10-Q 1 woof-20240504.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 May 4, 2024

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 June 3, 2024 was 235,201,143.

The number of shares of the registrant’s Class B-1 Common Stock outstanding as of June 3, 2024 was 37,790,781.

The number of shares of the registrant’s Class B-2 Common Stock outstanding as of June 3, 2024 was 37,790,781.

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

2

 

 

 

Item 1.

Financial Statements (Unaudited)

2

 

Consolidated Balance Sheets

2

 

Consolidated Statements of Operations

3

 

Consolidated Statements of Comprehensive Income (Loss)

4

 

Consolidated Statements of Stockholders' / Members' Equity

5

 

Consolidated Statements of Cash Flows

6

 

Notes to Unaudited Consolidated Financial Statements

7

Item 2.

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

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

Item 4.

Controls and Procedures

24

 

 

 

PART II.

OTHER INFORMATION

25

 

 

 

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3.

Defaults Upon Senior Securities

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

26

Item 6.

Exhibits

26

Signatures

 

 

 

 

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, but not limited to, 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 and interest rate pressures, consumer spending patterns, 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 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 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, mass and grocery 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 conflicts in Ukraine and the Middle East), 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; (xx) impairments of the carrying value of our goodwill and other intangible assets; (xxi) our ability to successfully implement our operational adjustments, achieve the expected benefits of our cost action plans, and drive improved profitability; and (xxii) 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)

 

 

 

May 4,
2024

 

 

February 3,
2024

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

89,717

 

 

$

125,428

 

Receivables, less allowance for credit losses ($1,821 and $1,806, respectively)

 

 

42,081

 

 

 

44,369

 

Merchandise inventories, net

 

 

681,020

 

 

 

684,502

 

Prepaid expenses

 

 

64,983

 

 

 

58,615

 

Other current assets

 

 

26,254

 

 

 

38,830

 

Total current assets

 

 

904,055

 

 

 

951,744

 

Fixed assets

 

 

2,177,472

 

 

 

2,173,015

 

Less accumulated depreciation

 

 

(1,398,944

)

 

 

(1,356,648

)

Fixed assets, net

 

 

778,528

 

 

 

816,367

 

Operating lease right-of-use assets

 

 

1,357,576

 

 

 

1,384,050

 

Goodwill

 

 

980,064

 

 

 

980,297

 

Trade name

 

 

1,025,000

 

 

 

1,025,000

 

Other long-term assets

 

 

213,819

 

 

 

205,694

 

Total assets

 

$

5,259,042

 

 

$

5,363,152

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and book overdrafts

 

$

464,524

 

 

$

485,131

 

Accrued salaries and employee benefits

 

 

95,027

 

 

 

101,265

 

Accrued expenses and other liabilities

 

 

198,219

 

 

 

200,278

 

Current portion of operating lease liabilities

 

 

307,989

 

 

 

310,507

 

Current portion of long-term debt and other lease liabilities

 

 

3,680

 

 

 

15,962

 

Total current liabilities

 

 

1,069,439

 

 

 

1,113,143

 

Senior secured credit facilities, net, excluding current portion

 

 

1,574,486

 

 

 

1,576,223

 

Operating lease liabilities, excluding current portion

 

 

1,093,136

 

 

 

1,116,615

 

Deferred taxes, net

 

 

240,653

 

 

 

251,629

 

Other long-term liabilities

 

 

119,019

 

 

 

121,113

 

Total liabilities

 

 

4,096,733

 

 

 

4,178,723

 

Commitments and contingencies (Notes 4 and 8)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Class A common stock, $0.001 par value: Authorized - 1.0 billion shares;
    Issued and outstanding -
233.0 million and 231.2 million shares, respectively

 

 

233

 

 

 

231

 

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

 

 

2,246,756

 

 

 

2,229,582

 

Accumulated deficit

 

 

(1,093,726

)

 

 

(1,047,243

)

Accumulated other comprehensive income

 

 

9,008

 

 

 

1,821

 

Total stockholders’ equity

 

 

1,162,309

 

 

 

1,184,429

 

Total liabilities and stockholders’ equity

 

$

5,259,042

 

 

$

5,363,152

 

 

See accompanying notes to consolidated financial statements.

2


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

 

 

 

Thirteen weeks ended

 

 

 

 

May 4,
2024

 

 

April 29,
2023

 

 

Net sales:

 

 

 

 

 

 

 

Products

 

$

1,279,731

 

 

$

1,316,596

 

 

Services and other

 

 

249,409

 

 

 

239,312

 

 

Total net sales

 

 

1,529,140

 

 

 

1,555,908

 

 

Cost of sales:

 

 

 

 

 

 

 

Products

 

 

792,722

 

 

 

805,759

 

 

Services and other

 

 

157,758

 

 

 

145,667

 

 

Total cost of sales

 

 

950,480

 

 

 

951,426

 

 

Gross profit

 

 

578,660

 

 

 

604,482

 

 

Selling, general and administrative expenses

 

 

595,442

 

 

 

576,865

 

 

Operating (loss) income

 

 

(16,782

)

 

 

27,617

 

 

Interest income

 

 

(418

)

 

 

(1,177

)

 

Interest expense

 

 

36,817

 

 

 

37,202

 

 

Loss on partial extinguishment of debt

 

 

 

 

 

441

 

 

Other non-operating loss (income)

 

 

2,665

 

 

 

(2,819

)

 

Loss before income taxes and income
   from equity method investees

 

 

(55,846

)

 

 

(6,030

)

 

Income tax benefit

 

 

(4,477

)

 

 

(1,008

)

 

Income from equity method investees

 

 

(4,886

)

 

 

(3,130

)

 

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

 

$

(46,483

)

 

$

(1,892

)

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Basic

 

$

(0.17

)

 

$

(0.01

)

 

Diluted

 

$

(0.17

)

 

$

(0.01

)

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Basic

 

 

269,768

 

 

 

266,485

 

 

Diluted

 

 

269,768

 

 

 

266,485

 

 

 

 

See accompanying notes to consolidated financial statements.

3


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands) (Unaudited)

 

 

 

Thirteen weeks ended

 

 

 

 

May 4,
2024

 

 

April 29,
2023

 

 

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

 

$

(46,483

)

 

$

(1,892

)

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

1,665

 

 

 

1,057

 

 

Unrealized gain (loss) on derivatives

 

 

6,372

 

 

 

(984

)

 

(Gains) losses on derivatives reclassified to income

 

 

(850

)

 

 

433

 

 

Total other comprehensive income, net of tax

 

 

7,187

 

 

 

506

 

 

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

 

$

(39,296

)

 

$

(1,386

)

 

 

See accompanying notes to consolidated financial statements.

4


 

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

 

 

Accumulated
deficit

 

 

Accumulated
other
comprehensive
income

 

 

Total
stockholders’
equity

 

Balance at February 3, 2024

 

 

231,156

 

 

 

37,791

 

 

 

37,791

 

 

$

269

 

 

$

2,229,582

 

 

$

(1,047,243

)

 

$

1,821

 

 

$

1,184,429

 

Equity-based compensation expense
   (Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,451

 

 

 

 

 

 

 

 

 

17,451

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(46,483

)

 

 

 

 

 

(46,483

)

Foreign currency translation
   adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,665

 

 

 

1,665

 

Unrealized gain on derivatives (Note 5),
   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,372

 

 

 

6,372

 

Gains on derivatives reclassified to
   income (Note 5), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(850

)

 

 

(850

)

Issuance of common stock,
   net of tax withholdings

 

 

1,793

 

 

 

 

 

 

 

 

 

2

 

 

 

(277

)

 

 

 

 

 

 

 

 

(275

)

Balance at May 4, 2024

 

 

232,949

 

 

 

37,791

 

 

 

37,791

 

 

$

271

 

 

$

2,246,756

 

 

$

(1,093,726

)

 

$

9,008

 

 

$

1,162,309

 

 

 

 

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

 

Balance at January 28, 2023

 

 

228,338

 

 

 

37,791

 

 

 

37,791

 

 

$

266

 

 

$

2,152,342

 

 

$

232,967

 

 

$

(4,098

)

 

$

2,381,477

 

Equity-based compensation expense
   (Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,282

 

 

 

 

 

 

 

 

 

22,282

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,892

)

 

 

 

 

 

(1,892

)

Foreign currency translation
   adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,057

 

 

 

1,057

 

Unrealized loss on derivatives (Note 5),
   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(984

)

 

 

(984

)

Losses on derivatives reclassified to
   income (Note 5), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

433

 

 

 

433

 

Issuance of common stock,
   net of tax withholdings

 

 

727

 

 

 

 

 

 

 

 

 

1

 

 

 

(1,254

)

 

 

 

 

 

 

 

 

(1,253

)

Balance at April 29, 2023

 

 

229,065

 

 

 

37,791

 

 

 

37,791

 

 

$

267

 

 

$

2,173,370

 

 

$

231,075

 

 

$

(3,592

)

 

$

2,401,120

 

 

 

See accompanying notes to consolidated financial statements.

5


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

 

 

 

Thirteen weeks ended

 

 

 

May 4,
2024

 

 

April 29,
2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(46,483

)

 

$

(1,892

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

49,587

 

 

 

49,255

 

Amortization of debt discounts and issuance costs

 

 

1,218

 

 

 

1,238

 

Provision for deferred taxes

 

 

(13,365

)

 

 

(5,530

)

Equity-based compensation

 

 

17,434

 

 

 

22,129

 

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

 

 

3,508

 

 

 

4

 

Loss on partial extinguishment of debt

 

 

 

 

 

441

 

Income from equity method investees

 

 

(4,886

)

 

 

(3,130

)

Amounts reclassified out of accumulated other comprehensive income (Note 5)

 

 

(1,129

)

 

 

575

 

Non-cash operating lease costs

 

 

103,637

 

 

 

106,316

 

Other non-operating loss (income)

 

 

2,665

 

 

 

(2,819

)

Changes in assets and liabilities:

 

 

 

 

 

 

Receivables

 

 

2,987

 

 

 

4,165

 

Merchandise inventories

 

 

3,076

 

 

 

(15,508

)

Prepaid expenses and other assets

 

 

(4,511

)

 

 

(12,115

)

Accounts payable and book overdrafts

 

 

(19,538

)

 

 

12,582

 

Accrued salaries and employee benefits

 

 

(5,474

)

 

 

18,982

 

Accrued expenses and other liabilities

 

 

5,902

 

 

 

(8,736

)

Operating lease liabilities

 

 

(104,181

)

 

 

(130,297

)

Other long-term liabilities

 

 

1,139

 

 

 

1,991

 

Net cash (used in) provided by operating activities

 

 

(8,414

)

 

 

37,651

 

Cash flows from investing activities:

 

 

 

 

 

 

Cash paid for fixed assets

 

 

(32,641

)

 

 

(62,050

)

Cash paid for acquisitions, net of cash acquired

 

 

(100

)

 

 

(725

)

Proceeds from investments

 

 

998

 

 

 

 

Net cash used in investing activities

 

 

(31,743

)

 

 

(62,775

)

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings under long-term debt agreements

 

 

173,000

 

 

 

 

Repayments of long-term debt

 

 

(173,000

)

 

 

(35,000

)

Debt refinancing costs

 

 

(2,955

)

 

 

 

Payments for finance lease liabilities

 

 

(1,444

)

 

 

(1,250

)

Proceeds from employee stock purchase plan and stock option exercises

 

 

830

 

 

 

1,378

 

Tax withholdings on stock-based awards

 

 

(2,059

)

 

 

(2,210

)

Net cash used in financing activities

 

 

(5,628

)

 

 

(37,082

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(45,785

)

 

 

(62,206

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

136,649

 

 

 

213,727

 

Cash, cash equivalents and restricted cash at end of period

 

$

90,864

 

 

$

151,521

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

Interest paid, net

 

$

34,357

 

 

$

37,121

 

Income taxes paid

 

$

1,282

 

 

$

8,934

 

Supplemental non-cash investing and financing activities disclosure:

 

 

 

 

 

 

Accounts payable and accrued expenses for capital expenditures

 

$

14,541

 

 

$

24,767

 

 

See accompanying notes to consolidated financial statements.

6


 

PETCO HEALTH AND WELLNESS COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

Petco Health and Wellness Company, Inc. (together with its consolidated subsidiaries, the “Company”) is a pet health and wellness company focused on improving the lives of pets, pet parents, and its own partners. The Company manages its business as one reportable operating segment.

In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary for a fair presentation as prescribed by accounting principles generally accepted in the United States (“GAAP”). All adjustments were comprised of normal recurring adjustments, except as noted in these Notes to Consolidated Financial Statements.

There have been no significant changes from the significant accounting policies disclosed in Note 1 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2024.

The accompanying consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Interim financial results are not necessarily indicative of results anticipated for the full year. The accompanying consolidated financial statements and these Notes to Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2024, from which the prior year balance sheet information herein was derived.

Use of Estimates

The preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates are based on information that is currently available and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions or conditions.

Derivative Instruments

In November 2022, the Company entered into a series of interest rate cap agreements to limit the maximum interest on a portion of the Company’s variable-rate debt and decrease its exposure to interest rate variability relating to the three-month Secured Overnight Financing Rate as published by CME Group ("Term SOFR"). The interest rate caps became effective December 30, 2022 and expire on December 31, 2024. The interest rate caps are accounted for as cash flow hedges, and changes in the fair value of the interest rate caps are reported as a component of accumulated other comprehensive income (loss) ("AOCI").

In March 2023, the Company entered into an interest rate collar agreement to limit the maximum interest on a portion of the Company’s variable-rate debt and decrease its exposure to interest rate variability relating to three-month Term SOFR. The interest rate collar became effective March 31, 2023 and expires on March 31, 2026.

In June 2023, the Company entered into an interest rate collar agreement to limit the maximum interest on a portion of the Company’s variable-rate debt and decrease its exposure to interest rate variability relating to three-month Term SOFR. The interest rate collar became effective September 30, 2023 and expires on December 31, 2026.

7


 

In December 2023, the Company entered into an interest rate collar agreement to limit the maximum interest on a portion of the Company’s variable-rate debt and decrease its exposure to interest rate variability relating to three-month Term SOFR. The interest rate collar becomes effective December 31, 2024 and expires on December 31, 2026.

In March 2024, the Company entered into two interest rate collar agreements to limit the maximum interest on a portion of the Company’s variable-rate debt and decrease its exposure to interest rate variability relating to three-month Term SOFR. The interest rate collars become effective on December 31, 2024 and expire on December 31, 2026.

The interest rate collars are accounted for as cash flow hedges, and changes in the fair value of the interest rate collars are reported as a component of AOCI.

Cash and Cash Equivalents

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets to the total amounts reported in the consolidated statements of cash flows (in thousands):

 

 

 

May 4,
2024

 

 

February 3,
2024

 

Cash and cash equivalents

 

$

89,717

 

 

$

125,428

 

Restricted cash included in other current assets

 

 

1,147

 

 

 

11,221

 

Total cash, cash equivalents and restricted cash in
   the statement of cash flows

 

$

90,864

 

 

$

136,649

 

 

2. Revenue Recognition

Net sales by product type and services were as follows (in thousands):

 

 

Thirteen weeks ended

 

 

May 4,
2024

 

 

April 29,
2023

 

Consumables

$

763,974

 

 

$

763,051

 

Supplies and companion animals

 

515,757

 

 

 

553,545

 

Services and other

 

249,409

 

 

 

239,312

 

Net sales

$

1,529,140

 

 

$

1,555,908

 

 

3. Goodwill

During the first quarter of fiscal 2024, due to declines in the Company's share price, the Company performed an interim impairment test of its goodwill and trade name. As the estimated fair value of the Company's reporting unit was in excess of its carrying value, the Company concluded that the carrying amount of goodwill was recoverable and did not record a goodwill impairment charge during the first quarter of fiscal 2024. The fair value of the Company's reporting unit was based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit.

Significant assumptions used in the determination of fair value of the reporting unit generally include prospective financial information, discount rates, terminal growth rates, and earnings multiples. The discounted cash flow model used to determine the fair value of the reporting unit during the first quarter of fiscal 2024 reflected the Company's most recent cash flow projections, a discount rate of 13.2%, and a terminal growth rate of 3%. The

8


 

reporting unit fair value measurement is classified as Level 3 in the fair value hierarchy because it involves significant unobservable inputs.

4. Senior Secured Credit Facilities

On March 4, 2021, the Company entered into a $1,700.0 million secured term loan facility maturing on March 4, 2028 (the “First Lien Term Loan”) and a secured asset-based revolving credit facility with availability of up to $500.0 million, subject to a borrowing base, maturing on March 4, 2026 (the “ABL Revolving Credit Facility”). In March 2024, the Company amended the ABL Revolving Credit Facility, which now consists of two tranches, to increase its total availability from $500.0 million to $581.0 million and extend the maturity on a portion of this availability. The first tranche has availability of up to $35.0 million, subject to a borrowing base, maturing on March 4, 2026. The second tranche has availability of up to $546.0 million, subject to a borrowing base, maturing on March 29, 2029. Interest on the ABL Revolving Credit Facility is now based on, at the Company's option, either the base rate subject to a 1% floor, or Term SOFR subject to a floor of 0%, plus an applicable margin. All other key terms of the ABL Revolving Credit Facility remained unchanged.

As of May 4, 2024, the Company was in compliance with its covenants under the First Lien Term Loan and the ABL Revolving Credit Facility.

Term Loan Facilities

Interest on the First Lien Term Loan is based on, at the Company’s option, either a base rate or Term SOFR plus the credit spread adjustment recommended by the Alternative Reference Rates Committee ("Adjusted Term SOFR"), subject to a 0.75% floor, payable upon maturity of the SOFR contract, in either case plus the applicable rate. The base rate is the greater of the bank prime rate, federal funds effective rate plus 0.5% or Adjusted Term SOFR plus 1.0%. The applicable rate is 2.25% per annum for a base rate loan or 3.25% per annum for an Adjusted Term SOFR loan. Principal and interest payments commenced on June 30, 2021. Principal payments are normally $4.25 million quarterly.

In March 2023, the Company voluntarily prepaid $35.0 million of the First Lien Term Loan using existing cash on hand. The repayment was applied to the remaining principal payments in order of scheduled payment date and, as a result, the entire remaining balance was included in senior secured credit facilities, net, excluding current portion in the consolidated balance sheets as of May 4, 2024 and February 3, 2024. The Company accounted for the repayment as a partial extinguishment and recognized a loss on debt extinguishment of $0.4 million for the thirteen week period ended April 29, 2023.

As of May 4, 2024, the outstanding principal balance of the First Lien Term Loan was $1,595.3 million ($1,579.6 million, net of the unamortized discount and debt issuance costs). As of February 3, 2024, the outstanding principal balance of the First Lien Term Loan was $1,595.3 million ($1,578.6 million, net of the unamortized discount and debt issuance costs). The weighted average interest rate on the borrowings outstanding was 8.9% and 9.0% as of May 4, 2024 and February 3, 2024, respectively. Debt issuance costs are being amortized over the contractual term to interest expense using the effective interest rate in effect at issuance. As of May 4, 2024 and February 3, 2024, the estimated fair value of the First Lien Term Loan was approximately $1,356.0 million and $1,497.6 million, respectively, based upon Level 2 fair value hierarchy inputs.

Revolving Credit Facilities

In March 2024, the Company amended the ABL Revolving Credit Facility to increase its total availability and extend the maturity on a portion of the availability. Fees of $3.0 million relating to the Company’s entry into the amendment were capitalized as debt issuance costs. These fees consisted of arranger fees and other third-party expenses. The unamortized portion of the debt issuance costs of the ABL Revolving Credit Facility previously capitalized is being amortized over the amended contractual term.

As of May 4, 2024 and February 3, 2024, no amounts were outstanding under the ABL Revolving Credit Facility. At May 4, 2024, $527.6 million was available under the ABL Revolving Credit Facility, which is net of $53.4 million of outstanding letters of credit issued in the normal course of business and no borrowing base reduction for a shortfall in qualifying assets. As of May 4, 2024 and February 3, 2024, unamortized debt issuance costs of $5.1 million and $2.4 million, respectively, relating to the ABL Revolving Credit Facility were outstanding and were being amortized using the straight-line method over the remaining term of the agreement.

9


 

The ABL Revolving Credit Facility has availability up to $581.0 million and a $150.0 million letter of credit sub-facility. The availability is limited to a borrowing base, which allows borrowings of up to 90% of eligible accounts receivable plus 90% of the net orderly liquidation value of eligible inventory plus up to $50.0 million of qualified cash of the Company to which the Company and guarantors have no access, less reserves as determined by the administrative agent. Letters of credit reduce the amount available to borrow under the ABL Revolving Credit Facility by their face value.

Prior to the March 2024 amendment, interest on the ABL Revolving Credit Facility was based on, at the Company’s option, either the base rate or Adjusted Term SOFR subject to a floor of 0%, in either case, plus an applicable margin. Following the March 2024 amendment, interest on the ABL Revolving Credit Facility is now based on, at the Company’s option, either the base rate subject to a 1% floor, or Term SOFR subject to a floor of 0%, plus an applicable margin. The applicable margin is currently equal to 25 basis points in the case of base rate loans and 125 basis points in the case of Term SOFR loans.

The applicable margin is adjusted quarterly based on the average historical excess availability as a percentage of the Line Cap, which represents the lesser of the aggregate ABL Revolving Credit Facility and the borrowing base, as follows:

Average Historical Excess Availability

 

Applicable
Margin for
Term SOFR Loans

 

 

Applicable
Margin
for Base Rate
Loans

 

Less than 33.3% of the Line Cap

 

 

1.75

%

 

 

0.75

%

Less than 66.7% but greater than or equal to 33.3% of
   the Line Cap

 

 

1.50

%

 

 

0.50

%

Greater than or equal to 66.7% of the Line Cap

 

 

1.25

%

 

 

0.25

%

 

The ABL Revolving Credit Facility is subject to an unused commitment fee. If the actual daily utilized portion exceeds 50%, the unused commitment fee is 0.25%. Otherwise, the unused commitment fee is 0.375% and is not dependent upon excess availability.

5. Derivative Instruments

The interest rate caps and collars are accounted for as cash flow hedges because they are expected to be highly effective in hedging variable rate interest payments. Changes in the fair value of the cash flow hedges are reported as a component of AOCI. As of May 4, 2024, AOCI included unrealized gains of $5.1 million ($3.9 million, net of tax). As of February 3, 2024, AOCI included unrealized losses of $2.2 million ($1.7 million, net of tax). Approximately $1.1 million of pre-tax gains and $0.6 million of pre-tax losses deferred in AOCI were reclassified to interest expense during the thirteen week periods ended May 4, 2024 and April 29, 2023, respectively. The Company currently estimates that $2.3 million of losses related to trade date costs on its cash flow hedges that are currently deferred in AOCI will be reclassified to interest expense in the consolidated statement of operations within the next twelve months. This estimate could vary based on actual amounts as a result of changes in market conditions.

The cash flow hedges are reflected in the Company’s consolidated balance sheets as follows (in thousands):

 

Assets (Liabilities)

 

Balance sheet location

 

May 4,
2024

 

 

February 3,
2024

 

Current asset portion of cash flow hedges

 

Other current assets

 

$

3,703

 

 

$

2,259

 

Non-current asset portion of cash flow
   hedges

 

Other long-term assets

 

 

2,643

 

 

 

 

Current liability portion of cash flow
   hedges

 

Accrued expenses and other
liabilities

 

 

 

 

 

(124

)

Non-current liability portion of cash flow
   hedges

 

Other long-term liabilities

 

 

 

 

 

(3,067

)

Total cash flow hedges

 

 

 

$

6,346

 

 

$

(932

)

 

10


 

6. Fair Value Measurements

Assets and Liabilities Measured on a Recurring Basis

The following table presents information about assets and liabilities that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value (in thousands):

 

 

May 4, 2024

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets (liabilities):

 

 

 

 

 

 

 

 

 

Money market mutual funds

 

$

33,888

 

 

$

 

 

$

 

Investments of officers' life insurance

 

$

 

 

$

15,493

 

 

$

 

Non-qualified deferred compensation plan

 

$

 

 

$

(21,095

)

 

$

 

 

 

 

February 3, 2024

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets (liabilities):

 

 

 

 

 

 

 

 

 

Money market mutual funds

 

$

80,186

 

 

$

 

 

$

 

Investments of officers' life insurance

 

$

 

 

$

14,945

 

 

$

 

Non-qualified deferred compensation plan

 

$

 

 

$

(20,355

)

 

$

 

 

The fair value of money market mutual funds is based on quoted market prices, such as quoted net asset values published by the fund as supported in an active market. Money market mutual funds included in the Company’s cash and cash equivalents were $33.8 million and $69.6 million as of May 4, 2024 and February 3, 2024, respectively. Also included in the Company’s money market mutual funds balances were $0.1 million and $10.6 million as of May 4, 2024 and February 3, 2024, respectively, which relate to the Company’s restricted cash, and are included in other current assets in the consolidated balance sheets.

The Company maintains a deferred compensation plan for key executives and other members of management, which is funded by investments in officers’ life insurance. The fair value of this obligation is based on participants’ elected investments, which reflect the closing market prices of similar assets.

In February 2022, the Company amended a collaboration agreement with a vendor, and as part of the amendment the Company was granted a right to receive equity and warrants for common shares of the vendor that is subject to certain performance conditions and other contingencies. The Company's interest in these rights is accounted for as an investment in an equity security without a readily determinable fair value. When an upward or downward adjustment occurs, the resulting gains or losses are included in other non-operating income in the consolidated statements of operations.

In April 2023, the Company sold its interest in Rover Group, Inc. Class A common stock to a buyer at a price determined based on the daily volume weighted average price, in addition to a premium, over an agreed upon period. The Company's interest in the unsettled cash proceeds were remeasured at fair value at each reporting period, and the resulting gains or losses were included in other non-operating income in the consolidated statements of operations.

Assets Measured on a Non-Recurring Basis

The Company’s non-financial assets, which primarily consist of goodwill, other intangible assets, fixed assets and equity and other investments, are reported at carrying value, or at fair value as of the date of the Company’s acquisition of Petco Holdings, Inc. LLC on January 26, 2016, and are not required to be measured at fair value on a recurring basis. However, on a periodic basis (at least annually for goodwill and indefinite-lived intangibles or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable), non-financial assets are assessed for impairment. If impaired, the carrying values of the assets are written down to fair value using Level 3 inputs.

The Company’s trade name has an indefinite life. The Company performs its annual impairment test during the fourth quarter of each fiscal year, or more frequently when warranted by events or changes in circumstances. During the first quarter of fiscal 2024, due to declines in the Company's share price, the Company performed an

11


 

interim impairment test of its goodwill and indefinite-lived trade name. Refer to Note 3 for further discussion of the results of impairment testing performed on the Company’s goodwill.

The fair value of the Company’s trade name was estimated by management using the relief from royalty valuation method, which estimates the hypothetical royalties that would have to be paid if the trade name was not owned. The fair value of the Company's trade name reflected the Company's most recent revenue projections, a discount rate of 14.2% and a terminal growth rate of 3%. The Company concluded that the fair value of its trade name exceeded its carrying value, and therefore no trade name impairment charge was recorded during the first quarter of fiscal 2024. The Company's trade name fair value measurement is classified as Level 3 in the fair value hierarchy because it involves significant unobservable inputs.

There were no indications of impairment of the Company’s equity and other investments during the thirteen week periods ended May 4, 2024 and April 29, 2023. During the thirteen week periods ended May 4, 2024 and April 29, 2023, the Company recorded fixed asset and right-of-use asset impairment charges of $3.5 million and $0.1 million, respectively.

7. Stockholders’ Equity

 

Equity-Based Compensation

Equity-based compensation awards under the Company’s current equity incentive plan (as amended, the “2021 Equity Incentive Plan”) include restricted stock units (“RSUs,” which include performance-based stock units), restricted stock awards (“RSAs”), non-qualified stock options, and other equity compensation awards. The Company also has an employee stock purchase plan (“ESPP”).

The Company’s controlling parent, Scooby LP, also maintains an incentive plan (the “2016 Incentive Plan”) under which it has awarded partnership unit awards to certain current and former employees, consultants, and non-employee directors of the Company that are restricted profit interests in Scooby LP subject to a distribution threshold (“Series C Units”).

The following table summarizes the Company’s equity-based compensation expense by award type (in thousands):

 

 

 

Thirteen weeks ended

 

 

 

May 4,
2024

 

 

April 29,
2023

 

RSUs and RSAs

 

$

10,722

 

 

$

14,496

 

Options

 

 

5,553

 

 

 

5,085

 

ESPP

 

 

320

 

 

 

432

 

Other awards

 

 

839

 

 

 

2,116

 

Total equity-based compensation expense

 

$

17,434

 

 

$

22,129

 

 

Activity under the 2021 Equity Incentive Plan was as follows (shares and dollars in thousands):

 

 

 

RSUs and RSAs

 

 

Options

 

Nonvested/outstanding, February 3, 2024

 

 

9,618

 

 

 

6,310

 

Granted

 

 

10,218

 

 

 

7,407

 

Vested and delivered/exercised

 

 

(2,144

)

 

 

 

Forfeited/expired

 

 

(1,631

)

 

 

(292

)

Nonvested/outstanding, May 4, 2024

 

 

16,061

 

 

 

13,425

 

Unrecognized compensation expense as of May 4, 2024

 

$

60,199

 

 

$

7,548

 

Weighted average remaining expense period as of May 4, 2024

 

1.9  years

 

 

0.8  years

 

 

The ESPP allows eligible employees to contribute up to 15% of their base earnings towards purchases of Class A common stock, subject to an annual maximum. The purchase price will be 85% of the lower of (i) the fair

12


 

market value of the stock on the associated lookback date and (ii) the fair market value of the stock on the last day of the related purchase period.

Series C Unit activity under the 2016 Incentive Plan was as follows (in thousands):

 

 

 

Units

 

Outstanding, February 3, 2024

 

 

198,145

 

Granted

 

 

 

Forfeited

 

 

(4,402

)

Outstanding, May 4, 2024

 

 

193,743

 

Vested, May 4, 2024

 

 

188,143

 

No additional Series C Units have been or will be awarded following the Company’s initial public offering. As of May 4, 2024, unrecognized compensation expense related to the unvested portion of Scooby LP’s Series C Units was $1.2 million, which is expected to be recognized over a weighted average period of 1.0 years. In addition to acceleration upon a change in control, a portion of grantees’ Series C Units may vest upon certain levels of direct or indirect sales by Scooby LP of the Company’s Class A common stock, and all unvested Series C Units will fully accelerate in the event Scooby LP sells 90% of its direct or indirect holdings of the Company’s Class A common stock.

Loss Per Share

Potentially dilutive securities include potential Class A common shares related to outstanding stock options, unvested RSUs and RSAs, and the ESPP, calculated using the treasury stock method. The calculation of diluted shares outstanding excludes securities where the combination of the exercise or purchase price (in the case of options and the ESPP) and the associated unrecognized compensation expense is greater than the average market price of Class A common shares because the inclusion of these securities would be anti-dilutive.

All outstanding equity awards were excluded from the calculation of diluted loss per Class A and B-1 common share in the thirteen weeks ended May 4, 2024 and April 29, 2023, as their effect would be antidilutive in a net loss period.

8. Commitments and Contingencies

The Company is involved in legal proceedings and is subject to other claims and litigation arising in the ordinary course of its business. The Company has made accruals with respect to certain of these matters, where appropriate, which are reflected in the Company’s consolidated financial statements but are not, individually or in the aggregate, considered material. For other matters, the Company has not made accruals because management has not yet determined that a loss is probable or because the amount of loss cannot be reasonably estimated. While the ultimate outcome of the matters cannot be determined, the Company currently does not expect that these matters will have a material adverse effect on its consolidated financial statements. The outcome of any litigation is inherently uncertain, however, and if decided adversely to the Company, or if the Company determines that settlement of particular litigation is appropriate, the Company may be subject to liability that could have a material adverse effect on its consolidated financial statements.

 

 

 

13


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”), as well as the corresponding Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024 (the “2023 Form 10-K”). The discussion and analysis below contains certain forward-looking statements about our business and operations that are subject to the risks, uncertainties, and other factors referred to in Part II, Item 1A, “Risk Factors” of this Form 10-Q. These risks, uncertainties, and other factors could cause our actual results to differ materially from those expressed in, or implied by, the forward-looking statements. The risks described in this Form 10-Q and in other documents we file from time to time with the U.S. Securities and Exchange Commission (the “SEC”), including the section entitled “Forward-Looking Statements” in this Form 10-Q, should be carefully reviewed. All amounts herein are unaudited.

Overview

Petco Health and Wellness Company, Inc. (“Petco”, the “Company”, “we”, “our” and “us”) is a pet health and wellness company focused on improving the lives of pets, pet parents, and our own partners. Through our omnichannel ecosystem, we provide our customers with a comprehensive offering of products and services to fulfill their pets’ health and wellness needs through our more than 1,500 pet care centers in the U.S., Mexico, and Puerto Rico, including a network of in-store veterinary hospitals, our digital channel, and our flexible fulfillment options.

Our multicategory strategy integrates our digital assets with our nationwide physical footprint to meet the needs of pet parents who are looking for a single source for all their pets' needs. Our e-commerce site and mobile app serve as hubs for pet parents to manage their pets’ health, wellness, and merchandise needs, while enabling them to shop wherever, whenever, and however they want. The full value of our ecosystem can be realized through our Vital Care membership program, which has a two-tiered offering—Vital Care Core, our free membership tier, and Vital Care Premier, our paid membership tier. Sitting at the intersection of value and loyalty, Vital Care Premier makes it easier and more affordable for pet parents to care for their pet’s whole health and links pet parents with our merchandising and services offerings, while Vital Care Core provides pet parents with a suite of loyalty offerings.

We strive to be a company that is improving millions of pet lives as well as the lives of pet parents and the partners who work for us. In tandem with Petco Love, a life-changing independent nonprofit organization, we work with and support thousands of local animal welfare groups across the country and, through in-store adoption events, we have helped find homes for nearly 7 million animals.

Macroeconomic factors, including rising interest rates, inflationary pressures, supply chain constraints, and global economic and geopolitical developments have had varying impacts on our results of operations, such as decreases in sales of discretionary items like supplies, that are difficult to isolate and quantify. We cannot predict the duration or ultimate severity of these macroeconomic factors or the ultimate impact on our operations and liquidity. Please refer to the risk factors referred to in Part II, Item 1A, “Risk Factors” of this Form 10-Q.

 

14


 

How We Assess the Performance of Our Business

In assessing our performance, we consider a variety of performance and financial measures, including the following:

 

Comparable Sales

Comparable sales is an important measure throughout the retail industry and includes both retail and digital sales of products and services. A new location or digital site is included in comparable sales beginning on the first day of the fiscal month following 12 full fiscal months of operation and is subsequently compared to like time periods from the previous year. Relocated pet care centers become comparable pet care centers on the first day of operation if the original pet care center was open longer than 12 full fiscal months. If, during the period presented, a pet care center was closed, sales from that pet care center are included up to the first day of the month of closing. There may be variations in the way in which some of our competitors and other retailers calculate comparable sales. As a result, data in this filing regarding our comparable sales may not be comparable to similar data made available by other retailers.

Comparable sales allow us to evaluate how our overall ecosystem is performing by measuring the change in period-over-period net sales from locations and digital sites that have been open for the applicable period. We intend to improve comparable sales by continuing initiatives aimed to increase customer retention, frequency of visits, and basket size. General macroeconomic and retail business trends are also a key driver of changes in comparable sales.

Non-GAAP Financial Measures

Management and our board of directors review, in addition to GAAP (as defined herein) measures, certain non-GAAP financial measures, including Adjusted EBITDA and Free Cash Flow, to evaluate our operating performance, generate future operating plans, and make strategic decisions regarding the allocation of capital. Further explanations of these non-GAAP measures, along with reconciliations to their most comparable GAAP measures, are presented below under “Reconciliation of Non-GAAP Financial Measures to GAAP Measures.”

Executive Summary

Comparing the thirteen weeks ended May 4, 2024 with the thirteen weeks ended April 29, 2023 (unless otherwise noted), our results included the following:

a decrease in net sales from $1.56 billion to $1.53 billion, representing a period-over-period decrease of 1.7%;
an operating loss of $16.8 million, compared to operating income of $27.6 million in the prior year period;
net loss attributable to Class A and B-1 common stockholders of $46.5 million, compared to net loss attributable to Class A and B-1 common stockholders of $1.9 million in the prior year period; and
a decrease in Adjusted EBITDA from $111.0 million to $75.6 million.

15


 

Results of Operations

The following tables summarize our results of operations and the percent of net sales of line items included in our consolidated statements of operations (dollars in thousands):

 

 

 

Thirteen weeks ended

 

 

 

 

May 4,
2024

 

 

April 29,
2023

 

 

Net sales:

 

 

 

 

 

 

 

Products

 

$

1,279,731

 

 

$

1,316,596

 

 

Services and other

 

 

249,409

 

 

 

239,312

 

 

Total net sales

 

 

1,529,140

 

 

 

1,555,908

 

 

Cost of sales:

 

 

 

 

 

 

 

Products

 

 

792,722

 

 

 

805,759

 

 

Services and other

 

 

157,758

 

 

 

145,667

 

 

Total cost of sales

 

 

950,480

 

 

 

951,426

 

 

Gross profit

 

 

578,660

 

 

 

604,482

 

 

Selling, general and administrative expenses

 

 

595,442

 

 

 

576,865

 

 

Operating (loss) income

 

 

(16,782

)

 

 

27,617

 

 

Interest income

 

 

(418

)

 

 

(1,177

)

 

Interest expense

 

 

36,817

 

 

 

37,202

 

 

Loss on partial extinguishment of debt

 

 

 

 

 

441

 

 

Other non-operating loss (income)

 

 

2,665

 

 

 

(2,819

)

 

Loss before income taxes and income
   from equity method investees

 

 

(55,846

)

 

 

(6,030

)

 

Income tax benefit

 

 

(4,477

)

 

 

(1,008

)

 

Income from equity method investees

 

 

(4,886

)

 

 

(3,130

)

 

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

 

$

(46,483

)

 

$

(1,892

)