Petco Health and Wellness Company, Inc.

And welcome to Petco's second quarter fiscal 2021 earnings conference call. All participants are in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch-tone phone. And to remove yourself from queue, please press star then 2. Please note, today's event is being recorded. I would now like to turn the conference over to Christy Moser, Vice President and Investor Relations Officer. Christy, you may begin.

Thanks very much and welcome everybody to Petco's second quarter fiscal 2021 earnings conference call. We are webcasting live over the internet. To access the call on the internet, please go to Petco's website at Petco.com and follow the links from there. In addition to the earnings release, there's a presentation available for download summarizing our second quarter 2021 results as well as an infographic. On the call today are Mr. Ron Coughlin, PECO's Chairman and Chief Executive Officer, Mr. Mike Nuzzo, PECO's Chief Operating Officer and President of PECO Services, and Mr. Brian LaRose, PECO's newly appointed Chief Financial Officer. In a moment, Ron and Mike will walk you through PECO's recent financial and operating performance for the quarter. But before we begin our remarks, I would like to remind you that in this call, we will make forward-looking statements in regards to our current beliefs plans, and expectations, which are not guarantees of future performance and are subject to a number of risks and uncertainties and other factors that could cause actual results to differ materially from the results and events contemplated by such forward-looking statements. These risks and uncertainties include those set forth in our earnings release as well as with our filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof, except as required by law, We undertake no obligation to update or revise any of them, whether as a result of new information, future events, or otherwise. In addition, today's presentation contains references to non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release and our filings with the Securities and Exchange Commission. During the question and answer of today's call, please limit yourself to one question and one follow-up. Now let me turn it over to Ron.

Thanks, Christy, and good morning, everyone. Thank you for joining us today. Our incredible team's delivery against purpose-driven performance this quarter has once again exceeded our expectations in terms of both quarterly numbers as well as acceleration of transformative initiatives. We posted record quarterly revenue growth and comp growth of 20% and over 30% on a two-year stack with strong profit flow-through. Q2 was a quarter that truly highlighted the strength of our unique model with world-class digital capabilities, robust services offerings, and a nationwide physical pet care center footprint that provides both a great in-store experience and logistics competitive advantages. Those capabilities are enabling a growing customer base. It is becoming more and more valuable with significant growth in recurring revenue customers, loyalty customers, multi-channel customers, and premium product and services customers. The category continues to thrive, and within it, according to Nielsen, we are taking share. Our transformation continues to accelerate with the fastest veterinary expansion in history, furthering our digital competitive advantages and expansion of our merchandise differentiation against the competition of through powerful owned and exclusive brands. Looking back to a year ago, pundits questioned whether the behavior shifts related to COVID lockdowns would generate abandonment of physical retail shopping towards digital only. With reopening at Petco, we now know the story is a very different one. Pet parents have come back to our pet care centers in droves. They've come back to get advice on what's the best food for Ivan the Doberman. They've come back to get Coco the Maltese groomed. They've come back so that Tango the Tabby can receive high-quality care in one of our vet hospitals or immunizations at our Vetco clinics. And they've come back because their pets just love being in our pet care centers. All of this is driven by our incredible, knowledgeable, and passionate partners, but they've also come back because we offer an omnichannel experience like no other in the category. While we have great offerings for all customers, for those 39% of customers stating they want to shop in an omnichannel manner, there is no one that compares to Petco. This provides us with a growth runway for years to come. I couldn't be more proud of how our 27,000 plus partners continue to execute with excellence. Rallying together to deliver our 11th consecutive quarter of comp growth. Our transformation from a traditional retailer into a disruptive, integrated, omnichannel provider of veterinary care, services, and premium products is tangibly driving performance. Our differentiated model with powerful marketing is enabling customer acquisition and increasing spend with strength in both basket and transactions on both the one-year and two-year stack basis. powered by growth in recurring revenue and loyalty programs. We exited Q2 with momentum, even as we're lapping last year's strong double-digit comp growth, including last July, where the comp was especially strong. And that momentum is carried into Q3, reassuring signals that we can lap the second half of the year strongly, giving us confidence to raise our full-year guidance beyond the Q2 beat. which Mike will discuss in a few minutes. Importantly, we have significant runway for continued growth as we execute against our proven multi-year transformation strategy across services, veterinary care, digital, owned and premium brands, and more. An area of particular focus is pet health. It represents a combined total addressable market of almost $50 billion. In the $35 billion veterinary part of the space, we're attacking the largest bucket of addressable market, executing the fastest national vet hospital rollout with 155 hospitals at the end of the quarter, rapidly expanding our vetco clinics from 800 pet care centers at the beginning of the year to 1,100 at the end of the quarter with continued headroom for growth. The $11 billion prescription drug and food market, where we've historically been underdeveloped, provides us with tremendous headroom for growth, and we're getting after it with 50% plus growth momentum. Scaling veterinary capability coupled with our data on pet parents gives us confidence that we can gain significant share in this market. In prescription food, we're delivering exceptionally high double-digit growth with strong sales online, and in every location where we put a vet hospital, we can now sell prescription food. This will be a predictable and steady growth driver for years to come. In prescription drugs, we're thrilled to have formed a relationship with a best-in-class fulfillment partner in Vetsource, and the early results are promising. In the $2 billion insurance market, where we similarly have immense headroom, it's early innings, but we've doubled our business off a small base. We've built domain expertise and developed a compelling offering aimed at both direct-to-consumer and through employee health plans. We've more than doubled our policies since the beginning of the year. This includes signing on Salesforce and Cognizant, bringing us to a total of 22 companies offering Petco insurance through their employee benefit plans. The pet health space is large and growing, and we're encouraged by the capability and momentum that we've built. Our integrated multi-channel ecosystem is the only offering able to meet all of a pet's needs, something 50% of customers say they want. As a result, pet parents are voting with their wallets. I'm pleased to report that over the last quarter, we continue to acquire significant net new customers. Our successful customer acquisition efforts over the last 12 months have been driven by the strength of our model, our marketing muscle that gets more and more powerful, and tailwinds from an exceptional category that is large and growing, especially as the demand for new pets has continued into 2021. We have been aggressively driving customers into our recurring revenue and loyalty programs, and it's working, with revenue from recurring revenue customers up 60% and recurring revenue customers up 50% year over year. Vital care subscriptions were up to more than 100,000 members since launching at the end of last year, and these customers are spending over three times as much as an average customer, with 25% of them new to food and 36% new to services with Petco. And nutrition and grooming perks loyalty programs have reached over 700,000 members, almost doubling from last quarter and again exhibiting significantly higher spend versus an average customer. Once again, we grew our multi-channel, multi-category customer base double digits, ending the quarter with approximately 4 million multi-channel customers. These customers spend up to seven times as much as single-channel, single-category customers. And the demographics of our customer base are improving as well. Our sales for millennials and Gen Zers continue to grow and have reached what we believe is the highest proportion of a customer base in the pet specialty industry. This is important. as they are major drivers of the humanization trend and therefore shop more frequently and spend more than older demographics. Earlier this month, we were excited to announce the launch of a partnership with Klarna to become the first in the pet industry to provide buy now, pay later options for our customers. This new payment option resonates strongly with millennials and Gen Zers who prefer more flexible payment options versus traditional credit products. Historically, the addition of the Klarna payment option has helped raise average order value by 20% to 80% and improved conversion by 20% on average. We believe this will open up opportunity in higher AOV products like vacuums. We're excited to be a first mover with this payment option for both our customers and the 18.5 million Klarna app customers in North America. Now looking more closely across the business, We're driving tangible growth across our services and vet businesses with revenue growth of 49% versus a year ago and consistent with Q1 and almost 36% growth on a two-year stack. And it continues to be a significant differentiator for us. Our goal is straightforward, to be the leading services and vet provider across an over $45 billion addressable market. We are taking share and driving sales momentum across services by leveraging our pet care center assets and unique capabilities in marketing, technology, and customer engagement in a way that local, smaller, brick and mortar, and online-only competitors just cannot match. We are becoming an employer of choice for vets, trainers, and groomers. We've built out compelling employer value propositions and recruiting core competency that is delivering impressive recruiting and retention results. We now have the highest number of groomers that we've ever had with significant room for additional growth across our salons to meet rising demand. Additionally, we recently launched and funded a scholarship program for high potential partners in our pet care centers to become veterinary technicians with an inaugural class of 100 partners. I'm very proud of this effort. Services and vet are a cornerstone of our pet care center transformation, which we believe is the most compelling per unit productivity enhancement effort in retail. A proven step and repeat formula that represents a strong organic growth runway for years to come. Remember, when we transform a pet care center, we achieve a mid-single digit merchandise lift that is additive to the attractive economics within the four walls of the vet. Combined, This creates a dramatic lift in incremental market share. The return of retail traffic continues to drive strength in our brick-and-mortar merchandise, with revenue up 17 percent year-over-year and 21 percent on a two-year stack, with double-digit growth in all of our major categories, including consumables, supplies, and companion animals. There was particular overperformance in consumables. We saw strong results across owned and exclusive brands, which were up double digits. as well as premium and super premium brands, which were up over 20% versus last year, driven by outsized growth of our best premium food and treats brands, our customer analytics, an exceptional experience within our pet care centers, and tailwinds from pet humanization. Fresh and frozen, which was up more than 50% year over year, and today we are the number one pet specialty retailer in the fresh and frozen category, supported by our unique omni-channel fulfillment strategy, including same-day delivery. We're focused on continuing to be a market maker in the more human-like fresh, refrigerated, and frozen space with a full spectrum of exceptional brands like Just Food for Dogs, Fresh Pet, and Instinct. Our Just Food for Dogs kitchens and pantries are now in 468 pet care centers, and we're expecting to end the year with roughly 700 locations, complementing our nationwide fresh and refrigerated footprint. Impressively, we have more than doubled our revenue in this category over the last year. Our digital business just posted what we believe is one of the highest two-year revenue growth rates for any business in the category at 138% or 150%, excluding the sale of our live Aquaria business we exited a year ago. We've made significant improvements in customer experience, expanded our brand assortment, gotten our pricing where we want it, and driven tremendous growth in app downloads. Suffice it to say, our omnichannel model is working. App downloads were up over 100% versus last year to 4.4 million, and our care reminders are driving stickiness and spend. We're the only pet specialty player providing 360-degree reminders for all of a pet's health and wellness needs, including grooming, flea, tick, vaccinations, and merchandise. And we believe that will drive meaningful growth and customer engagement over time. Further, our app serves as the hub of our ecosystem where pet parents can purchase, schedule a groom, schedule vaccinations, and receive personalized care reminders. Just last week, a push notification reminded me that I was six weeks out from my last groom from iLab Yummy, a great reminder for me and a driver of increased frequency for Petco. Additionally, a growing international business continues to be a bright spot. Through our joint venture with Grupo Gigante, Petco Mexico, the on and offline leader in Mexico, grew double digits year over year. And with Canada's reopening, we're excited to see our business with Canadian Tire resume its growth trajectory. With the Delta variant driving increased case counts across the country, the health and safety of our partners, guests, and animals in our care remains our number one priority. Our business has benefited from both the stay-at-home and reopening environments, but we remain diligent in our health and safety protocols and continue to encourage our partners to get vaccinated, providing incentives and time to get vaccinated. Overall, we feel confident in our ability to manage the current market environment as we have over the last 16 months. On inventory, yes, things have been tight. Not one of our vendors could have reasonably planned their capacity for this many more new pets to households. We've been wholly focused and successful working with our vendors to get available inventory and converting customers to the products that are in stock. Our digital and PCC teams are so trusted and adept at directing demand that they create a competitive advantage, enabling us to gain share and deliver strong comps in this tight environment. Similarly, as vendors have passed through higher costs, we've seen early success at passing through these costs. And in aggregate, we have not seen impact on unit volumes, which is great to see. Additionally, the promotional environment has remained very rational, with promotional activity down a point or two versus last year. As I mentioned earlier, purpose-driven performance combines our operational excellence and strong financial results with an unwavering commitment to improving the lives of pet, pet parents, and our own Petco partners. In terms of purpose, we're progressing on our mission to save pet lives. Earlier this week, the Petco Love Foundation announced a significant partnership with Merck to make over 1 million life-saving vaccinations available to pets. Petco Love is working with community-based animal welfare partners across the country to distribute these much-needed vaccinations, something we believe gives all pets the best chance to live long and healthy lives. And as a native New Yorker, we've been partnering with the City of New York to help provide a safe place for pets and pet parents to escape the extreme heat by opening pet care centers as pet-friendly cooling stations. We are also investing to improve the lives of those who work at Petco, and these investments in areas like pay raises, bonuses, enhanced benefits, and career development opportunities are paying off in a tight labor market, delivering on our partner promise that as Petco does better, so will our partners. As a result, hiring and retention are above 2019, and we saw a more than 70 percent increase in pet care center applications in the second quarter versus the beginning of the year. In line with our commitment to improve racial equity, diversity, inclusion, and belonging, year to date, over 50 percent of our director and above new hires and promotions have come from underrepresented populations. This will continue to be a strategic focus. And to protect the planet, we are executing against our commitment to increase our assortment of sustainable products to 50% by 2025, an area where Petco is leading. As part of this initiative, we recently announced our first-ever Sustainability Vendors Summit to be held on September 22nd. To close, we are keeping Petco's terrific people, customers, and the animals in our care as safe as possible. Our category is growing rapidly, and our obsessive execution against our unique model is enabling us to gain share. This, in turn, is enabling us to deliver outstanding results. Importantly, we are just getting started. Our transformation towards the only digitally-led services and differentiated merchandise one-stop ecosystem will drive strong growth, not only in the second half, but long into the future. Now, before I turn it over to Mike to walk you through the CFO portion of our quarterly results, I'm pleased to announce a career progression for Mike and promotion for Brian LaRose. Mike has been wearing many hats for us as we navigated our turnaround, refinancing an IPO. Three hats, to be precise, CFO, COO, and President of Petco Services. With our tremendous progress against those, Mike wanted to focus 100% of his time on being an operator. With our accelerating shift towards services, including the scaling of a major vet network and expansion at-home services, as well as reshaping our supply chain to meet the needs of the larger, faster-growing company that we are today, Mike's complete focus on these areas will be invaluable. Mike has been and will continue to be an important partner to me, the CFO, and the business overall. Correspondingly, Brian LaRose, who has run Petco's finance and IR functions for the last year and who many of you have met, will become chief financial officer of Petco, reporting to me. We're so fortunate to have a leader of Brian's caliber taking on this role. Brian brings a wealth of expertise across operations, accounting, M&A, and investor relations from Deloitte and HP, where we work together. Brian has led our financial planning and played an integral role in our refinancing and IPO, with an end result being a dramatically improved balance sheet and fantastic roster of investors. I want to express my deepest gratitude to Mike on behalf of both the Board of Directors and the leadership team at Petco for carrying such a broad portfolio for the last year. We are so fortunate to have both of these leaders on our team, and I'm pleased with the smooth and planned transition. With that, I will turn it over to Mike.