10-Q 1 woof-20221029.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 29, 2022

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-39878

 

Petco Health and Wellness Company, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

81-1005932

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

10850 Via Frontera

San Diego, California

92127

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (858) 453-7845

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock, par value $0.001 per share

 

WOOF

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The number of shares of the registrant’s Class A Common Stock outstanding as of December 6, 2022 was 228,129,255.

The number of shares of the registrant’s Class B-1 Common Stock outstanding as of December 6, 2022 was 37,790,781.

The number of shares of the registrant’s Class B-2 Common Stock outstanding as of December 6, 2022 was 37,790,781.

 

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

3

 

 

 

Item 1.

Financial Statements (Unaudited)

3

 

Consolidated Balance Sheets

3

 

Consolidated Statements of Operations

4

 

Consolidated Statements of Comprehensive Income

5

 

Consolidated Statements of Equity

6

 

Consolidated Statements of Cash Flows

8

 

Notes to Unaudited Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

 

 

 

PART II.

OTHER INFORMATION

27

 

 

 

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3.

Defaults Upon Senior Securities

27

Item 4.

Mine Safety Disclosures

27

Item 5.

Other Information

27

Item 6.

Exhibits

28

Signatures

29

 

 

1


 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (this “Form 10-Q”) 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 expectations with respect to our revenue, expenses, profitability, and other operating results; our growth plans; our ability to compete effectively in the markets in which we participate; the execution on our transformation initiatives; and the impact of certain macroeconomic factors, including inflationary pressures, global supply chain constraints and global economic and geopolitical developments, on our business. Forward-looking and other statements in this Form 10-Q may also address our progress, plans, and goals with respect to sustainability initiatives, and the inclusion of such statements is not an indication that these contents are necessarily material to investors or required to be disclosed in our filings with the U.S. Securities and Exchange Commission (the “SEC”). Such plans and goals may change, and statements regarding such plans and goals are not guarantees or promises that they will be met. In addition, historical, current, and forward-looking sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future.

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 we believe 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 Form 10-Q is, or should be relied upon as, a promise or representation or warranty as to any future matter, including any matter in respect of our operations or business or financial condition. All forward-looking statements are based on 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 of our control.

Forward-looking statements are subject to many risks, uncertainties and other factors that could cause actual results or events to differ materially from the potential results or events discussed in such forward-looking statements, including, without limitation, those identified in this Form 10-Q 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; (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 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 referred to under “Risk Factors” and identified elsewhere in this Form 10-Q and our other filings with the SEC. The occurrence of any such factors could significantly alter the results set forth in these statements.

We caution 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. We undertake 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.

In addition, statements such as “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Form 10-Q. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

 

2


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

 

 

 

October 29,
2022

 

 

January 29,
2022

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

148,731

 

 

$

211,602

 

Receivables, less allowance for credit losses ($1,140 and $931, respectively)

 

 

46,446

 

 

 

55,618

 

Merchandise inventories, net

 

 

723,424

 

 

 

675,111

 

Prepaid expenses

 

 

43,708

 

 

 

42,355

 

Other current assets

 

 

56,724

 

 

 

86,091

 

Total current assets

 

 

1,019,033

 

 

 

1,070,777

 

Fixed assets

 

 

1,937,804

 

 

 

1,745,691

 

Less accumulated depreciation

 

 

(1,146,217

)

 

 

(1,018,769

)

Fixed assets, net

 

 

791,587

 

 

 

726,922

 

Operating lease right-of-use assets

 

 

1,378,336

 

 

 

1,338,465

 

Goodwill

 

 

2,191,891

 

 

 

2,183,991

 

Trade name

 

 

1,025,000

 

 

 

1,025,000

 

Other long-term assets

 

 

171,045

 

 

 

152,786

 

Total assets

 

$

6,576,892

 

 

$

6,497,941

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and book overdrafts

 

$

384,595

 

 

$

403,976

 

Accrued salaries and employee benefits

 

 

125,113

 

 

 

150,630

 

Accrued expenses and other liabilities

 

 

220,055

 

 

 

210,872

 

Current portion of operating lease liabilities

 

 

304,789

 

 

 

265,897

 

Current portion of long-term debt and other lease liabilities

 

 

22,645

 

 

 

21,764

 

Total current liabilities

 

 

1,057,197

 

 

 

1,053,139

 

Senior secured credit facilities, net, excluding current portion

 

 

1,631,335

 

 

 

1,640,390

 

Operating lease liabilities, excluding current portion

 

 

1,131,081

 

 

 

1,096,133

 

Deferred taxes, net

 

 

298,380

 

 

 

318,355

 

Other long-term liabilities

 

 

130,990

 

 

 

134,105

 

Total liabilities

 

 

4,248,983

 

 

 

4,242,122

 

Commitments and contingencies (Notes 3 and 6)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Class A common stock, $0.001 par value: Authorized - 1.0 billion shares;
    Issued and outstanding -
227.9 million and 227.2 million shares, respectively

 

 

228

 

 

 

227

 

Class B-1 common stock, $0.001 par value: Authorized - 75.0 million shares;
    Issued and outstanding -
37.8 million shares

 

 

38

 

 

 

38

 

Class B-2 common stock, $0.000001 par value: Authorized - 75.0 million shares;
    Issued and outstanding -
37.8 million shares

 

 

 

 

 

 

Preferred stock, $0.001 par value: Authorized - 25.0 million shares;
    Issued and outstanding -
none

 

 

 

 

 

 

Additional paid-in-capital

 

 

2,131,930

 

 

 

2,133,821

 

Retained earnings

 

 

200,235

 

 

 

142,166

 

Accumulated other comprehensive loss

 

 

(4,522

)

 

 

(2,238

)

Total stockholders’ equity

 

 

2,327,909

 

 

 

2,274,014

 

Noncontrolling interest

 

 

 

 

 

(18,195

)

Total equity

 

 

2,327,909

 

 

 

2,255,819

 

Total liabilities and equity

 

$

6,576,892

 

 

$

6,497,941

 

 

See accompanying notes to consolidated financial statements.

3


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts) (Unaudited)

 

 

 

 

Thirteen weeks ended

 

 

Thirty-nine weeks ended

 

 

 

October 29,
2022

 

 

October 30,
2021

 

 

October 29,
2022

 

 

October 30,
2021

 

Net sales

 

$

1,501,220

 

 

$

1,443,264

 

 

$

4,458,008

 

 

$

4,292,792

 

Cost of sales

 

 

903,543

 

 

 

848,555

 

 

 

2,658,180

 

 

 

2,501,688

 

Gross profit

 

 

597,677

 

 

 

594,709

 

 

 

1,799,828

 

 

 

1,791,104

 

Selling, general and administrative expenses

 

 

549,622

 

 

 

532,760

 

 

 

1,651,829

 

 

 

1,607,938

 

Operating income

 

 

48,055

 

 

 

61,949

 

 

 

147,999

 

 

 

183,166

 

Interest income

 

 

(130

)

 

 

(18

)

 

 

(287

)

 

 

(53

)

Interest expense

 

 

27,307

 

 

 

18,769

 

 

 

68,761

 

 

 

58,504

 

Loss on extinguishment and modification of debt

 

 

 

 

 

 

 

 

 

 

 

20,838

 

Other non-operating (income) loss

 

 

(576

)

 

 

(19,773

)

 

 

9,369

 

 

 

(64,934

)

Income before income taxes and income
   from equity method investees

 

 

21,454

 

 

 

62,971

 

 

 

70,156

 

 

 

168,811

 

Income tax expense

 

 

4,161

 

 

 

14,095

 

 

 

20,799

 

 

 

43,784

 

Income from equity method investees

 

 

(2,627

)

 

 

(2,637

)

 

 

(7,821

)

 

 

(7,490

)

Net income

 

 

19,920

 

 

 

51,513

 

 

 

57,178

 

 

 

132,517

 

Net loss attributable to noncontrolling interest

 

 

 

 

 

(1,239

)

 

 

(891

)

 

 

(2,906

)

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

 

$

19,920

 

 

$

52,752

 

 

$

58,069

 

 

$

135,423

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.07

 

 

$

0.20

 

 

$

0.22

 

 

$

0.51

 

Diluted

 

$

0.07

 

 

$

0.20

 

 

$

0.22

 

 

$

0.51

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

265,689

 

 

 

264,228

 

 

 

265,390

 

 

 

264,220

 

Diluted

 

 

265,935

 

 

 

265,322

 

 

 

265,824

 

 

 

265,189

 

 

 

See accompanying notes to consolidated financial statements.

4


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands) (Unaudited)

 

 

 

Thirteen weeks ended

 

 

Thirty-nine weeks ended

 

 

 

October 29,
2022

 

 

October 30,
2021

 

 

October 29,
2022

 

 

October 30,
2021

 

Net income

 

$

19,920

 

 

$

51,513

 

 

$

57,178

 

 

$

132,517

 

Net loss attributable to noncontrolling interest

 

 

 

 

 

(1,239

)

 

 

(891

)

 

 

(2,906

)

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

 

 

19,920

 

 

 

52,752

 

 

 

58,069

 

 

 

135,423

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

89

 

 

 

(1,056

)

 

 

(2,284

)

 

 

(1,053

)

Total other comprehensive income (loss), net of tax

 

 

89

 

 

 

(1,056

)

 

 

(2,284

)

 

 

(1,053

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

20,009

 

 

 

50,457

 

 

 

54,894

 

 

 

131,464

 

Comprehensive loss attributable to noncontrolling
   interest

 

 

 

 

 

(1,239

)

 

 

(891

)

 

 

(2,906

)

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

 

$

20,009

 

 

$

51,696

 

 

$

55,785

 

 

$

134,370

 

 

See accompanying notes to consolidated financial statements.

5


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands) (Unaudited)

 

 

 

Common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class
A
(shares)

 

 

Class
B-1
(shares)

 

 

Class
B-2
(shares)

 

 

Amount

 

 

Additional paid-in capital

 

 

Retained earnings

 

 

Accumulated
other
comprehensive
loss

 

 

Total
stockholders’
equity

 

 

Noncontrolling
interest

 

 

Total
equity

 

Balance at January 29, 2022

 

 

227,187

 

 

 

37,791

 

 

 

37,791

 

 

$

265

 

 

$

2,133,821

 

 

$

142,166

 

 

$

(2,238

)

 

$

2,274,014

 

 

$

(18,195

)

 

$

2,255,819

 

Equity-based compensation expense
   (Note 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,055

 

 

 

 

 

 

 

 

 

12,055

 

 

 

 

 

 

12,055

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,693

 

 

 

 

 

 

24,693

 

 

 

(891

)

 

 

23,802

 

Foreign currency translation
   adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,598

)

 

 

(1,598

)

 

 

 

 

 

(1,598

)

Issuance of common stock,
   net of tax withholdings

 

 

291

 

 

 

 

 

 

 

 

 

 

 

 

(2,371

)

 

 

 

 

 

 

 

 

(2,371

)

 

 

 

 

 

(2,371

)

Balance at April 30, 2022

 

 

227,478

 

 

 

37,791

 

 

 

37,791

 

 

$

265

 

 

$

2,143,505

 

 

$

166,859

 

 

$

(3,836

)

 

$

2,306,793

 

 

$

(19,086

)

 

$

2,287,707

 

Equity-based compensation expense
   (Note 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,422

 

 

 

 

 

 

 

 

 

13,422

 

 

 

 

 

 

13,422

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,456

 

 

 

 

 

 

13,456

 

 

 

 

 

 

13,456

 

Foreign currency translation
   adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(775

)

 

 

(775

)

 

 

 

 

 

(775

)

Investment in veterinary joint venture
   (Note 1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(54,086

)

 

 

 

 

 

 

 

 

(54,086

)

 

 

19,086

 

 

 

(35,000

)

Issuance of common stock,
   net of tax withholdings

 

 

431

 

 

 

 

 

 

 

 

 

1

 

 

 

335

 

 

 

 

 

 

 

 

 

336

 

 

 

 

 

 

336

 

Balance at July 30, 2022

 

 

227,909

 

 

 

37,791

 

 

 

37,791

 

 

$

266

 

 

$

2,103,176

 

 

$

180,315

 

 

$

(4,611

)

 

$

2,279,146

 

 

$

 

 

$

2,279,146

 

Equity-based compensation expense
   (Note 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,069

 

 

 

 

 

 

 

 

 

16,069

 

 

 

 

 

 

16,069

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,920

 

 

 

 

 

 

19,920

 

 

 

 

 

 

19,920

 

Foreign currency translation
   adjustment, net of tax