Petco Health and Wellness pany(WOOF) - 2025 Q3 - Quarterly Report

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$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$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$1.51 billion, slightly up from $1.49 billion in the prior year, indicating a growth of approximately 1$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 $571.8 million for the thirteen weeks ended November 2, 2024, representing 37.8$(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$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]