Petco Health and Wellness pany(WOOF) - 2024 Q3 - Quarterly Report

Financial Performance - Net sales decreased from $1.50 billion to$1.49 billion, a period-over-period decrease of 0.5%[90] - Operating loss of $1,232.1 million primarily due to goodwill impairment of$1,222.5 million, compared to operating income of $48.1 million in the prior year[90] - Net loss attributable to Class A and B-1 common stockholders was$1,241.1 million, compared to net income of $19.9 million in the prior year[90] - Adjusted EBITDA decreased from$120.2 million to $72.2 million[90] - Gross profit margin decreased to 36.8$7.1 million, or 0.5%, to $1.49 billion for the thirteen weeks ended October 28, 2023, while increasing by$122.8 million, or 2.8%, to $4.58 billion for the thirty-nine weeks ended October 28, 2023[93] - Gross profit decreased by$47.7 million, or 8.0%, to $550.0 million for the thirteen weeks ended October 28, 2023, with a gross profit rate of 36.8$72.2 million, down from $120.2 million for the same period in 2022, representing a decrease of 40$4.58 billion, compared to $4.46 billion for the same period in 2022, reflecting a year-over-year increase of 2.7$(1.24) billion for the thirteen weeks ended October 28, 2023, compared to a profit of $19.9 million for the same period in 2022[113] Sales and Revenue Breakdown - Total net sales for the thirteen weeks ended October 28, 2023, included$1,257.8 million from products and $236.4 million from services and other[91] - Consumables sales increased by$12.8 million, or 1.8%, to $733.3 million for the thirteen weeks ended October 28, 2023, driven by additional brands in the assortment[93] - Service-related sales, including veterinary hospitals, increased by 14.0$10.0 million, or 1.8%, to $559.6 million for the thirteen weeks ended October 28, 2023, representing 37.5$9.3 million, or 33.9%, to $36.6 million for the thirteen weeks ended October 28, 2023, primarily due to higher interest rates[103] - Free Cash Flow for the thirty-nine weeks ended October 28, 2023, was$(7.8) million, compared to $(2.6) million for the same period in 2022, indicating a decline in cash generation[116] - Net cash provided by operating activities decreased to$168.7 million for the thirty-nine weeks ended October 28, 2023, from $209.5 million for the same period in 2022, driven by lower earnings and increased cash outflows[122] - Financing activities resulted in a net cash outflow of$84.0 million for the thirty-nine weeks ended October 28, 2023, compared to $27.0 million for the same period in 2022, primarily due to principal repayments on the term loan[125] Goodwill and Impairment - Goodwill impairment charge of$1.22 billion was recorded during the thirteen weeks ended October 29, 2022, due to an interim impairment test[101] - The company incurred $1.22 billion in goodwill impairment during the thirteen weeks ended October 28, 2023, which significantly impacted net income[113] Liquidity and Debt - The liquidity position as of October 28, 2023, was$586.4 million, which includes cash and cash equivalents of $139.8 million and$446.6 million available on the ABL Revolving Credit Facility[118] - As of October 28, 2023, the Company had $1,595.3 million outstanding under the First Lien Term Loan[141] - A 100 basis points increase in variable rates on the First Lien Term Loan and ABL Revolving Credit Facility would increase annual cash interest by approximately$16.2 million[142] - The Company has no amounts outstanding under the ABL Revolving Credit Facility as of October 28, 2023[142] - The Company maintains cash and cash equivalents at major financial institutions, likely exceeding insured limits, with minimal credit risk[144] Business Operations - Total pet care centers at the end of the period remained stable at 1,429[92] - Total veterinarian practices increased to 282 from 229 in the prior year[92] - The company operates over 275 veterinary hospitals, contributing to the growth in its veterinary and grooming business[95] Taxation - The effective tax rate was 1.8% for the thirteen weeks ended October 28, 2023, resulting in an income tax benefit of $22.9 million, compared to an effective tax rate of 17.3% in the prior year[106] Market Conditions - Substantially all business is conducted in U.S. dollars, with no material effect expected from a 10% fluctuation in the relative value of the U.S. dollar[145]