Pet Valu Holdings Ltd.

Good morning, everyone, and thank you for standing by. Welcome to PEC Values fourth quarter 2025 earnings conference call. My name is Harry and I'll be coordinating today's call. All lines have been placed on mute to prevent any background noise. Please note that following the formal remarks, there will be a question and answer session. If you would like to ask a question at that time, please press star one on your telephone keypad. If you're using a speakerphone, please lift the handset before pressing any keys. We kindly request that you limit your time to one question, plus a follow-up before cycling back into the queue, so that we allow time for as many of you to ask questions as possible. I would now like to turn the call over to James Allison, Investor Relations at PetValue. Please go ahead, Mr. Allison.

Good morning, and thank you for joining PetValue's call to discuss our fourth quarter 2025 results, which were released earlier this morning and can be found on our website at investors.petvalue.com. With me on the call is Greg Ramier, Chief Executive Officer, and Linda Drysdale, Chief Financial Officer. Before we begin, I would like to remind you that management may make forward-looking statements, which includes guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties, which could cause actual results to differ materially from those expressed today. For a broader description of risks related to the business, please see our Q4 2025 MD&A 2025 Annual Information Forum and other filings available on CEDAW+. Today's remarks will also be accompanied by an earnings presentation, which can be viewed through our live webcast and is also available on our website.

Now, I would like to turn the call over to Greg. Thank you, James, and good morning, everyone. I'll start by reviewing some of our key highlights from Q4 and 2025 before handing it over to Linda to discuss our financials and outlook for 2026. 2025 marked another dynamic year in Canadian pet as macroeconomic uncertainties drove an environment where devoted pet lovers required higher quality and lean more heavily into value. I'm proud of the decisive actions we took to meet this immediate need, providing the highest quality products and everyday value, especially through our proprietary brands. We also continue to invest in our future by strengthening our omnichannel offering through new stores and online delivery platform options, differentiating on quality with exciting new product introductions, enhancing our expertise with investments in culinary, all the while supporting the success and profitability of our franchisees. This comprehensive strategy is helping us grow share by staying focused on winning the monthly shop. while we reinvest in our assets so that we and our franchisees can continue to capture profitable growth over the long term. Together with diligent cost control, we were able to adapt well to 2025 dynamics and deliver full year revenue and adjusted EBITDA within our original guidance ranges, while generating compelling free cash flow to fund record returns to shareholders of over $120 million in buybacks and dividends. Looking specifically at the fourth quarter, we saw heightened levels of consumer value seeking behavior and specific competitor responses chasing value driven sales. This alongside with our everyday value and promotional plan weighed on our same store sales growth. While the end result didn't achieve the bar we had set for ourselves, what this figure doesn't show are the encouraging underlying factors that tell us we've got the right strategy to win in this environment. First, We once again grew share with more devoted pet lovers choosing pet value, especially for their monthly shops. Second, we saw momentum in our units per transaction or UPT reaching a multi-year high, a direct result of our focus on compelling targeted promotions and in-store execution. Third, our consumable sales were once again led by our proprietary brands, driving deeper customer loyalty. And fourth, our supply chain investments continue to yield savings, which together with good cost control, help partially offset margin pressures and safeguard profitability. These trends show we are responsibly balancing near-term investments to maintain monthly food shops with our most loyal customers while leveraging promotions to add to the basket to drive UPT and get volume leverage through our world-class supply chain. We are strengthening the foundation from which our momentum will build as confidence and spending conviction improve within Canadian Pet over time. Let me share a few of our operational highlights from the quarter and year, which help support our continued resilience in making pet value one of the strongest pockets of growth within Canadian Pet. Further increasing our competitive advantage as Canada's local and everywhere pet specialty retailer, we and our franchisees open 14 new stores in the quarter. hitting our target of 40 stores in 2025. With 863 sites coast to coast, we have almost four times as many locations as our nearest pet specialty peer, bringing us closer to our customers every day. We resold eight corporate stores to franchisees in the quarter, showcasing ongoing strong interest in capacity from new and existing franchisees who form a core element of our continuing success. With over 2200 inquiries last year, our teams are cultivating a robust pipeline of qualified applicants to whom we can sell stores to in the future. And in 2026, we will keep building on this strength by opening approximately 40 new stores across Canada, leveraging our strong balance sheet and deep real estate industry connections to find profitable new growth opportunities while other pet retailers may be retrenching. Momentum in our digital channel continued as we elevate and leverage our capabilities. In the wake of the success we saw in our limited time auto ship offers through the fall, we thrilled customers with 20% off click and collect orders in December, driving a strong response and new customer acquisition. This offer really leaned into our strengths, providing us with a competitive edge online while driving traffic into our already convenient stores. We also successfully onboarded DoorDash and Reads mid-quarter, expanding the reach of our ecosystem. Our third-party market share tracking shows that our online growth continues to outpace the channel, highlighting how our omnichannel model is meeting customers where and when they choose to buy, in-store or online. We also advanced our focus to provide the best pet customer experience in Canada. with value at the forefront of consumers' minds, we delivered, leading with our proprietary brands. Following actions taken in the spring in our Performatron Prime portfolio, we made targeted investments in Q4 across select SKUs in our Performatron Ultra and Naturals brands to create compelling entry points for customers looking for high-quality alternatives at lower prices. By strengthening our proprietary brand portfolio, we are creating deeper customer loyalty furthering our advantages in winning the monthly shop. Altogether, we're pleased with the performance in our proprietary brands, which increased roughly 200 basis points in unit penetration in 2025, with more progress to come in 2026. On the promotional front, we executed an exciting agenda with weekly deals, a stronger year-end seniors day offer, and the 20% off Click and Collect event mentioned earlier, all of which were supported by our 360 degree activation that helped keep us top of mind during the promotional holiday season. Loyalty sales penetration reached another all-time high of 88% in 2025, as our over 3 million active members responded to our expanded portfolio of brands eligible for our popular frequent buyer program. The data collected through our program provides a fantastic opportunity to deliver more personalized and meaningful value. And we're leaning into this more every day, testing breed specific and cross-sell opportunities. And finally, we completed our initial rollout of our enhanced culinary experience in the quarter, bringing us to 120 corporate stores, along with an initial group of 13 franchise stores in 2025. Culinary continues to be one of our fastest growing segments and these stores are outperforming the company average in both culinary specific and total sales. We are now beginning this rollout with our franchise network with roughly 40 projects planned in 2026. Turning to how we fortify strong wholesale and retail fundamentals. With the completion of our distribution network transformation, our supply chain teams have now fully shifted from implementation to optimization mode, focused on extracting further benefits from our investments. We continue to grow our wholesale penetration across our franchise network, in particular with our Chico franchisees, which helps sustain revenue growth ahead of system-wide sales again in the quarter. We believe there is still plenty of opportunity here and expect the gap between revenue and system wide sales growth seen in the latter half of 2025 to be more indicative of what's to come over the medium term. For me, a particular bright spot in the quarter was the leverage we achieved in distribution costs, fueled by productivity and efficiency improvements. These are the benefits we envisioned at the outset of our supply chain transformation. and are proving especially powerful in today's environment, enabling us to compete profitably against peers without this tailwind. We have increased our throughput by more than 60% from our pre-transformation baseline on a per-labor-hour basis, helping drive down variable costs while adapting to changes in an uneven demand environment. Our supply chain team is now turning their attention to opportunities in labor and transportation management processes to be implemented over the coming quarters and years, supporting a long tail of further productivity opportunities ahead. And finally, late in the quarter, we commenced initial steps towards the implementation of our new finance system, which will support our growing and evolving business alongside other systems investments we've made over the last several years. Linda will touch on this shortly. As we begin a new year, 2026 marks an incredible milestone for us, our 50th anniversary. That's half a century serving devoted pet lovers, half a century building Canada's leading omnichannel offering in Canadian pet, and half a century of memorable moments. While we celebrate our accomplishments from the last 50 years, we look forward with tremendous excitement and anticipation for what the next 50 have in store for us. And that all starts with our plans for this year. To recap some of the highlights that I provided above. We will continue to invest in our convenience through approximately 40 new stores and empower our online capabilities to meet or exceed customer expectations through our ever improving omnichannel tools. We will continue to deliver everyday value through our high quality proprietary brand products and new programs like our item of the month. while thrilling customers with exciting events like our participation in Tim Horton's iconic Roll Up to Win contest. We will continue to bring greater quality through innovation in both consumables and hardlines, delivering the breadth of products our devoted pet lovers expect to see. We will continue to evolve our in-store model with a phased rollout of our enhanced culinary experience within our franchise network and enrich our expertise through continued investment in our animal care experts. And we will continue to drive increasing productivity benefits from our supply chain investments as our teams move fully from build to optimize. Not only in our distribution centers, but also through further labor and transportation management investments. This will all support what we expect to be an exciting year, contributing towards solid revenue and profit growth. Before I pass the call to Linda, I'd like to note the restructuring charges we took at the end of 2025. Just as our environment has evolved over the last several years, so have the capabilities, plans, and needs of our business as we chart our next chapter of growth. Together with Linda and our executive team, we carefully reflected on this and believe these actions will reposition resources and talent to both win in today's competitive marketplace and drive profitable growth over the long term. We're grateful for the work contributed by those that departed, and we are equally excited by the team and capabilities we're putting in place as we move forward. And with that, I'll pass it over to Linda to review our financials and 2026 outlook. Linda.