WOOF

PETCO HEALTH & WELLNESS COMPANY INC

Consumer Cyclical | Small Cap

-$0.06

EPS Forecast

$1,505

Revenue Forecast

Announcing earnings for the quarter ending 2024-10-31 soon
EX-99.1 2 woof-ex99_1.htm EX-99.1 EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE: May 24, 2023

Petco Health + Wellness Company, Inc. Reports First Quarter Earnings and Reaffirms Full Year 2023 Guidance

Q1 2023 Highlights

Comparable sales grew 5.1 percent year-over-year and 10.2 percent on a two-year basis, resulting in the 18th consecutive quarter of comparable sales growth
Net revenue of $1.56 billion increased 5.4 percent year-over-year
Net loss of $1.9 million, or $(0.01) per diluted share compared to net income of $24.7 million, or $0.09 per diluted share in the prior year
Adjusted EBITDA1 of $111.0 million compared to $119.2 million in the prior year, a decrease of 6.9 percent year-over-year
Adjusted Earnings Per Share1 of $0.06, compared to $0.14 per share in the prior year, a decrease of $0.08
The Company reaffirms its full year 2023 guidance

San Diego, May 24, 2023 – Petco Health and Wellness Company, Inc. (Nasdaq: WOOF), a complete partner in pet health and wellness, today announced its first quarter 2023 financial results.

In the first quarter of 2023, Petco delivered net revenue of $1.56 billion, up 5.4 percent versus prior year, driven by strength in the company’s consumables business, up 11.2 percent versus prior year, and services and other business, up 25.4 percent versus prior year. First quarter revenue growth was partially offset by the company’s supplies and companion animal business, down 7.6 percent versus prior year. Net loss was $1.9 million or $(0.01) per share, driven primarily by a $0.05 per share increase in interest expense year-over-year, compared to net income of $24.7 million or $0.09 per share in the prior year. Adjusted Net Income1 was $14.9 million or $0.06 per share, compared to $36.3 million or $0.14 per share in the prior year. Adjusted EBITDA1 was $111.0 million compared to $119.2 million in the prior year.

In the first quarter of 2023, Petco paid down $35 million in principal on its term loan. In May 2023, Petco paid down another $25 million in principal on its term loan for a total of $60 million in principal payments year-to-date. The company continues to target a total of $100 million in principal payments for 2023 and remains committed to strengthening its balance sheet through de-levering long-term.

-1-


 

“We continue to execute on our strategy amidst the current environment, delivering our 18th consecutive quarter of comp sales growth in the first quarter, driven by the ongoing strength in consumables and record performance in our services business,” said Petco CEO Ron Coughlin. “We remain confident in our unique 360-degree pet wellness offering delivered through our core pillars of services, differentiated merchandise, and competitively advantaged omnichannel capabilities all powered by our incredible Petco partners. Looking ahead, we are focused on what’s within our control and capitalizing on the secular trends of the resilient pet category to drive long-term, profitable growth.”

Q1 2023 Operating Results:

Comparisons are first quarter of fiscal 2023 ended April 29, 2023 versus first quarter of fiscal 2022 ended April 30, 2022 unless otherwise noted.

Net revenue increased 5.4 percent to $1.56 billion driven by comparable sales growth of 5.1 percent
Net loss of $1.9 million compared to net income of $24.7 million, a decrease of $26.6 million
Adjusted Net Income1 decreased $21.4 million to $14.9 million
Adjusted EBITDA1 decreased 6.9 percent to $111.0 million
Operating cash flow decreased 34.5 percent to $37.7 million
Free Cash Flow1 decreased $16.0 million to $(24.4) million
(1)
Adjusted EBITDA, Adjusted Net Income, Adjusted Earnings Per Share (“Adjusted EPS”), and Free Cash Flow are non-GAAP financial measures. See “Non-GAAP Financial Measures” for additional information on non-GAAP financial measures and a reconciliation to the most comparable GAAP measures.

Fiscal 2023 Guidance:

The company is reaffirming its fiscal 2023 guidance and expects:

 

Metric*

2023

Guidance

Net Revenue

$6.150 billion to $6.275 billion

Adjusted EBITDA

$520 million to $540 million

Adjusted EPS

$0.40 to $0.48

Capital Expenditures

$225 million to $250 million

 

In Fiscal 2023, the company continues to expect to make a total of $100 million in principal payments on its term loan, which is inclusive of $60 million in principal payments on its debt made through May 2023.

-2-


 

*Assumptions in the guidance include that economic conditions, currency rates and the tax and regulatory landscape remain generally consistent. Adjusted EPS guidance assumes approximately $145 to $155 million of interest expense, an estimated $44 to $54 million increase in interest expense, a 26 percent tax rate, and a 273 million weighted average diluted share count. The Company estimates that the increase in interest expense will impact Adjusted EPS by approximately $0.12 to $0.15 per share. Furthermore, Fiscal 2023 will be a 53-week year, leading to an incremental week of operations. Adjusted EBITDA and Adjusted EPS are non-GAAP financial measures and have not been reconciled to the most comparable GAAP outlook because it is not possible to do so without unreasonable efforts due to the uncertainty and potential variability of reconciling items, which are dependent on future events and often outside of management’s control and which could be significant. Because such items cannot be reasonably predicted with the level of precision required, we are unable to provide outlook for the comparable GAAP measures. Forward-looking estimates of Adjusted EBITDA and Adjusted EPS are made in a manner consistent with the relevant definitions and assumptions noted herein and in our filings with the SEC.

Earnings Conference Call Webcast Information:

Management will host an earnings conference call on May 24, 2023 at 8:00 AM Eastern Time to discuss the company’s financial results. The conference call will be accessible through live webcast. Interested investors and other individuals can access the webcast, earnings release, earnings presentation, and infographic via the company’s investor relations page at ir.petco.com. A replay of the webcast will be archived on the company’s investor relations page through June 7, 2023 until approximately 5:00 PM Eastern Time.

About Petco, The Health + Wellness Co.:

Founded in 1965, Petco is a category-defining health and wellness company focused on improving the lives of pets, pet parents and our own Petco partners. We’ve consistently set new standards in pet care while delivering comprehensive pet wellness products, services and solutions, and creating communities that deepen the pet-pet parent bond. We operate more than 1,500 pet care centers across the U.S., Mexico and Puerto Rico, which offer merchandise, companion animals, grooming, training and a growing network of on-site veterinary hospitals and mobile veterinary clinics. Our complete pet health and wellness ecosystem is accessible through our pet care centers and digitally at petco.com and on the Petco app. In tandem with Petco Love (formerly the Petco Foundation), an independent nonprofit organization, we work with and support thousands of local animal welfare groups across the country and, through in-store adoption events, we’ve helped find homes for nearly 7 million animals.

-3-


 

Forward-Looking Statements:

This earnings release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not statements of historical fact, including statements regarding our fiscal year 2023 guidance. Such forward-looking statements can generally be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “intends,” “will,” “shall,” “should,” “anticipates,” “opportunity,” “illustrative”, or the negative thereof or other variations thereon or comparable terminology. Although Petco believes that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to be correct or that any forward-looking results will occur or be realized. Nothing contained in this earnings release is, or should be relied upon as, a promise or representation or warranty as to any future matter, including any matter in respect of the operations or business or financial condition of Petco. All forward-looking statements are based on current expectations and assumptions about future events that may or may not be correct or necessarily take place and that are by their nature subject to significant uncertainties and contingencies, many of which are outside the control of Petco. Forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause actual results or events to differ materially from the potential results or events discussed in the forward-looking statements, including, without limitation, those identified in this earnings release as well as the following: (i) increased competition (including from multi-channel retailers and e-Commerce providers); (ii) reduced consumer demand for our products and/or services; (iii) our reliance on key vendors; (iv) our ability to attract and retain qualified employees; (v) risks arising from statutory, regulatory and/or legal developments; (vi) macroeconomic pressures in the markets in which we operate, including inflation and prevailing interest rates; (vii) failure to effectively manage our costs; (viii) our reliance on our information technology systems; (ix) our ability to prevent or effectively respond to a data privacy or security breach; (x) our ability to effectively manage or integrate strategic ventures, alliances or acquisitions and realize the anticipated benefits of such transactions; (xi) economic or regulatory developments that might affect our ability to provide attractive promotional financing; (xii) business interruptions and other supply chain issues; (xiii) catastrophic events, political tensions, conflicts and wars (such as the ongoing conflict in Ukraine), health crises, and pandemics; (xiv) our ability to maintain positive brand perception and recognition; (xv) product safety and quality concerns; (xvi) changes to labor or employment laws or regulations; (xvii) our ability to effectively manage our real estate portfolio; (xviii) constraints in the capital markets or our vendor credit terms; (xix) changes in our credit ratings; and (xx) the other risks, uncertainties and other factors identified under “Risk Factors” and elsewhere in Petco’s Securities and Exchange Commission filings. The occurrence of any such factors could significantly alter the results set forth in these statements.

Petco cautions that the foregoing list of risks, uncertainties and other factors is not complete, and forward-looking statements speak only as of the date they are made. Petco undertakes no duty to update publicly any such forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by applicable law, regulation or other competent legal authority.

-4-


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited and subject to reclassification)

 

 

 

13 Weeks Ended

 

 

 

 

April 29,
2023

 

 

April 30,
2022

 

 

Percent
Change

 

 

Net sales

 

$

1,555,908

 

 

$

1,475,991

 

 

 

5

%

 

Cost of sales

 

 

951,426

 

 

 

868,317

 

 

 

10

%

 

Gross profit

 

 

604,482

 

 

 

607,674

 

 

 

(1

%)

 

Selling, general and administrative expenses

 

 

576,865

 

 

 

557,735

 

 

 

3

%

 

Operating income

 

 

27,617

 

 

 

49,939

 

 

 

(45

%)

 

Interest income

 

 

(1,177

)

 

 

(20

)

 

 

5,785

%

 

Interest expense

 

 

37,202

 

 

 

19,634

 

 

 

89

%

 

Loss on partial extinguishment of debt

 

 

441

 

 

 

 

 

N/M

 

 

Other non-operating income

 

 

(2,819

)

 

 

(314

)

 

 

798

%

 

(Loss) income before income taxes and income from
   equity method investees

 

 

(6,030

)

 

 

30,639

 

 

N/M

 

 

Income tax (benefit) expense

 

 

(1,008

)

 

 

10,000

 

 

N/M

 

 

Income from equity method investees

 

 

(3,130

)

 

 

(3,163

)

 

 

(1

%)

 

Net (loss) income

 

 

(1,892

)

 

 

23,802

 

 

N/M

 

 

Net loss attributable to noncontrolling interest

 

 

 

 

 

(891

)

 

 

(100

%)

 

Net (loss) income attributable to Class A and B-1
   common stockholders

 

$

(1,892

)

 

$

24,693

 

 

N/M

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per Class A and B-1 common share:

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.01

)

 

$

0.09

 

 

N/M

 

 

Diluted

 

$

(0.01

)

 

$

0.09

 

 

N/M

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing
   net (loss) income per Class A and B-1 common share:

 

 

 

 

 

 

 

 

 

 

Basic

 

 

266,485

 

 

 

265,050

 

 

 

1

%

 

Diluted

 

 

266,485

 

 

 

265,701

 

 

 

0

%

 

 

-5-


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited and subject to reclassification)

 

 

 

April 29,
2023

 

 

January 28,
2023

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

148,942

 

 

$

201,901

 

Receivables, less allowance for credit losses1

 

 

45,414

 

 

 

49,580

 

Merchandise inventories, net

 

 

667,938

 

 

 

652,430

 

Prepaid expenses

 

 

53,290

 

 

 

51,274

 

Other current assets

 

 

61,224

 

 

 

60,809

 

Total current assets

 

 

976,808

 

 

 

1,015,994

 

Fixed assets

 

 

2,041,601

 

 

 

1,987,560

 

Less accumulated depreciation

 

 

(1,229,445

)

 

 

(1,184,233

)

Fixed assets, net

 

 

812,156

 

 

 

803,327

 

Operating lease right-of-use assets

 

 

1,378,342

 

 

 

1,397,761

 

Goodwill

 

 

2,194,491

 

 

 

2,193,941

 

Trade name

 

 

1,025,000

 

 

 

1,025,000

 

Other long-term assets

 

 

185,597

 

 

 

176,806

 

Total assets

 

$

6,572,394

 

 

$

6,612,829

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and book overdrafts

 

$

393,795

 

 

$

381,213

 

Accrued salaries and employee benefits

 

 

108,760

 

 

 

89,929

 

Accrued expenses and other liabilities

 

 

206,750

 

 

 

217,556

 

Current portion of operating lease liabilities

 

 

281,680

 

 

 

309,766

 

Current portion of long-term debt and other lease liabilities

 

 

5,908

 

 

 

22,794

 

Total current liabilities

 

 

996,893

 

 

 

1,021,258

 

Senior secured credit facilities, net, excluding current portion

 

 

1,612,009

 

 

 

1,628,331

 

Operating lease liabilities, excluding current portion

 

 

1,132,750

 

 

 

1,148,155

 

Deferred taxes, net

 

 

297,779

 

 

 

303,121

 

Other long-term liabilities

 

 

131,843

 

 

 

130,487

 

Total liabilities

 

 

4,171,274

 

 

 

4,231,352

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Class A common stock2

 

 

229

 

 

 

228

 

Class B-1 common stock3

 

 

38

 

 

 

38

 

Class B-2 common stock4

 

 

 

 

 

 

Preferred stock5

 

 

 

 

 

 

Additional paid-in-capital

 

 

2,173,370

 

 

 

2,152,342

 

Retained earnings

 

 

231,075

 

 

 

232,967

 

Accumulated other comprehensive loss

 

 

(3,592

)

 

 

(4,098

)

Total stockholders’ equity

 

 

2,401,120

 

 

 

2,381,477

 

Total liabilities and stockholders’ equity

 

$

6,572,394

 

 

$

6,612,829

 

 

(1)
Allowances for credit losses are $949 and $952, respectively
(2)
Class A common stock, $0.001 par value: Authorized - 1.0 billion shares; Issued and outstanding – 229.1 million and 228.3 million shares, respectively
(3)
Class B-1 common stock, $0.001 par value: Authorized - 75.0 million shares; Issued and outstanding - 37.8 million shares
(4)
Class B-2 common stock, $0.000001 par value: Authorized - 75.0 million shares; Issued and outstanding - 37.8 million shares
(5)
Preferred stock, $0.001 par value: Authorized - 25.0 million shares; Issued and outstanding - none

-6-


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited and subject to reclassification)

 

 

 

13 Weeks Ended

 

 

 

April 29,
2023

 

 

April 30,
2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net (loss) income

 

$

(1,892

)

 

$

23,802

 

Adjustments to reconcile net (loss) income to net cash provided by
  operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

49,255

 

 

 

46,967

 

Amortization of debt discounts and issuance costs

 

 

1,238

 

 

 

1,224

 

Provision for deferred taxes

 

 

(5,530

)

 

 

4,832

 

Equity-based compensation

 

 

22,129

 

 

 

12,222

 

Impairments, write-offs and losses on sale of fixed and other assets

 

 

4

 

 

 

162

 

Loss on partial extinguishment of debt

 

 

441

 

 

 

 

Amounts reclassified out of accumulated other comprehensive loss

 

 

575

 

 

 

 

Income from equity method investees

 

 

(3,130

)

 

 

(3,163

)

Non-cash operating lease costs

 

 

106,316

 

 

 

105,249

 

Other non-operating income

 

 

(2,819

)

 

 

(314

)

Changes in assets and liabilities:

 

 

 

 

 

 

Receivables

 

 

4,165

 

 

 

13,397

 

Merchandise inventories

 

 

(15,508

)

 

 

(6,930

)

Prepaid expenses and other assets

 

 

(12,115

)

 

 

(9,896

)

Accounts payable and book overdrafts

 

 

12,582

 

 

 

(11,314

)

Accrued salaries and employee benefits

 

 

18,982

 

 

 

(16,478

)

Accrued expenses and other liabilities

 

 

(8,736

)

 

 

11,290

 

Operating lease liabilities

 

 

(130,297

)

 

 

(112,272

)

Other long-term liabilities

 

 

1,991

 

 

 

(1,259

)

Net cash provided by operating activities

 

 

37,651

 

 

 

57,519

 

Cash flows from investing activities:

 

 

 

 

 

 

Cash paid for fixed assets

 

 

(62,050

)

 

 

(65,910

)

Cash paid for acquisitions, net of cash acquired

 

 

(725

)

 

 

 

Net cash used in investing activities

 

 

(62,775

)

 

 

(65,910

)

Cash flows from financing activities:

 

 

 

 

 

 

Repayments of long-term debt

 

 

(35,000

)

 

 

(4,250

)

Payments for finance lease liabilities

 

 

(1,250

)

 

 

(1,022

)

Proceeds from employee stock purchase plan and stock option exercises

 

 

1,378

 

 

 

1,453

 

Tax withholdings on stock-based awards

 

 

(2,210

)

 

 

(11,441

)

Net cash used in financing activities

 

 

(37,082

)

 

 

(15,260

)

 

 

 

 

 

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(62,206

)

 

 

(23,651

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

213,727

 

 

 

221,890

 

Cash, cash equivalents and restricted cash at end of period

 

$

151,521

 

 

$

198,239

 

 

-7-


 

NON-GAAP FINANCIAL MEASURES

 

The following information provides definitions and reconciliations of the non-GAAP financial measures presented in this earnings release to the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles (GAAP). The company has provided this non-GAAP financial information, which is not calculated or presented in accordance with GAAP, as information supplemental and in addition to the financial measures presented in this earnings release that are calculated and presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for or alternative to, and should be considered in conjunction with, the GAAP financial measures presented in this earnings release. The non-GAAP financial measures in this earnings release may differ from similarly titled measures used by other companies.

 

The tables below reflect the calculation of Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS, as applicable, for the thirteen weeks ended April 29, 2023 compared to the thirteen weeks ended April 30, 2022, respectively.

 

Adjusted EBITDA and Trailing Twelve Month Adjusted EBITDA

 

Adjusted EBITDA, including Trailing Twelve Month Adjusted EBITDA, is considered a non-GAAP financial measure under the Securities and Exchange Commission’s (SEC) rules because it excludes certain amounts included in net income calculated in accordance with GAAP. Management believes that Adjusted EBITDA is a meaningful measure to share with investors because it facilitates comparison of the current period performance with that of the comparable prior period. In addition, Adjusted EBITDA affords investors a view of what management considers to be Petco’s core operating performance as well as the ability to make a more informed assessment of such operating performance as compared with that of the prior period. Please see the company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2023 filed with the SEC on March 28, 2023 for additional information on Adjusted EBITDA.

-8-


 

 

(dollars in thousands)

 

13 Weeks Ended

 

 

Reconciliation of Net (Loss) Income Attributable to Class A and B-1
   Common Stockholders to Adjusted EBITDA

 

April 29,
2023

 

 

April 30,
2022

 

 

Net (loss) income attributable to Class A and B-1 common
   stockholders

 

$

(1,892

)

 

$

24,693

 

 

Add (deduct):

 

 

 

 

 

 

 

Interest expense, net

 

 

36,025

 

 

 

19,614

 

 

Income tax expense

 

 

(1,008

)

 

 

10,000

 

 

Depreciation and amortization

 

 

49,255

 

 

 

46,967

 

 

Income from equity method investees

 

 

(3,130

)

 

 

(3,163

)

 

Loss on partial extinguishment of debt

 

 

441

 

 

 

 

 

Asset impairments and write offs

 

 

4

 

 

 

162

 

 

Equity-based compensation

 

 

22,129

 

 

 

12,222

 

 

Other non-operating income

 

 

(2,819

)

 

 

(314

)

 

Mexico joint venture EBITDA (1)

 

 

8,734

 

 

 

6,778

 

 

Acquisition-related integration costs (2)

 

 

 

 

 

2,236

 

 

Other costs (3)

 

 

3,287

 

 

 

 

 

Adjusted EBITDA

 

$

111,026

 

 

$

119,195

 

 

Net sales

 

$

1,555,908

 

 

$

1,475,991

 

 

Net margin (4)

 

 

(0.1

%)

 

 

1.7

%

 

Adjusted EBITDA Margin

 

 

7.1

%

 

 

8.1

%

 

 

(dollars in thousands)

 

Trailing Twelve Months

 

Reconciliation of Net Income Attributable to Class A
   and B-1 Common Stockholders to Adjusted EBITDA

 

April 29,
2023

 

 

January 28,
2023

 

 

April 30,
2022

 

Net income attributable to Class A and B-1 common
   stockholders

 

$

64,216

 

 

$

90,801

 

 

$

181,550

 

Add (deduct):

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

117,022

 

 

 

100,611

 

 

 

76,442

 

Income tax expense

 

 

24,339

 

 

 

35,347

 

 

 

60,795

 

Depreciation and amortization

 

 

196,116

 

 

 

193,828

 

 

 

177,791

 

Income from equity method investees

 

 

(12,943

)

 

 

(12,976

)

 

 

(11,622

)

Loss on partial extinguishment of debt

 

 

441

 

 

 

 

 

 

 

Asset impairments and write offs

 

 

1,834

 

 

 

1,992

 

 

 

10,133

 

Equity-based compensation

 

 

70,691

 

 

 

60,784

 

 

 

49,883

 

Other non-operating loss (income)

 

 

10,162

 

 

 

12,667

 

 

 

(34,812

)

Mexico joint venture EBITDA (1)

 

 

31,540

 

 

 

29,584

 

 

 

27,609

 

Acquisition-related integration costs (2)

 

 

13,078

 

 

 

15,314

 

 

 

2,236

 

Other costs (3)

 

 

6,104

 

 

 

2,817

 

 

 

10,995

 

Adjusted EBITDA

 

$

522,600

 

 

$

530,769

 

 

$

551,000

 

Net sales

 

$

6,115,884

 

 

$

6,035,967

 

 

$

5,868,146

 

Net margin (4)

 

 

1.0

%

 

 

1.5

%

 

 

3.1

%

Adjusted EBITDA Margin

 

 

8.5

%

 

 

8.8

%

 

 

9.4

%

 

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Adjusted Net Income and Adjusted EPS

Adjusted Net Income and Adjusted diluted Earnings Per Share attributable to Petco common stockholders (Adjusted EPS) are considered non-GAAP financial measures under the SEC’s rules because they exclude certain amounts included in the net income attributable to Petco common stockholders and diluted earnings per share attributable to Petco common stockholders calculated in accordance with GAAP. Management believes that Adjusted Net Income and Adjusted EPS are meaningful measures to share with investors because they facilitate comparison of the current period performance with that of the comparable prior period. In addition, Adjusted Net Income and Adjusted EPS afford investors a view of what management considers to be Petco’s core earnings performance as well as the ability to make a more informed assessment of such earnings performance with that of the prior period.

 

(in thousands, except per share amounts)

 

13 Weeks Ended

 

Reconciliation of Diluted EPS to Adjusted EPS

 

April 29, 2023

 

 

April 30, 2022

 

 

Amount

 

 

Per share

 

 

Amount

 

 

Per share

 

Net (loss) income attributable to common stockholders / diluted EPS

 

$

(1,892

)

 

$

(0.01

)

 

$

24,693

 

 

$

0.09

 

Add (deduct):

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(1,008

)

 

 

(0.01

)

 

 

10,000

 

 

 

0.04

 

Loss on partial extinguishment of debt

 

 

441

 

 

 

0.00

 

 

 

 

 

 

 

Asset impairments and write offs

 

 

4

 

 

 

0.00

 

 

 

162

 

 

 

0.00

 

Equity-based compensation

 

 

22,129

 

 

 

0.10

 

 

 

12,222

 

 

 

0.04

 

Other non-operating income

 

 

(2,819

)

 

 

(0.01

)

 

 

(314

)

 

 

(0.00

)

Acquisition-related integration costs (2)

 

 

 

 

 

 

 

 

2,236

 

 

 

0.01

 

Other costs (3)

 

 

3,287

 

 

 

0.01

 

 

 

 

 

 

 

Adjusted pre-tax income / diluted earnings per share

 

$

20,142

 

 

$

0.08

 

 

$

48,999

 

 

$

0.18

 

Income tax expense at 26% normalized tax rate

 

 

5,237

 

 

 

0.02

 

 

 

12,739

 

 

 

0.04

 

Adjusted Net Income / Adjusted EPS

 

$

14,905

 

 

$

0.06

 

 

$

36,260

 

 

$

0.14

 

 

Free Cash Flow

Free Cash Flow is a non-GAAP financial measure that is calculated as net cash provided by operating activities less cash paid for fixed assets. Management believes that Free Cash Flow, which measures the ability to generate additional cash from business operations, is an important financial measure for use in evaluating the company’s financial performance.

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The table below reflects the calculation of Free Cash Flow for the thirteen weeks ended April 29, 2023 and April 30, 2022, respectively.

 

(in thousands)

 

13 Weeks Ended

 

 

 

April 29,
2023

 

 

April 30,
2022

 

 

Net cash provided by operating activities

 

$

37,651

 

 

$

57,519

 

 

Cash paid for fixed assets

 

 

(62,050

)

 

 

(65,910

)

 

Free Cash Flow

 

$

(24,399

)

 

$

(8,391

)

 

 

Adjusted EBITDA, Adjusted Net Income and Adjusted EPS Footnotes

(1)
Mexico Joint Venture EBITDA represents 50 percent of the entity’s operating results for all periods, as adjusted to reflect the results on a basis comparable to Adjusted EBITDA. In the financial statements, this joint venture is accounted for as an equity method investment and reported net of depreciation and income taxes. Because such a presentation would not reflect the adjustments made in the calculation of Adjusted EBITDA, we include the 50 percent interest in the company’s Mexico joint venture on an Adjusted EBITDA basis to ensure consistency. The table below presents a reconciliation of Mexico joint venture net income to Mexico joint venture EBITDA.

 

 

 

13 Weeks Ended

 

 

(in thousands)

 

April 29,
2023

 

 

April 30,
2022

 

 

Net income

 

$

6,259

 

 

$

5,133

 

 

Depreciation

 

 

5,708

 

 

 

4,294

 

 

Income tax expense

 

 

4,074

 

 

 

2,997

 

 

Foreign currency loss (gain)

 

 

127

 

 

 

(64

)

 

Interest expense, net

 

 

1,300

 

 

 

1,196

 

 

EBITDA

 

$

17,468

 

 

$

13,556

 

 

50% of EBITDA

 

$

8,734

 

 

$

6,778

 

 

 

(2)
Acquisition-related integration costs include direct costs resulting from acquiring and integrating businesses. These include third-party professional and legal fees and other integration-related costs that would not have otherwise been incurred as part of the company’s operations.
(3)
Other costs include, as incurred: restructuring costs and restructuring-related severance costs; legal reserves associated with significant, non-ordinary course legal or regulatory matters; and costs related to certain significant strategic transactions.
(4)
We define net margin as net income attributable to Class A and B-1 common stockholders divided by net sales and Adjusted EBITDA margin as Adjusted EBITDA divided by net sales.

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