Petco Health and Wellness Company, Inc.

Good afternoon, and welcome to the Petco third quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. I would now like to turn the conference over to Lisa Stark, Senior Director of Communications. Please go ahead.

Good afternoon, and thank you for joining Petco's third quarter 2024 earnings conference call. In addition to the earnings release, there is a presentation available to download on our website at ir.petco.com, summarizing our results. On the call with me today are Joel Anderson, Petco's Chief Executive Officer, and Brian LaRose, Petco's Chief Financial Officer. Before they begin, I'd like to remind everyone that on this call, we will make certain forward-looking statements, which are subject to a number of risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties include those set out in our earnings materials and SEC filings. In addition, on today's call, we will refer to certain non-GAAP financial measures. Reconciliations of these measures can be found in our earnings release, presentation, and SEC filings. And finally, during the Q&A portion of today's call, we ask that you please keep to one question and one follow-up. With that, let me turn it over to Joel.

Thank you, Lisa. Good afternoon, everyone, and thank you for joining us today. Our third quarter results came in slightly ahead of our expectations. as we more effectively navigated a dynamic consumer environment and the actions we are taking to strengthen our retail fundamentals and drive cost out are beginning to take hold. Revenue was 1.51 billion, up 1%, driven by consumables and services. Gross margin expanded 130 basis points to 38.1%. Driven by progress on product cost management, and improvements in services margin. Adjusted EBITDA was $81.2 million. While there is much more work to do, our improving results increase our conviction that we are on the right path as we position Petco to win. Throughout the quarter, I spent a significant amount of time meeting with teammates across the organization, from working alongside our associates in our pet care centers to visiting our distribution centers to hosting small group listening sessions at our support centers. I've witnessed firsthand the passion our people have for pets and the dedication they bring to serving our customers. Importantly, it's exciting to see the entire organization rally behind our plans to drive operational and financial performance improvement. On our call, I outlined our commitment to resetting the trajectory of our business on the last call. Today, I will share specific areas of opportunities, discuss developing plans to drive improvement, and holding ourselves accountable while we're on the path to returning to long-term, sustainable, profitable growth. Our initiatives are currently focused on three critical areas, merchandising, servicing our customers, and driving efficiency across our business. Allow me to provide you with an update on each, including specific examples. First, improving merchandise remains the greatest near-term opportunity for us to strengthen profitability. I'd like to take this moment to thank our merchandising team, along with our merchant vendor partners, for their collaboration and support as we take the necessary steps to make Petco a better retailer, employer, and partner. We're optimizing our assortment to be aligned more closely with customer demand and make it easier for them to shop with us. In support of this, we completed a detailed review of our assortment across both consumables and supplies and have identified several opportunities to enhance our offering. Key focus areas for us include creating more space on shelves for faster turning SKUs, as well as reducing skews in certain categories to simplify the customer's decision-making process. In addition, I've met one-on-one with several of our vendors in order to directly learn how we can improve our relationships. As consumers continue to be judicious in their spend, we have to meet them where and when they want with the value they're looking for. We've implemented new processes to deliver timely product resets that allow us to offer more exciting products. We're also sharpening our approach to pricing to remain competitive in the market and drive financial outcomes for Petco. To date, we put in place stronger pricing guardrails, implemented more robust reviews of our pricing gaps, and established processes for promo and assessments. An example of our merchandising work in action is the recent launch of our Welcome to the Family program, given the importance of first-time pet ownership. We designed this program in partnership with our key vendors, as well as our expert vet, training, and grooming teams to provide dog and cat parents with guidance, resources, and savings on new pet essentials and services. Second, to win in today's retail environment, we must improve the way we service our customers across our pet care centers, online, and in our services platforms. From my time spent working in our pet care centers, I observed several opportunities to drive greater consistency across the entire footprint, which will generate savings that can be reinvested into the customer experience and strengthen profitability. Let me share several examples of where we are making meaningful improvements to better serve our customers. We've set new standards for our labor model to staff our stores, and in a way that allows our partners to spend more time with the customers and less time on tasks in the back of the store. This extends to store leadership, where we're reducing tasking, administrative responsibilities, and overall complexity for our general managers. Bringing them up to spend more time leading their teams and driving store productivity. Additionally, leveraging automation to standardize the online order fulfillment process in our pet care centers is one area in particular I see significant potential. Finally, in services, our vet offering remains a key growth driver and differentiator for Petco. Services revenue was up 9%. with strength across both hospitals and Vetco mobile clinics. As our hospital fleet continues to mature, our services team is focused on accelerating utilization to support structural margin improvement of our vet hospitals and ensure we can meet the growing demand for our customers in a timely manner. And we're leveraging our vet customer data to better understand their purchasing patterns, inform how we engage with them, and ultimately, drive greater wallet share. These initiatives are having a direct impact on our top and bottom line as we're creating more selling opportunities for partners while simultaneously driving greater efficiencies. Turning to our third commitment, driving greater efficiencies across the business to bend the cost curve. Within merchandising, we're taking action to improve our commercial execution. In Q3, we completed key vendor negotiations, and we're pleased with the outcome as we continue to strengthen our vendor relationships and differentiated merchandising offering. In our supply chain, we're renegotiating multi-year contracts with our shipping partners, reducing split shipments, and driving incremental improvements in distribution center labor to reduce cost per shipment and improve speed of shipping. In that We're closely measuring performance at the individual hospital level, providing us greater visibility into the needs of each hospital and the staffing required to maximize efficiency and productivity. We believe there is significant opportunity to improve the profitability of the existing fleet by ensuring hospitals remain staffed and are supported through marketing and merchandising efforts. And we're taking action to professionalize our procurement team. As a start, We've requested contract negotiations and conducted RFPs across a broad selection of medium to large-scale indirect procurement partners. We're pleased with the engagement and the outcomes we're seeing so far. Overall, our cost initiatives are well underway and tracking against our prior expectations. Importantly, these aren't just one-time savings. These initiatives are designed to fundamentally change the way we think and work to consistently identify areas of opportunity to unlock long-term value. This redefinition of retail fundamentals is expected to have an enduring impact on our people and culture, leading to greater accountability and transparency. To further ensure our success around our three initiatives of merchandising, servicing our customers, and driving efficiency, we've added two key executives. Leadership is critical to shaping the direction of the business, and I'm pleased with our recent hiring of two new leaders that will help us realize our full potential. We named Joe Venezia, Chief Revenue Officer, a newly created role in charge of developing the integrated strategies for improving the customer experience and driving revenue across the organization. Joe will oversee these critical areas that contribute to Petco's growth. including the pet care centers, services, real estate, and customer success capabilities. Dan Calista also has joined us as our Chief Strategy and Transformation Officer. In this role, Dan will be responsible for building the internal capabilities we need to get our fundamentals right, maintaining accountability to our ongoing transformation, and positioning ourselves for growth. These hires are underscore our top priority for improving profitability through structural cost out while positioning Petco for growth. It's still early days, but our actions are beginning to take hold. We're setting ourselves up to play offense as we build momentum into fiscal 2025. Before I close, let me leave you with this. Having been in the role for over 100 days, I can say with conviction and certainty that And I'm more excited today than I have ever been on our potential here at Petco. The time I spent working alongside our associates showed me how their knowledge, expertise, and simply raw passion for improving the lives of pets and their parents is unlike anything else in the industry. This enthusiasm that sets us apart makes me confident in our trajectory. With that, Over to Brian to provide more details on our financial performance and guidance. Brian?