff uncertainties pose a risk, with the company having contingency plans but ongoing fluid dynamics and uncertainty to navigate.

Q: What are you seeing in pet adoption trends and how do they impact the full year outlook?

A: Pet adoption trends are stable, and 2025 is a self-help story for Petco, not relying on category tailwinds for financial improvements.

Q: How are you ensuring guardrails to take permanent cost out while keeping the customer experience intact?

A: It's about a change in mindset, leveraging SG&A to drive efficiency and support future growth rather than just onetime cost cutting.

Q: Can you talk about the top line journey and brand repositioning?

A: Work on growth levers is underway, including better customer voice, omnichannel opportunities, and product innovation, with focus on test-and-learn and data analytics for profitable growth.

Q: Talk about services versus supplies and consumer environment impact on revenue mix?

A: Services continue to lead, driven by needs-based categories and productivity improvements, with core service business healthy excluding certain deemphasized areas.

Q: View on leverage ratio and free cash flow?

A: Focus on profitability to improve leverage ratio and free cash flow, with profitability being key to achieving goals.

Q: View on inflation and pricing?

A: Tariff impact is embedded in forecast, with stable tariffs so far, and pricing strategy balanced between customer needs and business health, surgical and focused.