Financial Data and Key Metrics Changes - In Q4 2024, the company reported revenue of $1.55 billion, aligning with prior outlook, and adjusted EBITDA of $96.1 million, exceeding expectations [13][44] - Gross profit decreased by approximately 3% to $589 million, primarily due to the loss of the fifty-third week in 2024, while gross margin increased by 180 basis points to 38% [43][44] - Total SG&A expenses were $571.9 million, or 36.8% of net sales, an increase of about 60 basis points year-over-year [44] Business Line Data and Key Metrics Changes - The services segment is identified as the fastest-growing area within the pet category, with the company holding an established leadership position [11] - The company is focusing on optimizing existing vet hospitals to drive services growth and improve margins with minimal capital investment [39] Market Data and Key Metrics Changes - The pet category is projected to reach $200 billion in the next five years, driven by the ongoing humanization of pets [11] - The company closed 25 net locations in 2024 and anticipates closing an additional 20 to 30 locations in 2025 [49][122] Company Strategy and Development Direction - The company is implementing a phased approach to restore profitability, focusing on improving the operating model, enhancing retail fundamentals, and optimizing product assortment [14][20] - The leadership team is committed to driving gross margin improvement and leveraging SG&A to enhance the economic model [41][42] - Future growth initiatives will include enhancing omnichannel capabilities and investing in services opportunities [30][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to return to long-term profitable growth, emphasizing the importance of operational improvements and cost control [32][52] - The outlook for 2025 anticipates overall net sales to decline low single digits compared to the previous year, with adjusted EBITDA expected between $375 and $390 million [48][49] Other Important Information - The company aims to achieve a debt-to-EBITDA leverage ratio below two times, focusing on profitability improvement [45] - Management is closely monitoring potential tariff impacts, particularly on inventory purchases from China, Canada, and Mexico, which represent only about 5% of total merchandise costs [46][47] Q&A Session Summary Question: What infrastructure investments are needed for phase three? - Management indicated that no significant infrastructure investments are required, focusing instead on improving EBITDA through disciplined operations [59][60] Question: What are the low-hanging fruit for EBITDA improvement? - Management highlighted the importance of gross margin expansion and leveraging SG&A as key areas for improvement [67][70] Question: How does the company plan to manage SG&A amid declining sales? - Management emphasized that SG&A leverage is about efficiency and effectiveness, ensuring customer needs are met without compromising service [86][87] Question: What is the company's approach to pricing and promotions? - Management stated that they are focused on rational pricing strategies and avoiding excessive promotional stacking to enhance profitability [151][153] Question: How does the company view the competitive landscape and market share? - Management acknowledged the need to sacrifice some sales for improved profitability but expressed confidence in regaining market share through operational improvements [80][84]

Company Performance - Petco Health & Wellness reported break-even quarterly earnings per share, missing the Zacks Consensus Estimate of $0.02, and compared to earnings of $0.02 per share a year ago, resulting in an earnings surprise of -100% [1] - The company posted revenues of $1.55 billion for the quarter ended January 2025, missing the Zacks Consensus Estimate by 0.02%, and down from $1.67 billion year-over-year [2] - Over the last four quarters, Petco has surpassed consensus EPS estimates two times and topped consensus revenue estimates two times [2] Stock Performance - Petco shares have lost approximately 35.2% since the beginning of the year, while the S&P 500 has declined by -1.8% [3] - The current consensus EPS estimate for the coming quarter is $0.01 on $1.55 billion in revenues, and $0.07 on $6.28 billion in revenues for the current fiscal year [7] Industry Outlook - The Zacks Industry Rank indicates that the Retail - Miscellaneous sector is currently in the bottom 46% of over 250 Zacks industries, suggesting potential challenges for stock performance [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact investor decisions [5]

Financial Performance - Q4 2024 net revenue was $1.6 billion, a decrease of 7.3% year over year, impacted by the loss of the 53rd week in 2023[4] - Full year 2024 net revenue totaled $6.1 billion, down 2.2% year over year, with comparable sales increasing by 0.3%[4] - Adjusted EBITDA for Q4 2024 was $96.1 million, compared to $105.3 million in the previous year, while full year adjusted EBITDA was $336.5 million, down from $401.1 million[4] - The company expects low single-digit percentage decline in net revenue for FY 2025, with adjusted EBITDA guidance of $375 million to $390 million[5] - Q1 2025 guidance indicates a low single-digit decline in net revenue, with adjusted EBITDA projected between $82 million and $83 million[6] - Gross profit for Q4 2024 was $589.3 million, a decrease of 2.8% year over year, while full year gross profit was $2.3 billion, down 1.3%[4] - GAAP net loss for Q4 2024 was $13.8 million, an improvement from a loss of $22.6 million in the previous year, while the full year net loss was $101.8 million compared to $1.3 billion in the prior year[4] Cash Flow and Assets - Operating cash flow for FY 2024 was $177.7 million, down from $215.7 million in the previous year, while free cash flow improved to $49.7 million from a negative $9.9 million[4] - Cash and cash equivalents increased from $136,649 million at the beginning of the period to $181,665 million at the end of the period, reflecting a net increase of $45,016 million[19] - Free Cash Flow improved to $49,683 million for the 52 weeks ended February 1, 2025, compared to a negative Free Cash Flow of $9,879 million for the 53 weeks ended February 3, 2024[26] - Total assets decreased from $5,363,152 million in 2024 to $5,194,430 million in 2025, a decline of approximately 3.15%[16] Liabilities and Equity - Total current liabilities rose from $1,113,143 million in 2024 to $1,139,163 million in 2025, an increase of approximately 2.33%[16] - The total stockholders' equity decreased from $1,184,429 million in 2024 to $1,113,630 million in 2025, a decline of approximately 5.98%[16] Inventory and Capital Expenditures - Merchandise inventories decreased from $684,502 million in 2024 to $653,329 million in 2025, a reduction of about 4.56%[16] - Cash paid for fixed assets decreased from $225,598 million in 2024 to $127,990 million in 2025, a reduction of about 43.3%[19] Profitability Metrics - The company reported a net margin of -1.7% for the 52 weeks ended February 1, 2025, compared to -20.5% for the previous year[23] - Net loss for the 52 weeks ended February 1, 2025, was $101,816 million, compared to a net loss of $1,280,210 million for the 53 weeks ended February 3, 2024[19] - Adjusted EBITDA for the 52 weeks ended February 1, 2025, was $336,526 million, down from $401,103 million for the 53 weeks ended February 3, 2024, representing a decrease of about 16.1%[23] Quarterly Performance - Net income for the 13 weeks ended February 1, 2025, was $10,224,000, a decrease of 17% compared to $12,311,000 for the same period in 2024[28] - EBITDA for the 13 weeks ended February 1, 2025, was $22,466,000, down 4.5% from $23,518,000 in the prior year[28] - The company reported a 50% share of EBITDA amounting to $11,233,000 for the 13 weeks ended February 1, 2025, compared to $11,759,000 in the same period last year[28] Expenses and Taxation - Depreciation expenses for the 13 weeks ended February 1, 2025, were $6,536,000, compared to $7,070,000 in the same period last year, reflecting a decrease of 7.5%[28] - Interest expense, net, decreased to $516,000 for the 13 weeks ended February 1, 2025, from $1,039,000 in the prior year, a reduction of 50%[28] - Income tax expense increased to $5,014,000 for the 13 weeks ended February 1, 2025, from $2,541,000 in the same period last year, representing a significant increase of 97%[28] Strategic Initiatives - The company plans approximately 20-30 net closures of real estate locations in FY 2025[5] - Petco's leadership team is focused on achieving double-digit adjusted EBITDA growth in 2025, aiming for sustainable profitable growth[4] - Acquisition and divestiture-related integration costs were incurred, reflecting the company's ongoing strategic transactions and business integration efforts[29] Foreign Currency Impact - The company incurred foreign currency losses of $176,000 for the 13 weeks ended February 1, 2025, compared to $557,000 in the same period in 2024[28]

Core Insights - Petco Health and Wellness Company, Inc. reported a net revenue of $1.6 billion for Q4 2024, a decrease of 7.3% year over year, impacted by the loss of the 53rd week in 2023 [8] - The company aims for double-digit adjusted EBITDA growth in 2025, with guidance for adjusted EBITDA between $375 million and $390 million [2][3] - Petco's full year 2024 adjusted EBITDA was $336.5 million, down from $401.1 million in the previous year [8] Q4 2024 Overview - The CEO highlighted progress in returning Petco to retail operating excellence, with comparable sales increasing by 0.5% year over year [2] - Gross profit for Q4 2024 was $589.3 million, a decrease of 2.8% from $606.3 million in the previous year [8] - The GAAP net loss for Q4 2024 was $13.8 million, an improvement from a net loss of $22.6 million in the prior year [8] Full Year 2024 Overview - Total net revenue for the full year 2024 was $6.1 billion, down 2.2% year over year [8] - The company reported a GAAP net loss of $101.8 million for the full year, significantly improved from a net loss of $1.3 billion the previous year, which included a $1.2 billion non-cash goodwill impairment charge [8] - Operating cash flow for the full year was $177.7 million, compared to $215.7 million in the previous year [8] 2025 Guidance - For FY 2025, Petco expects net revenue to decline in low single digits year over year [2] - The company anticipates net interest expense of approximately $130 million and capital expenditures between $130 million and $140 million [2] - The guidance includes expectations for around 20-30 net closures of real estate locations [2] First Quarter 2025 Guidance - For Q1 2025, Petco projects net revenue to decrease in low single digits year over year, with adjusted EBITDA expected to be between $82 million and $83 million [3]

Core Insights - Petco Health and Wellness Company, Inc. will release its fourth quarter 2024 earnings results and full-year fiscal 2025 outlook on March 26, 2025, at approximately 4:00 p.m. Eastern [1] - A conference call to discuss the financial and operating performance will follow at approximately 4:30 p.m. Eastern [1] - The earnings release and presentation will be available on the company's Investor Relations page, with a replay accessible until April 9, 2025 [2] Company Overview - Founded in 1965, Petco is a health and wellness company focused on improving the lives of pets and their owners [3] - The company operates over 1,500 pet care centers across the U.S., Mexico, and Puerto Rico, offering a range of products and services including grooming, training, and veterinary care [3] - Petco Love, an independent nonprofit organization, collaborates with local animal welfare groups and has facilitated the adoption of nearly 7 million animals through in-store events [3]

Core Viewpoint - Petco is undergoing a significant leadership transition aimed at strengthening its retail fundamentals, driving profit improvement, and returning to growth, with new appointments expected to unlock value for customers, partners, and shareholders [1][7]. Leadership Changes - Sabrina Simmons has been appointed as Chief Financial Officer, effective February 17, bringing over 20 years of executive-level financial experience, previously serving as CFO at Gap, Inc. [3][4][7]. - Michael Romanko has been named Chief Customer and Product Officer, effective February 24, with a strong background in product development and branding, previously holding a decade-long role at Five Below, Inc. [5][7]. - Jack Stout has been appointed Chief Merchandising Officer, effective February 24, with over 20 years of experience in merchandising and planning, previously serving as Executive Vice President at 7-Eleven, Inc. [9][10][7]. Strategic Focus - The new leadership team will work closely with existing executives to execute against the company's 2025 objectives and prepare for a return to growth [1][2]. - Simmons will focus on financial strategy, long-term business planning, and investor relations initiatives, leveraging her familiarity with Petco's business [3][4]. - Romanko aims to elevate the Petco brand by sourcing unique products and enhancing customer experience [6][5]. - Stout is focused on strengthening retail fundamentals and improving merchandising capabilities [10][9]. Company Overview - Petco, founded in 1965, operates over 1,500 pet care centers across the U.S., Mexico, and Puerto Rico, offering a range of products and services aimed at improving the lives of pets and their owners [11].

Core Viewpoint - Petco Health & Wellness (WOOF) has received a Zacks Rank 1 (Strong Buy) upgrade, indicating a positive outlook driven by rising earnings estimates [1][4]. Earnings Estimates and Ratings - The Zacks rating system is primarily based on a company's changing earnings picture, with the Zacks Consensus Estimate reflecting EPS estimates from sell-side analysts [2]. - The Zacks rating upgrade for Petco signifies an optimistic earnings outlook, which is likely to lead to increased buying pressure and a rise in stock price [4][6]. Impact of Earnings Estimates on Stock Prices - Changes in a company's future earnings potential, as indicated by earnings estimate revisions, are strongly correlated with near-term stock price movements [5]. - Institutional investors utilize earnings estimates to determine the fair value of stocks, influencing their buying and selling actions, which subsequently affects stock prices [5]. Recent Performance of Petco - For the fiscal year ending January 2025, Petco is projected to earn -$0.07 per share, reflecting a significant change of -177.8% from the previous year [9]. - Over the past three months, the Zacks Consensus Estimate for Petco has increased by 5.7%, indicating a positive trend in earnings estimates [9]. Zacks Rank System - The Zacks Rank system categorizes stocks into five groups based on earnings estimates, with Zacks Rank 1 stocks historically generating an average annual return of +25% since 1988 [8]. - Petco's upgrade to Zacks Rank 1 places it in the top 5% of Zacks-covered stocks, suggesting a strong potential for market-beating returns in the near term [11].

Core Viewpoint - Momentum investing focuses on "buying high and selling higher," contrasting with traditional strategies of "buying low and selling high" [1] Group 1: Momentum Investing Strategy - Momentum investing can be risky as stocks may lose momentum if their valuations exceed future growth potential [1] - Identifying the right entry point for momentum stocks is challenging, leading to potential losses if the stock price does not continue to rise [1] Group 2: Bargain Momentum Stocks - Investing in bargain stocks that have recently shown price momentum may be a safer strategy [2] - The Zacks Momentum Style Score is useful for identifying strong momentum stocks, while the 'Fast-Paced Momentum at a Bargain' screen helps find attractively priced stocks [2] Group 3: Petco Health & Wellness (WOOF) - Petco Health & Wellness (WOOF) has a four-week price change of 16.6%, indicating strong recent price momentum [3] - WOOF has gained 5.6% over the past 12 weeks, demonstrating its ability to deliver positive returns over a longer timeframe [4] - The stock has a beta of 1.89, suggesting it moves 89% higher than the market in either direction, indicating fast-paced momentum [4] Group 4: Valuation and Earnings Estimates - WOOF has a Momentum Score of A, indicating a favorable time to invest [5] - The stock has a Zacks Rank 2 (Buy) due to upward revisions in earnings estimates, which attract more investor interest [6] - WOOF is trading at a Price-to-Sales ratio of 0.25, meaning investors pay 25 cents for each dollar of sales, indicating a reasonable valuation [6] Group 5: Additional Investment Opportunities - Besides WOOF, there are other stocks that meet the criteria of the 'Fast-Paced Momentum at a Bargain' screen, suggesting further investment opportunities [7] - Zacks offers over 45 Premium Screens tailored to different investing styles, aiding in stock selection [8]

Financial Performance - Net sales increased from $1.49 billion to $1.51 billion, representing a period-over-period increase of 1.2%[93] - Operating income improved to $4.0 million, compared to an operating loss of $1,232.1 million in the prior year, primarily due to goodwill impairment[93] - Adjusted EBITDA rose from $72.2 million to $81.2 million[93] - Comparable sales change was 1.8% for the thirteen weeks ended November 2, 2024, compared to 0.0% for the same period last year[96] - Total net sales for the thirty-nine weeks ended November 2, 2024, were $4.56 billion, slightly down from $4.58 billion in the prior year[94] - Gross profit margin improved to 38.1% for the thirteen weeks ended November 2, 2024, compared to 36.8% in the prior year[96] - Net sales increased by $17.3 million, or 1.2%, to $1.51 billion for the thirteen weeks ended November 2, 2024, compared to $1.49 billion for the same period last year[19] - Gross profit rose by $25.8 million, or 4.7%, to $575.8 million for the thirteen weeks ended November 2, 2024, with a gross profit rate of 38.1%[99] - The gross profit decreased by $12.3 million, or 0.7%, to $1,735.1 million for the thirty-nine weeks ended November 2, 2024[99] - Adjusted EBITDA for the thirty-nine weeks ended November 2, 2024, was $81.2 million, compared to $72.2 million for the same period in 2023, reflecting a 14% increase[111] - Net sales for the thirty-nine weeks ended November 2, 2024, were $1.51 billion, slightly up from $1.49 billion in the prior year, indicating a growth of approximately 1%[111] Loss and Expenses - Net loss attributable to Class A and B-1 common stockholders decreased to $16.7 million from $1,241.1 million in the prior year[93] - SG&A expenses increased by $12.2 million, or 2.2%, to $571.8 million for the thirteen weeks ended November 2, 2024, representing 37.8% of net sales[100] - Free Cash Flow for the thirty-nine weeks ended November 2, 2024, was $(9.4) million, compared to $(7.8) million for the same period in 2023, showing a decline in cash generation[114] - The company reported a net loss attributable to Class A and B-1 common stockholders of $16.7 million for the thirty-nine weeks ended November 2, 2024, compared to a net loss of $1.24 billion in the prior year[111] Cash Flow and Liquidity - As of November 2, 2024, the company's liquidity was $644.3 million, which includes cash and cash equivalents of $116.7 million and $527.6 million available on the ABL Revolving Credit Facility[116] - Net cash provided by operating activities decreased to $81.7 million for the thirty-nine weeks ended November 2, 2024, down from $168.7 million in the same period of 2023, primarily due to increased cash paid for inventory[118] - Net cash used in investing activities was $89.5 million for the thirty-nine weeks ended November 2, 2024, a decrease from $156.1 million in the prior year, reflecting reduced capital expenditures[121] Debt and Interest - The company amended its ABL Revolving Credit Facility in March 2024, increasing total availability from $500 million to $581 million[125] - Interest on the ABL Revolving Credit Facility is now based on either the base rate with a 1% floor or Term SOFR with a 0% floor, plus an applicable margin[126] - The company repaid $75 million in principal on the First Lien Term Loan during the thirty-nine weeks ended October 28, 2023, using existing cash on hand[126] - As of November 2, 2024, the company had $1,595.3 million outstanding under the First Lien Term Loan, with no amounts outstanding under the ABL Revolving Credit Facility[140] - An increase of 100 basis points in variable rates on the First Lien Term Loan and ABL Revolving Credit Facility would increase annual cash interest by approximately $16.2 million[140] Market Conditions and Challenges - The company continues to face macroeconomic challenges, including rising interest rates and inflationary pressures, impacting discretionary item sales[86] - The decrease in supplies and companion animals sales was driven by a softening in discretionary spending due to the current macroeconomic environment[19] Strategic Initiatives - The company aims to enhance customer retention and increase basket size to improve comparable sales[89] - Service-related sales increased by 8.6% and 9.7% for the thirteen and thirty-nine week periods ended November 2, 2024, respectively[98] Accounting and Valuation - The company recorded a pre-tax goodwill impairment charge of $1.22 billion in the thirteen weeks ended October 28, 2023[101] - The company considers the Petco trade name as an indefinite-lived intangible asset, performing annual impairment tests during the fourth quarter[134] - Significant assumptions in determining the fair value of the trade name include prospective financial information, growth rates, and discount rates[135] - The company does not enter into forward currency contracts to hedge foreign currency exposure, with a hypothetical 10% change in exchange rates not expected to materially affect operating results[143] - Cash and cash equivalents as of November 2, 2024, were maintained at major financial institutions, likely exceeding insured limits, with minimal credit risk[142] - The company has the option to perform qualitative assessments for goodwill impairment testing, which may bypass quantitative assessments if fair value exceeds carrying value[132] - Management estimates of cash flow projections are used in quantitative assessments for goodwill impairment, which are subject to uncertainty[133] - There have been no material changes to critical accounting policies and estimates compared to those described in the 2023 Form 10-K[135]

Financial Data and Key Metrics Changes - Revenue for Q3 2024 was $1.51 billion, up 1% year-over-year, with comparable sales increasing by 2% year-over-year [30] - Gross margin expanded by 130 basis points to 38.1%, driven by product cost management and improvements in services margin [7][32] - Adjusted EBITDA was $81.2 million, with an adjusted EBITDA margin of 5.4%, up almost 60 basis points year-over-year [33] - Free cash flow was negative $10 million, showing a meaningful improvement year-over-year [35] Business Line Data and Key Metrics Changes - Consumables revenue grew by 3%, while supplies in companion animals declined by 3%, though this was an improvement of roughly 200 basis points sequentially [30] - Services revenue increased by 9%, driven by strength in vet hospitals and mobile clinics [18][31] - The gross profit was $576 million, up 5% from the prior year [32] Market Data and Key Metrics Changes - The overall market for pet supplies remains flat, with Petco focusing on self-help strategies to improve its business without relying on market growth [54] - Petco Mexico continues to be a market leader in pet specialty in Mexico, driving long-term profitable growth [37] Company Strategy and Development Direction - The company is focusing on three critical areas: merchandising, customer service, and operational efficiency [11] - Initiatives include optimizing product assortments, improving customer service standards, and enhancing supply chain efficiencies [20][21] - The hiring of key executives aims to strengthen leadership and drive revenue growth [24][25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's trajectory and the potential for long-term sustainable profitable growth [26][27] - The company is encouraged by structural improvements and expects a solid finish to 2024, building momentum into 2025 [39] Other Important Information - The company is implementing stronger pricing strategies and has established processes for promotional assessments [14] - Management is actively engaging with vendors to improve relationships and optimize product offerings [12][98] Q&A Session Summary Question: Target same-store sales figure for leveraging cost base - Management emphasized the focus on permanent cost reductions and indicated that specific targets would be discussed in March [44][46] Question: Insights on supplies and companion animals segment - Management noted a sequential improvement in discretionary spending and highlighted the importance of innovation and customer engagement [50][52] Question: Pricing impact in the quarter - Management stated that the overall pricing environment has been rational, with no significant negative impacts [58] Question: Services margin improvement drivers - The improvement was attributed to cost actions and the maturation of vet hospitals, along with strength in the mobile services business [61][62] Question: Opportunities for savings and reinvestment - Management indicated that current cost reductions are permanent and not intended for reinvestment at this stage [67][68] Question: Holiday performance outlook - Management expressed optimism about the start of the quarter and noted sequential improvement from Q3 [71] Question: Regaining market share in 2025 - Management is optimistic about the company's potential for growth and the enthusiasm of associates in driving the turnaround [73] Question: Efficiency enhancements in vet hospitals - Management highlighted progress in profitability and staffing improvements in vet hospitals, with continued growth expected [76][80] Question: Glide path of gross margin improvement - Management refrained from providing specific guidance but expressed encouragement regarding ongoing improvements [84] Question: Contextualizing the decline in services in companion animals - Management reiterated that they are actively taking actions to improve performance in this category regardless of market conditions [88][89]