Petco Health and Wellness Company, Inc.

Good afternoon, and welcome to the Petco first quarter 2025 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by a 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 telephone keypad. To withdraw your question, please press star, then two. Please note that this event is being recorded. I would now like to turn the conference over to Tina Romani, Head of Investor Relations and Treasury. Please go ahead.

Good afternoon, and thank you for joining Petco's first quarter 2025 earnings conference call. In addition to the earnings release, there is a presentation available to download on our website at ir.petco.com. On the call with me today are Joel Anderson, Petco's Chief Executive Officer, and Sabrina Simmons, Petco's Chief Financial Officer. Before we 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 filing. With that, I'll turn it over to Joel.

Good afternoon, everyone, and thank you for joining us today. As I discussed with you at the start of the year, we have a unique opportunity to reinvent our iconic brand for the future and position the business to regain share in the large, highly fragmented, and resilient pet market. We are taking a multi-phased approach to this work through improving our operating model, giving our stores a voice, and restoring retail fundamentals. Our first quarter performance reflects these ongoing efforts as we delivered top line results in line with expectations, but most importantly, over delivered on our profitability goals. This is a great testament to how our teams across the organization are coalescing around our overarching goal of delivering profitable sales growth while operating with discipline. I'm proud of our team's dedication, agility, and execution in delivering on our commitments. During the quarter, I had the opportunity to spend time with our district managers and our service leaders at our field leadership team meeting. We brought our stores and service leaders together for the first time ever. I saw firsthand the energy that was created by connecting as one Petco team, and was motivated by the work underway to simplify our operations, strengthen our retail and services foundation, and get back to our roots. Our first quarter results bolster my confidence that we have the right strategy in place and a re-energized team that shares a collective commitment to unlocking Petco's full potential. With phase one complete, and a highly experienced leadership team in place, our full attention has quickly turned to phase two. This phase is all about implementing and executing the multiple work streams we identified in phase one to improve our overall retail fundamentals and financial performance. Set another way, we are putting our work into action and seeing our customer respond and react in real time. The examples I will share with you today all represent foundational building blocks that will support us when we transition to phase three, focused on growth. Before getting into the progress against phase two, I'd like to spend some time on sourcing and the progress we've made to preserve maximum flexibility in the face of tariff uncertainties. Our cross-functional teams across merchandising, assortment planning, supply chain, finance, and operations have mobilized together to identify various contingency plans and mitigation strategies. We are leaning into our longstanding scale vendor relationship, and we truly appreciate their partnership as we navigate ongoing fluid dynamics and uncertainty. The current environment has served as a catalyst to accelerate work that was already underway as we strengthen our operating fundamentals. We are working towards building best in class product cost management, pricing capabilities, and centralized operating principles to our product import process, just to name a few. I'm proud of the work the teams have accomplished to date. Pleased to see them harnessing the energy that comes from seeing their work positively impact our results. Our ability to reiterate our full year outlook despite absorbing the impact of tariffs currently in place, illustrates the meaningful progress we've made. Now, turning back to phase two, which is all about implementing and executing, merchandise excellence is at the forefront of this work. As I discussed last quarter, we are optimizing our product assortment to more closely align with consumer demand, and we are allocating more shelf space to hire productivity brands and SKUs. Let me give you a couple examples the teams executed on since our last call and that you can already see in our stores. First, we completed our cat category product reset at the end of May. Second, we kicked off our dog category reset this week. Both are being executed earlier in the year than we had done previously. While there are many elements that go into a planogram reset, key focus for this year centered around adding capacity for top-selling SKUs through both lower productivity SKU rationalization and increased shelf space. Let me give you one simple but powerful example. As we complete the dog food reset, you will see our shelves move about six inches higher. While this may not seem material, It allows us to remove a lot of airspace throughout our dog consumable department and increases shelf capacity by more than 10%. This example demonstrates how detailed the teams are in fixing every part of our business. Increased capacity drives both operational improvements and customer experience enhancements. Operationally, we are reducing lost sales from on-shelf stockouts. and improving labor productivity by eliminating constant or continuous shelf replenishment between truck replenishments. From the customer perspective, we are improving shop-ability with higher in-stock availability. When you put all this together, it reinforces Petco as a reliable destination for all our customers' pet care needs. Another example you will begin to see in stores this quarter With a continued rollout throughout the year is a more strategic approach to end cap displays. Historically, our end cap displays were more transactional agreements with our vendors without a customer lens. Today, we are implementing a more strategic sales-focused approach that is mutually beneficial to Petco, our vendor partners, and most importantly, our customers. We will leverage NCAP displays to highlight newness, spotlight innovation, feature seasonal offerings, and promote value. I encourage all our vendors to bring forth ideas of newness and innovation that can create a physical spotlight for our customers' needs to better serve their pets. Next, services, the fastest growing area of the pet category. In my view, Our services offering is what fortifies our competitive moat. We have an established leadership position and a differentiated model of owned grooming and vet locations at scale. During phase one, we identified several opportunities for improved productivity and have already implemented several of them. For example, our grooming software has been upgraded to allow more flexibility for online appointments. With over 40% of our appointments made online, it is important our pet parents constantly see multiple open time slots so they don't consider an alternative grooming solution. On the vet side, we've made several software enhancements to our vet scheduling system to ensure we have better coverage. I believe our industry-leading services offering, once optimized, will be a key driver of in-store customer traffic. customer retention, and loyalty over time. Our aim is to provide a comprehensive ecosystem that embodies our mission to improve the lives of pets and pet parents. Services remains our fastest growing business and continues to deliver positive growth. Additionally, we are pleased with the productivity improvements seen in both hospitals and grooming operations, supporting gross margin expansion in the quarter. With respect to operational efficiencies, as you've heard me talk for several quarters now, we're instilling an owner's mindset when it comes to cost discipline. Though we've made some great progress in areas like marketing, store expenses, and supply chain, we have more opportunity ahead and are leaving no stone unturned across the organization. In light of a more uncertain macro environment, this work is paramount. I'm impressed with how our teams have come together, working cross-functionally and in a more coordinated fashion with everyone driving towards the same objective. Specifically, the operations team, led by Joe Venezia, our Chief Revenue Officer, is working on three areas of improvement. Store simplification, retail excellence around leveraging the one Petco way, and customer engagement. All three of these work streams were kicked off at the field leadership meeting I discussed earlier. Since joining last year, Joe has quickly assessed the opportunities and is unifying both the services and operations team to make quick and lasting operational efficiencies. As we enter the second quarter and move into the back half, we remain focused on positioning the business for a return to offense. But it is important to remind you that improving our retail fundamentals and delivering better financial performance is our first priority. We will continue driving productivity while beginning to seed and test revenue growth initiatives across product innovation, marketing, and store experience. Finally, let me conclude our phase two progress from a customer lens. The Petco brand marks the 60th anniversary this year. This is an amazing milestone not many retailers reach. With our rich heritage, we have an obligation to serve our customers a robust assortment of solutions-based and trend-right product with a compelling value proposition, and we see significant opportunity to continue to improve on this front. Let me give you some specific examples of customer-facing areas you should expect to see change. Number one, our stores over time will feature increased newness and more fun product with the convenient weekly consumable items they count on always being in stock. Number two, our marketing message will be evolving to a more solutions-oriented framework showcasing our comprehensive offerings. And number three, a new membership program is being designed to create a more personalized, long-term loyalty experience with an expected launch in 2026. In addition, our North Star work, which we expect to complete in the back half of 2025, has helped us better understand the customer segments we can own. We are in the midst of conducting both qualitative and quantitative analysis that will inform both our strategy and our customer engagement going forward. Results of this work will be foundational to informing our Phase 3, a return to growth. These examples demonstrate that while we are moving fast to improve productivity and deliver better financial performance, we're equally now focused on identifying areas to grow and how to better communicate with our customers. We will be unified in our message to include both online and in-store and utilize a test and learn approach to ensure these changes truly resonate with our customers. We look forward to sharing more as this evolves on future calls this year. So in summary, 2025 is a year of transformation for Petco. I'm incredibly pleased with the work accomplished to date, which you can see in our Q1 results. This is especially gratifying as it's all been done while we navigate today's evolving trade environment. Our leadership team and our board are aligned to the same goal of returning Petco to an industry-leading destination for pets and pet parents. I want to thank our nearly 30,000 Petco partners for leaning into our transformation while simultaneously delivering customers the service and experience they look to Petco for. Acknowledging there is work ahead, I'm confident in the detailed, multi-phased approach currently in place. I'm pleased with the progress to date and optimistic in Petco's ability to reach its full potential over time. With that, I'd like to turn the call over to Sabrina, who will review the financials in more detail.