• Revenue: $1.51 billion, up 1% year-over-year.
• Comparable Sales: Up 2% year-over-year.
• Gross Margin: 38.1%, expanded 130 basis points from prior year.
• Adjusted EBITDA: $81.2 million, with a margin rate of 5.4%.
• Adjusted EPS: Negative $0.02, compared to negative $0.05 in the prior year.
• Services Revenue: Up 9%, driven by vet hospitals, mobile clinics, and grooming.
• SG&A Expenses: $572 million, increased 2% year-over-year.
• Merchandise Inventories: $690 million at the end of the third quarter.
• Liquidity: $644 million, including $117 million in cash and cash equivalents.
• Free Cash Flow: Negative $10 million, improved year-over-year.
• CapEx: Down $31 million year-over-year for the quarter.

• Warning! GuruFocus has detected 8 Warning Signs with WOOF.

Release Date: December 05, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Petco Health and Wellness Co Inc (NASDAQ:WOOF) reported revenue of $1.51 billion, up 1% year-over-year, driven by growth in consumables and services.
• Gross margin expanded by 130 basis points to 38.1%, attributed to improvements in product cost management and services margin.
• Services revenue increased by 9%, with strong performance in vet hospitals and Vetco mobile clinics.
• The company has implemented new processes for product resets and pricing strategies to remain competitive and drive financial outcomes.
• Petco Health and Wellness Co Inc (NASDAQ:WOOF) is focusing on driving efficiencies across the business, including renegotiating vendor contracts and improving supply chain operations.

Negative Points

• Supplies and companion animal categories remained soft, with a 3% decline, although there was a sequential improvement.
• Adjusted EPS was negative $0.02, compared to negative $0.05 in the prior year, indicating ongoing challenges in achieving profitability.
• SG&A expenses increased by 2% year-over-year, driven by planned increases in store labor costs.
• Free cash flow was negative $10 million, although it showed improvement year-over-year.
• The company is in a 'self-help' mode, focusing on internal improvements rather than relying on market growth to drive performance.

Q & A Highlights

Q: What would be a target same-store sales figure where you could start leveraging off the newer cost base? A: Joel Anderson, CEO: Our focus is on taking costs out permanently, embedding structural changes in our DNA to drive accountability and transparency. As for longer-term targets, we'll discuss that in March. Currently, the number is lower due to our focus on structural cost changes.

Q: Can you elaborate on the improvement in supplies and companion animals, and if there are specific sub-segments driving this? A: Joel Anderson, CEO: We've seen a 200 basis points sequential improvement in discretionary categories. Our focus is on innovation, newness, and driving impulse buying. We're also improving inventory management and shelf utilization.

Q: How do you view the potential for regaining market share in 2025 and beyond? A: Joel Anderson, CEO: I'm more bullish than ever on Petco's potential. Our associates' passion and our focus on retail fundamentals set us up for growth in 2025 and beyond. We'll provide specific numbers in March.

Q: Can you discuss the services margin improvement this quarter? A: Brian Larose, CFO: The improvement was driven by maturation of vet hospitals, strength in Vetco mobile business, and strong grooming services. These factors contributed to a 130 basis points year-over-year gross margin improvement.

Q: How are vendor negotiations progressing, and how receptive have vendors been to your efforts? A: Joel Anderson, CEO: Vendor discussions have been well-received. Transparency and openness are key, and we've had successful discussions as we build joint business plans for 2025. I'm pleased with the progress our merchant teams have made.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.