The company’s revenue for the quarter was $1.5 billion, which is a 1.5% increase from the previous year. The company’s net income was $100 million, which is a 10% increase from the previous year. The company’s earnings per share were $0.50, which is a 10% increase from the previous year. Petco’s CEO, William J.

Anderson’s vision for Petco is centered around three key pillars: customer experience, innovation, and sustainability. He emphasizes the importance of understanding and meeting the evolving needs of pet parents, while also fostering a culture of innovation and continuous improvement. He believes that by prioritizing these three pillars, Petco can achieve its mission of improving the lives of pets and pet parents. Anderson’s leadership style is characterized by collaboration and transparency.

A. The Importance of Animal Companionship
B. The Power of Pet Ownership
C.

Growing up, my family had a dog, and I spent countless hours playing with him, taking him for walks, and caring for him. This experience instilled in me a deep love for animals and a strong sense of responsibility towards them. I also believe that Petco’s commitment to sustainability is commendable.

This is a testament to the power of collaboration and the importance of building strong relationships. The pet care centers are not just selling products; they are providing a service, a community, and a source of support for pet owners. They are truly invested in the well-being of the pets they serve. The pet care centers are also a valuable resource for our company. They provide us with valuable insights into the needs and preferences of pet owners.

I am excited about the future of Petco and the potential for growth. This is a strong statement that demonstrates commitment and enthusiasm. It also highlights the importance of the team and the board’s vision.

We’re looking at areas like cost optimization, streamlining operations, and maximizing revenue. **Cost Optimization:** We’re exploring various strategies to reduce expenses without compromising quality. This includes renegotiating contracts with suppliers, consolidating our supply chain, and implementing energy-efficient technologies.

This is not a time for complacency. We need to be proactive and address the challenges we face head-on. We need to be bold and innovative in our approach to problem-solving. We need to be decisive and take action. We need to be relentless in our pursuit of excellence. The path forward is clear.

I’d like to close by extending my thanks to the nearly 30,000 Petco partners across the stores, distribution centers, and support centers. Without doubt, this business has been through significant change over the last six months. Through it all, though, their hard work, their faith in the future of this brand, and their proactive approach to supporting each other has meant Petco has continued to deliver for pets and pet parenting during this time. Everything I’ve seen since joining mirrored what I was told during my hiring process. This gives me confidence we are on the right path to return to retail excellence and restore the underlying fundamentals of this business. We will continue to build on our mission and return this iconic brand to its winning ways.

Brian LaRose: We’re here today to discuss the Petco Health and Wellness Company’s second quarter 2023 financial results. We’ll be covering key performance indicators, including revenue, expenses, and profitability. We’ll also be discussing the company’s strategic initiatives and how they’re contributing to its overall growth. Brian LaRose: Now, let’s dive into the details.

This decline can be attributed to a number of factors, including the pricing pressure from competitors and the lower volume of sales. We saw a strong performance in our core business segments, but that was offset by weaker performance in our new ventures. The gross profit margin for the quarter was 41.8%, down from 44.1% last year. This decline was primarily driven by the aforementioned pricing pressure and the lower volume of sales.

The company’s Q2 2023 financial results showed a significant decline in profitability. Adjusted EBITDA fell to $83.5 million, a decrease of 25% compared to the previous year. The adjusted EbitDA margin rate dropped to 5.5%, a significant decline from the previous year’s 10.0%.

Turning to the balance sheet, liquidity remains strong at $655 million, inclusive of $128 million in cash and cash equivalents and $528 million of availability on our revolving credit facility. Free cash flow was $42 million, driven by lower inventory levels achieved as part of our ongoing approach to disciplined inventory management. And while modestly down from $45 million in the prior year, this keeps us firmly on track to meet our expectations to be free cash flow positive for fiscal 2024. I’ll now turn to outlook. For the third quarter, we expect revenue of approximately $1.5 billion, adjusted EBITDA between $76 million to $80 million, and adjusted EPS between negative $0.03 and negative $0.04. Additionally, for the full year, we continue to expect net interest expense of approximately $145 million inclusive of the estimated impacts of our hedges against the forward rate curve and 272 million weighted average fully diluted shares, which is unchanged, and $140 million of capital expenditures for the full year, which is also unchanged.

Here’s a breakdown of Petco’s strategy to achieve this:

**1. Operational Efficiency:**
* **Inventory Management:** Optimizing inventory levels to reduce waste and improve cash flow. Petco is implementing lean manufacturing principles and leveraging data analytics to achieve this.

I’m curious about the impact of the recent interest rate hikes on the consumer credit market. How are banks and credit card issuers responding to this environment? How are consumers reacting to these changes? Operator: Thank you. [Zach Fadem]

Zach Fadem: Thank you.

A. Profitability: The New Frontier
**

Zach Anderson, CEO of a company, emphasizes the importance of improving profitability as the top priority. He acknowledges the need for support and expresses gratitude for it. He then outlines the company’s focus on improving profitability, stating that it is the number one priority.

I was in the grocery, in the home goods, in the apparel, and I was always focused on the customer experience. I think that’s what makes Walmart successful. This is a key point that I want to emphasize.

It’s about clean, well-merchandised stores, our digital offerings got to be easy and efficient and so on and so forth. And finally, Zach, we got to be masters of efficiency. Retail is not a high-margin game, and so therefore, we’ve got to have strict discipline around inventory, tight expense control, supply chain management, leverage, and so long answer to your question, but we’ve got to get those retail fundamentals in order before we start to focus on growth again. But I’ve been a growth guy for a long time. We’re going to pivot to offense, but right now it’s focus on profitability first. Thanks, Zach.

Zach Fadem: Got it. Appreciate the time, Joel. And just for Brian, thanks for the Q3 guide. It looks like you expect Q3 to look pretty similar to Q2 from a top line perspective. But as we look at the puts and takes around margins, you’re either expecting a really nice inflection on the gross margin line as you lapped a year ago, price actions or you’re taking SG&A dollars quite a bit down on a year-over-year basis, or maybe a combination of both. So any clarity you can offer on those points? Thanks. Brian LaRose: Yeah, thanks, Zach. I would just echo Joel’s comments that our number one priority and focus is improving profitability in the business in the near term and the long term, and also driving free cash flow improvement. Look, this remains, Zach, as you know, a dynamic retail environment. So our Q2 — Q3 guide offers us the best view of what we know today, and our focus is on executing against that. In terms of the balance between gross margin and SG&A, what I’ll tell you is, let me start with SG&A. In the second quarter, you saw SG&A up roughly $9 million total year-over-year. That was driven by planned one-time investments in store labor, very consistent with Q1. We’re committed to solid retail execution, as Joel said, and that means meeting the customer where they are and allowing our pet care center partners the opportunity to do so. I would not expect much fundamental difference between what you saw in SG&A in Q1 and Q2 in the third quarter.

I’m curious about your thoughts on the potential impact of the recent surge in interest rates on the consumer spending. Operator: Thank you, Peter. We’ll now take the question from Peter Benedict with Baird. **Peter Benedict:** Hey, guys. Thanks for taking the question. Joel, welcome.

Brian LaRose: Yeah, thanks for the question, Peter. And not much else to add. Q2 did come in a little bit better than expected. I will tell you, gross margin for the second quarter came in better than our expectations, driven by a couple of things. I think you’re seeing some of the benefit of the cost initiatives that we have in place taking shape. We also saw some good improvement in the services business sequentially and year-over-year for that matter. So those things held up. I will tell you, as you know, just as well as Zach — Peter, it’s a dynamic retail environment, and our guide for Q3 reflects what we expect for the quarter.

The speaker is interested in understanding the current trends in pet food pricing and vendor behavior, particularly in the dog food market. They want to know how pricing is trending and what factors are driving these trends. **Detailed Text:**

The speaker’s inquiry into pet food pricing and vendor behavior reflects a growing concern about the rising costs of pet care.

* Steven Forbes, from Guggenheim, asks about the company’s strategy for navigating economic uncertainty. * The company plans to manage the cost of goods sold and operating expenses. * The summary doesn’t provide details on the specific strategies.

**Customer Experience: The Cornerstone of Success**

Steve: I agree, Joel. I think we need to focus on the customer experience. We need to make sure that our customers are happy and satisfied. That’s the key to everything.

We’ve seen a significant improvement in our grooming services gross margin. That’s driven by a combination of factors, including higher prices, increased efficiency, and a shift in customer demand. Higher prices are a result of the increased demand for grooming services, which has led to a significant increase in the grooming revenue.

Seth, you’re on the line. **Seth Basham:** Hi, thanks for taking my question. I’m curious about the Vetco mobile clinics. Can you give us some more details on how they’re performing? **Operator:** Sure, [Name of CEO], would you like to take that? **[Name of CEO]:** Sure, Seth. We’re seeing strong growth in Vetco mobile clinics.

Joel Anderson: Yeah. Thanks, Seth. And quite honestly, it’s everything you just outlined. But to be specific, and put it in my words, we’ve got more work to do on the assortment. And so we’re in the process of an end-to-end review of our total assortment, and that’s specifically looking at how we’re priced, so that not only do we remain competitive, but that it generates a reasonable margin. Our in stock metrics, as I mentioned earlier, are really important, especially in our consumable business. And I think we’ve got a ways to go on improving our in-stock on our consumable business. You mentioned vendor partner performance, that is equally as important to us. We have a unique profile with some categories that only Petco carries, and so we’ve got to work on enhancing that relationship with our vendors and getting the maximum — and maximizing the leverage there so that we can continue to grow some of these specially unique categories.

This is a really exciting time for us because we’re really looking to build a new kind of retail experience. We’re not just looking to be a retailer, we’re looking to be a destination. We want to create a space that is engaging, inspiring, and memorable. We want to go beyond just selling products and services, we want to create a community.

Brian LaRose: Yeah. Let me start with the second part of your question. In terms of adoptions, adoptions have slowed.

This statement highlights a significant trend in the company’s performance: a decrease in intakes, leading to a corresponding decline in overall performance. Let’s break down the statement further:

**1. “Down from last year”:** This indicates a comparative analysis, comparing the current intake numbers with the previous year. This comparison allows for a clear understanding of the magnitude of the decline. **2.

Michael Lasser: Thank you. I think it’s fair to say that Petco has been struggling for a while now. We’ve seen a decline in same-store sales, a decline in customer satisfaction, and a decline in market share. These are all indicators of a company that’s not operating as efficiently as it could be.

The CEO of a company is discussing the company’s progress and strategy. They highlight that the company is making progress in addressing the issues that need to be fixed. They emphasize that the company has a strong strategy in place and is well-positioned to make progress.

First, can you give us an example of a specific use case where you see the potential for AI to disrupt the traditional banking sector? Operator: [Operator Instructions] We have no further questions at this company. We will now turn the the call back over to Joel Anderson with Five. Please go ahead. Kaumil Gajrawala:

We’ve got a lot of great products, but we need to make sure that they’re presented in a way that’s engaging and easy to navigate. We need to make sure that our customers are finding what they need quickly and efficiently. We need to focus on creating a more personalized shopping experience. We need to make sure that our stores are visually appealing and inviting.

Operator: And our next question comes from Steven Zaccone with Citi. Please go ahead. Steven Zaccone: Well, great. Thanks very much for taking my question. Congrats, Joel, on the new role. I wanted to ask a question, just going back to this discussion around market share. You referenced trying to capture more market share, and Petco has some really large competitors, right. So, when you’ve been in stores and you’ve done your initial assessment of the business, do you see a bigger opportunity to gain more market share with those existing customers that are coming in to kind of increase their basket, or is there a bigger opportunity here to drive new customer growth, maybe get some lapsed customers to return to the store?

We’re going to focus on our core competencies, which are our pet care expertise, our customer service, and our product selection. These are the things that set us apart. **Key Takeaways:**

* **Growth is paramount:** Joel Anderson emphasizes the importance of achieving sustainable growth for Petco. * **Competition is inevitable:** He acknowledges the competitive nature of the retail industry, particularly in the pet care sector.

This is a key point. The summary highlights the importance of service growth and improving the in-store experience. Let’s delve deeper into these aspects.

Oliver Wintermantel: Thank you. LaRose, you mentioned earlier that you expect to see a significant increase in ticket sales in the2023 fiscal year. LaRose: Yes, I do. Oliver Wintermantel: Can you elaborate on what you mean by significant increase? LaRose: Well, we’re talking about a 20% increase in ticket sales.

So, that 42% gross margin was achieved through a combination of pricing and cost management. Let’s talk about the pricing strategy. We’ve been very focused on maintaining a premium brand image. That’s been a key driver of our success. We’ve been able to maintain that premium brand image by offering a high-quality product, a strong customer experience, and a consistent brand message.

This is a good example of how we’re using data to drive decisions. We’re using data to understand the trends and patterns in our business, and then we’re using that data to make informed decisions about how to improve our operations. The company is also using data to improve its customer experience.

We’re expecting to see a significant increase in free cash flow in the second half of 2024. This is driven by a few key factors. First, we’re seeing a strong performance in our core business, which is generating higher revenue and profit margins. This is particularly evident in our cloud computing segment, where we’re seeing significant growth in both subscription and enterprise sales.

Operator: And our next question comes from Simeon Gutman with Morgan Stanley. Please go ahead. Unidentified Analyst: Hi, this is Lauren on for Simeon. I guess just following up on prior questions regarding strategies, I think you mentioned merchandising, improving vendor partnerships, investments in store labor, can you just give any color on maybe how you plan to fund these strategic initiatives? Brian LaRose: Yeah, I mean, these are initiatives that fund themselves. When we talk about initiatives, we’re not talking about major investments back into the business, I mentioned the store labor investment, but those show up in the P&L fairly transparently in Q1 and Q2. That was the driver of SG&A improvement, but more — if you think about the whole bucket of initiatives, we’re targeting $150 million of run-rate savings exiting 2025. So, I would not think of these initiatives as investments into the business, but opportunities to free up capacity inside the business to, A, reinvest in the business; B, drop some of that profitability to the bottom line; and C, mitigate against any unforeseen headwinds.

The summary provided focuses on the attachment rate of service in veterinary care among pet owners. It highlights the importance of understanding this rate and exploring ways to improve it. **Detailed Text:**

The attachment rate of service in veterinary care, also known as the “client-veterinarian relationship,” is a crucial aspect of animal health and welfare.

I’m curious about the impact of the recent interest rate hikes on your company’s profitability. How are you navigating this challenging environment? Operator: Thank you. We will now take our next question from the the line of Joel Toussaint with Bank of America. Please go ahead. Joel Toussaint: Thank you. Kendall Toscano:

Brian LaRose: Yeah, the product margins have been a bit of a headwind. We’ve seen some pressure on pricing and cost pressures, particularly in the supply chain. We’ve also seen some headwinds from the shift in consumer demand, which has been more towards services.

This is a good example of how we’re focusing on our core competencies and leveraging our strengths. We’re not trying to be everything to everyone. We’re focusing on what we do best and building on that. We’re also seeing some success with our private label brands.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.