Pet Valu Holdings Ltd.

Good morning, everyone. Thank you for standing by. Welcome to Pet Value's second quarter 2026 earnings conference call. My name is Cherie, and I will be coordinating today's call. All lines have been placed on mute to prevent any background noise. Please note that the following remarks, after the following remarks, there will be a question and answer session. If you would like to ask a question at that time, please press star 1 1 on your telephone keypad. If you are 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 as much time as for many of you to ask questions as possible. I would now like to turn the call over to James Allison, Vice President of Investor Relations and Treasury at Pet Value. Please go ahead, Mr. Allison.

Good morning and thank you for joining Pet Value's call to discuss our second quarter 2026 results, which were released earlier this morning and can be found on our website at investors.petvalue.ca. 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 include guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties, which would cause actual results to differ materially from those expressed today. For a broader description of risks related to our business, please see our Q2 2026 MD&A, 2025 Annual Information Form, and other filings available on CDAR+. 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 am pleased to report our second quarter results which showed an inflection in profitability compared to our Q1 trend. Gross margins improved to 32.5% and adjusted EBITDA margins reached 22.4% all while maintaining solid top line momentum and further market share gains. These improved outcomes were direct results of the actions we took to execute our strategy while adapting to today's demand and cost environment. Let me call it a few highlights. First, we made calibrated adjustments to our commercial plan through the second quarter. We delivered value where it would have the biggest impact for devoted pet lovers, all while encouraging a stable trading environment and providing room for our strengths in quality pet products and expert advice to shine. Second, our team sharpened their focus on cost management. Leveraging our position as one of the fastest pockets of growth within Canadian Pet, we work closely with strategic specialty pet brands to mitigate rising product and fuel costs, helping us deliver value at more competitive investment levels. Third, we drove a fourth consecutive quarter of distribution cost leverage unlocked by our supply chain transformation. with much more benefits expected to come. And fourth, we were very active on corporate store resales, with a record tying 11 locations sold in the quarter to new and existing franchisees, including the first resales under our Chico banner. The impact of each of these tailwinds was amplified by another quarter of solid top line growth and market share gains. Revenue grew almost 4%, supported by our proven strategies, Network expansion into growth markets, momentum in e-commerce, and rising wholesale penetration as our franchisees ordered more through us. Same-store sales trends were largely consistent with Q1, despite lapping our strongest comp of 2025 in the second quarter and ongoing value-seeking consumer behavior following the rise in fuel prices. We believe our ability to maintain consistent same-store sales growth demonstrates the resilient appeal of our value proposition as we deployed a more balanced commercial plan in the quarter. Once again, we were pleased with the composition of these sales as we grew share of wallet with our loyalty customers, converting more to monthly shoppers. And while higher fuel prices shaped purchase frequency, we grew tonnage as devoted pet lovers stocked up when they shopped with us. At the same time, we executed on each of our three main themes underpinning our long-term strategy. First, to be Canada's local and everywhere pet specialty retailer. We opened seven stores in the quarter, bringing us to 15 new stores so far this year. As I mentioned earlier, we are expanding into resilient, growing markets, such as Alberta, as well as rural towns, which have historically been underserved by pet specialty. We ended the quarter with 877 locations coast to coast, 71% of which are franchised, representing a slight uptick in penetration from Q1 due to the pace of corporate resales. This is a particular highlight for me as it demonstrates the strong interest we see from new and existing franchisees to invest in our business. This is due in large part to the close relationship we share and the long-term commitment we place in achieving joint success with our franchisees. The growing scale of our store network is paying dividends within our digital channel, where demand for online delivery platforms and click and collect help drive record growth. We are pleased with the momentum in both of these areas, where support from limited time offers drove excitement and adoption of those platforms. At the same time, our auto ship subscription service continues to grow, both in absolute dollars and as a proportion of our digital sales, as more devoted pet lovers leverage its convenience for their reoccurring orders. Moving to our second focus, to deliver the best pet customer experiences. Our merchandising, marketing, and in-store teams continue to do what they do best, curating a strong selection of high quality and innovative products, delivered with helpful advice and exceptional value. Their efforts in the second quarter centered on delivering value more effectively, leveraging our scale, and working with specialty brands to deliver exciting programs. In hard lines, our refreshed go-to-market strategy continued to take shape. We saw further momentum in our recently introduced Item of the Month program, providing devoted pet lovers with low price point, High Appeal Hard Goods to add to their baskets. On the back of this program's success and the long-standing popularity of our Tree of the Month program, we will be expanding these programs into our Chico banner in Quebec as we increasingly leverage our scale and expertise to better serve Quebec's pet parents. We were also pleased with our performance in toys, which grew nicely in the quarter. The resurgence of this category has been led by key national brands, several of which were introduced late last year, injecting newness and excitement into our offering. In consumables, culinary was a standout once again, with our enhanced in-store experience amplifying sustained demand from devoted pet lovers. As the fastest pocket of growth within consumables, it is clear pet parents remain committed to providing better nutrition for their pets and are choosing pet value to help meet these needs. We expect these trends to continue, supported by key category extensions such as our recently introduced Performatron Culinary Frozen Raw for Cats and Frozen Goat Yogurt Salmon Bites for Dogs. We also made an exciting advancement on our roadmap to providing greater personalization through our loyalty program. In the quarter, we piloted providing enhanced loyalty data to our in-store aces at the checkout, enabling their ability to deliver service and meaningful conversations at an individual level. This has since been rolled out across most of our network and provides the foundation for incremental personalization initiatives we have planned for later this year. And finally, our third focus, to fortify strong wholesale and retail fundamentals. The most prominent actions on this front center around our supply chain activities, which continue to provide a meaningful tailwind to our margins, even throughout the current higher fuel cost environment. This is being driven by the culmination of multiple initiatives, from the sharpening of our performance management enabled through our new labour management systems, to best practice training across our DCs, to cost avoidance unlocked through our scale. All of these were made possible by our supply chain transformation, with a long tail of further benefits expected over the coming quarters and years. Altogether, our business delivered the improved operational and financial performance we expected in the second quarter. We were pleased with our ability to deliver value to devoted pet lovers, competitive wholesale pricing to franchisees, and return capital to our shareholders through our active dividend and share repurchase programs. With that, I'll turn it over to Linda to dive into the numbers.

Thank you, Greg. I'm pleased to report strengthening financial performance in the second quarter, which was a direct reflection of the planned actions we shared with you back in May. While consumer demand remained challenged from ongoing macro headwinds and higher fuel costs, our calibrated commercial approach and improvements on SG&A leverage delivered a positive inflection in our adjusted EBITDA margin, giving us greater confidence in achieving our full-year guidance. Let me walk through some of the key financial highlights before sharing a few thoughts on our outlook for the second half. Starting with our system-wide metrics, total sales increased 2% to $377 million, supported by contributions from 45 new stores opened over the last four quarters, including seven in Q2. On a same-store basis, sales were essentially flat year-over-year, similar to the trend seen in Q1. We saw improved basket growth trends driven by purposeful adjustments to our commercial plan in the quarter, as well as the lapping of some prior year pricing actions. At the same time, transactions were impacted by a stronger comp, lower non-loyalty traffic, and further trip consolidation following the spike in fuel prices. Same-store performance by category was similar to recent trends. Q2 revenue was $291 million, representing growth of 3.6%, near the high end of our annual guidance. Higher wholesale penetration once again helped us deliver revenue growth ahead of system-wide sales, showcasing our ability to deliver solid, top-line growth despite a tepid sales environment. Gross margin was 32.5%. compared to 33.6% last year after excluding minor non-recurring costs related to the supply chain transformation in the comparable period. The decline in rate was mainly attributable to price investments made in late 2025 and higher occupancy costs tied to greater corporate store count, partially offset by distribution cost efficiencies. Importantly, our Q2 margin represents a meaningful sequential improvement of 110 basis points from Q1. demonstrating the effectiveness of our commercial strategy focused on delivering a better balance of sales and margin dollars. Excluding share-based compensation and costs not indicative of business performance, SG&A expenses were $49 million, or 16.8% of revenue, an improvement of 150 basis points from last year. Great benefited from greater corporate resale activity with 11 store sales in the quarter compared to one in Q2 last year. Without these gains, rate would have been similar to last year, an improvement from the year-over-year pressure we saw in Q1 as our work to tighten costs across our business offset the natural pressure from our higher corporate store count. Adjusted EBITDA was $65 million, an increase of 8% from last year. Adjusted EBITDA margin was 22.4%, up 100 basis points from last year, driven by the favorable SG&A rate improvement I just mentioned. Year to date, our adjusted EBITDA margin sits at 20.9%, in line with our full year guidance. Net income was $25 million, up 14% from $22 million last year. Excluding share-based compensation and items not indicative of our underlying performance, adjusted net income was $28 million, or 41 cents per diluted share, representing year-over-year growth of 7% and 8%, respectively. Turning to our balance sheet and cash flow, our financial position remains strong with $175 million in liquidity and net debt leverage of 2.3 times, including our net lease obligations, consistent with recent trends. As expected, inventory levels improved in Q2, ending the quarter at $134 million, down 5% from last year, driven by strong sell-through to franchisees. Our merchandising and replenishment teams continue to adapt to evolving demand signals maintaining healthy inventory levels across our DCs and stores while deploying our working capital more efficiently. Net capital expenditures in the quarter were an inflow of $2 million due to $7 million collected from asset sales consisting primarily of corporate store resales. At the same time, we continue to invest in new stores, renovations, and other maintenance activities. We generated $33 million in free cash flow in the quarter versus $27 million last year. benefiting from lower capital requirements and higher proceeds from corporate store resales. On a trailing four-quarter basis, free cash flow conversion improved slightly to 42%, once again showcasing the strong cash conversion capabilities of our business model. Strong visibility into these cash flows supports our continued emphasis on capital returns to our shareholders. We deployed $38 million in the quarter, including $20 million in share repurchases under our NCIB and $18 million through dividends. So far into Q3, we have repurchased another $6 million of our shares as we continue to view buybacks as an attractive use of our excess capital. Now turning to our 2026 outlook, which we've reiterated today. Looking at our results for the first half, we are tracking well against each of our key financial targets. Year to date, we've grown revenue by 3.4% towards the high end of our 2 to 4% guidance range. adjusted EBITDA margins are in line with the 21% target, and our adjusted net income per diluted share is similar to last year. At the same time, evolving macro dynamics, such as those related to fuel and trade, are contributing to the ever-present uncertainty in the current environment. While our sourcing and operations limit the direct impact from several of these dynamics, they nonetheless shape demand from devoted pet lovers. And so our teams are managing through this by focusing on the elements we can control. Promoting responsibly, leveraging our scale and world-class assets, controlling and mitigating costs, prioritizing high conviction investments, and returning capital to our shareholders. Incorporating these factors, we have strong confidence in achieving our full-year outlook. It reflects the environment as we see it today, while encompassing the many benefits of the actions well within our control. Before turning the call back to Greg, I'd like to provide a few comments on the second half of the year. We continue to expect revenue growth to remain within our targeted range of 2-4% on a comparable week basis. We also anticipate similar corporate store resale gains in the back half of the year as those seen year-to-date but spread between Q3 and Q4. Altogether, this puts us in a strong position towards achieving our full year guidance. And with that, back to you, Greg.

Thanks, Linda. Looking back on the successes we saw in Q2, these were only made possible because of our aces and franchisees. As our environment evolves around us, I am continually impressed with the speed and professionalism of our people to adapt, as well as incredibly grateful for the enduring commitment they place on our mission to be Canada's preferred pet retailer. An important element of this mission is the impact we and our franchisees have on the communities we serve. This continues to be an important strength for us, with several highlights in the quarter, including our most successful Pet Appreciation Month this past June, with $2.6 million in donations raised, our focus with shelters, on adoption events, and the support our stores provided to communities impacted by wildfires. Thank you to all our aces and franchisees for delivering the expertise and compassion devoted pet lovers need and deserve to help them with the health and happiness of their pets. In closing, I want to reiterate the strong conviction we have in our 2026 outlook based on clear actions well within our control and look forward to updating you as we progress through the second half of the year. And with that, we'll now be happy to take your questions.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, press star 1-1 again. Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. You may then return to the queue. Please stand by while we compile the Q&A roster. Our first question will come from the line of Irene Nettel with RBC Capital Markets. Your line is open.

Thanks and good morning, everyone. It sounds as though you're starting to see some traction with some of the adjustments you've made on your commercial programs. Can you talk through what adjustment you've made and what we should expect in the second half? And then as a follow up to that, what needs to happen in order to see an acceleration in same store sales into solidly positive territory? Thank you.

Good morning Irene and thank you for the question. Overall, the shape of demand in Q2 remained relatively consistent to recent trends. Demand for pet products remained resilient but very intentional given the pressure we've seen in consumer discretionary spending. Devoted pet lovers are turning to the specialty pet retailers that can offer them the best combination of convenience, quality, value, and expertise, which is why you see us sharpening our appeal on each of these fronts. With greater convenience through our network expansion and full digital offering, high quality, led by market-leading specialty brands and our investments into culinary, enhanced value through our sharp everyday prices, our established proprietary brand, and our great loyalty program. and expert advice from our animal care experts. And because of this, we continue to win the most valuable monthly intentional shop with our loyalty program capturing 90% of our sales. We have strong visibility into this and can see a higher proportion of monthly visitors. The main change that drove the inflection in our results, in our Q2 results tied back to how we adapted to this environment, collaborating our commercial plan and applying a greater focus on cost management On the commercial plan and the changes we made in Q2, for competitive reasons I'm going to keep this at a high level, essentially we made the appropriate changes given the current environment, resulting in a better balance of sales and margin dollars in Q2. The biggest change came from how we approached our promotional plan, where we leveraged the insights from Q1 to be more successful at delivering value and earning margin in this environment. A great example of this is our item of the month program for hard lines that are referenced in my prepared remarks. This continues to build momentum month over month, generating continuous excitement in store and giving customers an easy reason to add to their basket. Additionally, we worked with vendors to manage costs in the pipeline while also managing our own expenses very closely. There remains uncertainty in the environment for sure, but we're happy with how we leverage both our tools and talent to adjust to this environment and to deliver our Q2 results.

Thank you. One moment for our next question. And that will come from the line of Martin Landry with Stifel. Your line is open.

Hi, good morning. Perhaps just to follow up on Irene's question, I think your traffic or your transaction volumes were down this quarter. Just trying to understand, you know, when you expect traffic and transaction volume to inflect back to deposit territory.

Thanks, Martin, and good morning. When you take a closer look at our transactions in Q2, we saw many of the same trends that we discussed last quarter. We're seeing a higher proportion of trips from our loyalty customers and in particular our monthly shoppers and fewer trips from those not on our loyalty program that typically buy more on promotion and have smaller basket sizes. We're also continuing to see some trip consolidation in light of higher fuel costs. I'd also call out that we lapped our strongest transaction comp of 2025 last quarter which coincided with general buy Canada tailwinds. We were pleased with the improved basket growth we saw in the quarter and as Linda mentioned in her remarks this ties back to the adjustments we've made in our commercial plan as well as the easing impact of last year's price reductions as we lapped those actions such as performance in prime in April of last year.

Okay, so I understand that you're talking about the consolidation of trips and hire basket. Do you monitor traffic on a per-customer basis? I mean, with your loyalty program, you probably have some data that you can assess traffic on a per-customer basis. Just trying to understand a little bit What dynamics are at play that you can, what drivers you have at your disposal to maybe toggle traffic up a little bit?

Thanks. Thanks, Martin. Great question. So we do with the with the strength of our loyalty program covering 90% of our sales, we have great visibility into our monthly shoppers. We saw that increase in the quarter. Where we saw some decreases was our non-loyalty customers who are more promotionally focused. We were quite happy with the amount of loyalty customer trips and loyalty customers that we saw in the quarter and the tonnage that they bought as with consolidated trips, they stocked up and bought more.

Okay, perfect. Okay, thank you for all the color. That's helpful.

Thank you, Martin.

One moment for our next question. And that will come from the line of Chris Lee with Desjardins. Your line is open.

Good morning, everyone. Hi, Greg. Sorry if I missed it earlier, but can you talk a little bit about what you're seeing in terms of the competitive intensity or the promotional penetration in the industry and what's sort of your outlook for the rest of the year? Thank you.

Thanks, Chris. Morning. Let's start with us. With regards to us, you've heard us talk about the adjustments we've made to our commercial plan, and that's really designed to encourage a stable trading environment. We're comfortable with the changes we've made and our plans heading into the back half. As for our specialty peers, it's still a bit early to really read into any changes there. We will get a better sense as time passes. But one key message that I want to share is that while we have seen a general uptick in promotional activity since last fall, the overall environment remains rational and consistent with the expectations that we built into our outlook for the remainder of the year.

Thank you very much. And maybe a follow-up for Linda. Despite the strong Q2 performance and presumably more tailwinds to come in the second half from more corporate store sale gains and lapping pricing investments, your four-year guidance seems to imply rather limited improvement in the second half. I know you mentioned, obviously, there's still a lot of uncertainty with respect to macro and the consumer market. Is that the main reason or do you guys expect to maybe make more investments in margins to try to maintain that top line improvement in the second half? Just want to square those two together. Thanks.

Yeah, thanks, Chris, and appreciate the comments on Q2. So we are tracking very well against our guidance here to date. And as I think about the back half, there's a few elements that I'd highlight first. We do expect revenue growth to remain within our 2-4% guidance range, supported by the same drivers in the first half, including the new stores, momentum in e-commerce, and the higher wholesale penetration. And second, confident in the elements we can control in the current environment, including our commercial plan and maintaining the tight cost management. That said, the macro dynamics continue to evolve, particularly on fuel and trade. So there's still external factors we're mindful of that could impact the demand and cost environment. And last, we expect a similar level of corporate store retail gains in the second half of the year as we deliver in Q2, though spread across our two remaining quarters. So layering in all of that, we do have strong conviction on our ability to achieve the full year outlook. Especially as it's not dependent on any material improvement in the environment as we see it today.

Okay, great. Thanks very much and all the best everyone.

One moment for our next question. And that will come from the line of Vishal Sridhar with NBCCM. Your line is open.

Hi, thanks for taking my questions. Maybe a bit early to ask this, but we'll have to consider it nonetheless. As we review our 2027 forecasts, SG&A was benefited by these refinancing gains, which may not occur in every year, at least the same cadence. So is the Q2 number, with the benefit of the refranchising gains for SG&A, is that a good base to use for 2027? Or when we think about 2027, should we just back out These re-franchising games and use that as the base.

Vishal, good morning. It's Greg. I'll start and then I'll hand over to Linda. Corporate store resales, it's a long established practice of ours. First started when we began franchising stores back in the late 80s. And we have a great pipeline of new and existing franchisees looking for an established, mature location that they can hit the ground running in. With over 250 corporate locations, we always have a subset available for sale and to feed this demand, and we expect to continue that practice next year and into the future. Linda?

Yeah, I'll just add a couple of points. First, the gains we realize on stores can vary store to store depending on things like location, profitability, age of store. And then longer term from an SG&A perspective, I think about it as inclusive of corporate resales and expect slight leverage over time.

Okay. And just to clarify, these corporate store sales that you're benefiting from in the quarters, the degree to which you're going to do them in 2026, was that contemplated in your plan or is that going to be a little bit more in 2026 than initially anticipated?

It was contemplated in our plan, Michelle. As Greg just highlighted, it is a recurring part of our business. There was a shift from Q1 into Q2, so we had heightened store resales in Q2. But if I look at it as first half, I think that's a good trend. and you'll see the same similar amounts in Q3 and Q4 but split differently.

I see. And just if I can squeeze one last one. In terms of the revenue impact, when you sell a corporate store that helps your SG&A but it would hurt your revenue because you're converting the corporate store sales into the franchise component sales that you get. Is that correct? And if so, can you quantify the impact in the quarter?

It's generally correct. Again, it depends. I mean, so there's a lot of dynamics, obviously, between our wholesale channel versus our retail channel. So there's only 11 stores out of a significant base. So not meaningful.

Thank you.

One moment for our next question. And that will come from the line of Michael Glenn with Raymond James. Your line is open.

Hey, good morning. Maybe just to start, Greg, you're making reference to working with the vendors and then you're also referencing some of the inflationary impact as well to think about. In terms of product cost and maybe fuel or freight in cost of goods sold, can you just comment on, are you seeing inflation on those two items overall? Morning, Michael. I'll start and then hand to Linda. From an inflation perspective, so year over year, we continue to see some deflationary pressure really driven by our price investments that we made at the end of Q3 last year. That said, the deflationary pressure wasn't as meaningful in Q1, given the adjustments we made to the commercial plan that you just referenced through the second quarter. and importantly, we aren't feeling as much deflationary pressure as we see in the industry right now. Linda.

Yeah, and then specifically on fuel, so we did see some cost inflation, carefully managed that in the quarter, leveraging both the scale and relationships with our national brand partners. Fuel costs are likely contributing to some of that alongside other factors. The team did a really good job managing the business through the elevated fuel cost environment in Q2. and our baseline assumption is that the environment remains the same for the balance of the year and we have plans on how to manage through that with discipline.

Okay and just on a couple of the comments regarding you had strong traction with the loyalty customers stocking up on product. Was there any behavior in the quarter that would have Triggered some pre-buying promotions that might have an impact in Q3? Michael, it's Greg. No, what we saw in Q2 was still a bit of trip consolidation and because of that some stock up as customers came. because loyalty customers came a little less often in the quarter, even though the amount of loyalty customers we saw was up. So we don't see anything that indicates that there was any material forward buying. Okay, thank you.

Thank you. One moment for our next question. and that will come from the line of Adrian Yee with Barclays. Your line is open.

Good morning. This is Mike Vu on for Adrian Yee and thank you for taking our questions. As you continue to invest behind marketing promotions on the loyalty program, can you talk about what you're seeing geographically by income and age cohorts and retention qualities for new customers?

Michael, it's Greg. Thanks for the question. So we are We're seeing strong growth in our loyalty customers, given the strength of the loyalty program we have. We're also seeing strong growth in our e-commerce business, led by Click and Collect and our online delivery platforms, which really tie in the strength of our large network of stores. Within that, we are seeing growth in auto ship, which we're quite happy about, and good retention rates on our auto ship program.

Great. And then as a follow up, I know you mentioned further savings coming from the supply chain and all those efficiencies there. Can you quantify the remaining supply chain efficiency opportunities and how long that will last?

Hi Michael, it's Linda. So we are really pleased with the efficiency benefits we've realized through the supply chain investment. Consistently been one of the largest tailwinds in our margins over the last four quarters, which has helped us offset the transitory pressure we've experienced in recent periods. I'm not going to quantify specifically the benefits from the supply chain, but as Greg mentioned earlier, we expect these aspects to deliver further improvements over the coming quarters and years. on top of the benefits that should flow naturally from the fixed cost leverage.

Great. Thank you very much. Thank you, Mike.

Thank you. As a reminder, if you would like to ask a question, please press star 1-1. Our next question will come from the line of Cheryl Zhang with TD Cowan. Your line is open.

Hey, good morning, James. Sorry, good morning, Greg and Linda. Thanks so much for taking our question. I guess the first one, thinking of press releases cited market share gains, I'm curious if you can comment on where that comes from. And I think a little earlier you published a study on pet parents, and one of the findings is that the pet specialty channel still leads, but consumers shop around across different channels. I'm curious what you're seeing in terms of the competition with other channels such as like club or e-commerce and especially with the launch of some lower priced products in those channels and are you seeing any pockets of share movement maybe in certain categories?

Morning Cheryl, thanks for the question. As you know and reference we work with a third party that leverages data from multiple sources to triangulate a more accurate view of the market and market share. Based on their analysis, we continue to gain share in the quarter, and that's really tied back to both our network expansion and the strong retail experience we offer to devoted pet lovers, both in-store and online, which has been a growth avenue for us. We continue to win the monthly consumables-led shopping trip, which drives reoccurring visits and a regular opportunity to deepen the relationship with our customers and grow their share of wallet. And I think this really underscores the great work from our team Our teams through the quarter adjusting our commercial plans to deliver stronger margins while maintaining momentum in our market share gains. Overall, the trends remain consistent within the total market as to what we've recently shared. The pet specialty channel remains resilient, representing roughly half the market, and we're consolidating within that channel. We also see some share takers and donors within the mass channel, but those are very similar to what we would have referenced in 2025. But more importantly, almost no leakage between mass and specialty.

That's very helpful, Keller. Thank you. And then I'm curious on your new store openings in 2026, what are you seeing in terms of this cohort performing compared to the prior cohort? And I'm curious if you have any insight on the store pipeline.

Yeah, great question, Cheryl. I'll take this one. So as we've said in the past, when we open a store, whether it's a franchise or a corporate store, we're making a 10-year-plus commitment to that location and the community it serves. And that duration Captures a full economic cycle. We continue to see opportunities for us to operate 1200 or more stores across Canada. We still got a ways to go there. Where we're focused today in this current environment is opening locations and growth pockets across Canada, which means areas such as Alberta, Quebec and rural communities coast to coast. Those stores that we've opened in the last year have had good starts. We're happy with the return profiles on them, and we believe that these investments will pay dividends over the years to come, especially the stores that are in more rural locations without pet specialty piers there, where we're filling white space while some of our other competitors are taking a pause.

That's very helpful. And if I may squeeze one in, I'm not sure if this is already touched on earlier, but I'm curious if you could help us quantify how much was the gain on re-franchising in a quarter?

So you can look through our cash flow statement for it. It's around $4.5 million.

Okay, great. Thanks so much. Thank you, Cheryl.

Thank you. And we do have a follow-up question that will come from the line of Irene Nadel with RBC Capital Markets. Your line is open.

Thanks, and thanks for speaking. Sorry, just a couple of follow-ups, if I may. Linda, you said you noted in your commentary that the gains in the back half of the year on the re-franchising would be similar, but split between Q3 and Q4, rather. Is there anything... Else you want to call out just on a sequencing Q3, Q4, whether it's gross margin or SG&A, anything that we should be keeping in mind?

Yeah, so I think from adjusted EBITDA margins, I'd start by grounding expectations in our full year outlook. So as you know, we're guiding adjusted EBITDA margins of approximately 21%. So our year-to-date performance is essentially at that level, implying a similar rate in the back half. On gross margins, we saw a nice improvement in the rate from Q1 to Q2. And I'd say we are working to maintain that balance for the rest of the year. And then on SG&A, we talked about the gains on the corporate store resales, as you just mentioned. So splitting that more evenly across Q3 and Q4. And then I'd say net-net, we expect adjusted SG&A growth Inclusive of these gains to more closely match revenue growth in the back half.

That's helpful. And was there anything in last year, like the timing of last year, was there anything specific in Q3 and Q4 on the gains? Or we can just not worry about that from a prior year perspective?

I would say the latter, Irene. Nothing to call out there from last year.

That's great. And then just one more, you did mention that you are seeing some nice growth online, auto shift, click and collect. Where is your penetration sitting today and how are you thinking about the path forward from here?

Thanks Irene, this is Greg. We continue to be very happy with the performance of our digital channel and the growth in our digital channel is outgrowing the digital growth that we're seeing in the industry, which really ties back to the strength of our omnichannel offering and particularly the store network and the breadth of our store network that I mentioned earlier. Our delivery sales continue to be driven by the online delivery platforms and click and collect. which leverages the network. We don't break out our online sales as a portion of sales, but we've been very happy with the growth rate and the ability to be able to match or beat the growth rate in the industry there. That's great. Thank you. Thanks, Irene.

Thank you. And we do have another follow-up and that will come from the line. of Martin Landry with Seafull. Your line is open.

Hi. Just to follow up, maybe changing gears a little bit, looking at your CAPEX cycle, it is abating. So I was wondering if you would consider, you know, acquisitions, maybe perhaps looking at small regional chains as tuck-in acquisitions. And if so, what would be the main criteria that you would be looking for when assessing potential M&A?

Martin, it's Greg. We don't see any. We are happy with our ability to be able to consolidate share within the specialty channel, but we do not see anything on the horizon that we would highlight to you on acquisition.

Yeah, I just add one thing.

Obviously, we grow stores every year in the range of 40 new stores, and so acquiring stores outside of that would have to hurt all the rate that we would get on our own organic investments.

Okay, thank you.

Thanks, Martin.

Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Greg Ramier for any closing remarks.

Thank you all for joining us today and we look forward to updating you as we progress through 2026.

This concludes today's program. Thank you all for participating. You may now disconnect.