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The call balanced multiple operational and financial improvements against a few persistent structural and external risks. Highlights include a return to positive comps (+0.7%), expanded margins (gross margin +21 bps), adjusted EBITDA growth (+8.8% YoY to $97.3M), strong services momentum (microchips +71% YoY, vet productivity gains), improved liquidity and lower debt, inventory discipline, and a reaffirmed full‑year outlook. Lowlights center on a Q1 free cash flow outflow of $69M, continued store closures and the fact management has not yet reclaimed market share, plus remaining leverage and reliance on tariff/fuel assumptions. Overall, positives and momentum from the Phase III strategy significantly outweigh the modest near‑term headwinds and conservatism in guidance.
Management reaffirmed full‑year 2026 guidance: net sales flat to up 1.5% year‑over‑year and adjusted EBITDA of $415–$430 million, with Q2 guidance implying ~0.3% net‑sales growth and adjusted EBITDA of $110–$112 million. Key assumptions include fuel at current levels for the rest of the year, only the tariff refund received in May included (no further refunds assumed) and current tariff policies remaining; unchanged line‑item assumptions are net interest ≈ $125M, depreciation & amortization ≈ $200M, capex ≈ $140M, net store closures 15–20 (weighted to the back half), and a full‑year spread between total sales and comp sales of about 50 basis points. Management noted Q1 context—net sales $1.5B (+0.2%), comp +0.7%, adjusted EBITDA $97.3M, Q1 capex $10M, free cash flow outflow $69M, ending cash $167M, total liquidity $654.4M and total debt $1.48B—while reiterating a goal to reduce leverage to ~2x.
Comparable sales returned to positive, +0.7% comp, with net sales up 0.2% to $1.5B in Q1, demonstrating early traction from the Phase III strategy (note: net sales vs comp spread partly driven by 16 net store closures in 2025 and 4 in Q1).
Gross profit $574.4M and gross margin expanded 21 bps to 38.4%; SG&A was $549.8M (36.7% of sales) leveraging 34 bps; operating profit $24.6M, up 50.5% YoY; adjusted EBITDA $97.3M, up $7.9M or 8.8% YoY.
Differentiated services (vet hospitals, clinics, grooming, training) continued to deliver strong results: grooming remains a high‑quality annuity, vet productivity improving, 'doctor days' rising, new Vetco clinic packages launched, free microchips drove a 71% increase in pets microchipped YoY, and the company is optimizing ~25 underutilized hospitals this year ahead of resumed hospital expansion in 2027.
Consumables improved sequentially with notable outperformance in the cat category; management invested to be a destination for cat products and is ramping cat newness in Q2 (furniture, beds, bowls, trees). Company added freezer capacity and reiterated leadership in fresh/frozen pet nutrition; flea & tick season was the strongest start in five years.
Digital friction reduced leading to improved digital traffic; BOPIS was up strongly YoY, driving store visits and cross‑sell opportunity. Pilot of new loyalty program (Petco Perks) showed positive results and will relaunch broadly later this quarter, focused on simplified, personalized offers.
Ending cash $167M (+~$33M YoY), total liquidity $654.4M, total debt reduced to $1.48B (down >$100M YoY) after opportunistic refinancing that extended maturities to 2031; management reaffirmed goal to reduce leverage to ~2x.
Ending inventory declined 1.9% YoY (following a 5.2% decline last year) even with sales growth, reflecting tighter inventory control while selectively investing to support growth.
Management reaffirmed full‑year outlook: net sales flat to +1.5% and adjusted EBITDA $415M–$430M; Q2 sales expected ~+0.3% and adjusted EBITDA $110M–$112M, indicating confidence in execution despite a dynamic macro backdrop.
Good day. And welcome to Peter's First Quarter 26 Earnings Conference Call. All participants will be in a listen-only mode. Today's earnings call will last 45 minutes, including remarks from management followed by a Q&A session. We ask that you please limit yourself to 1 question and 1 follow-up. To ask a question, you may press *, then 1 on your telephone keypad. To withdraw your question, please press * and then 2. Please note this event is being recorded.
I would now like to turn the conference over to Roxanne Felice Meyer, Vice President Investor Relations and Treasury. Please go ahead.
Good afternoon, and welcome to Peter's First quarter fiscal 2026 Earnings Conference Call. Joining me on the call today are Joel D. Anderson, Petco's Chief Executive Officer and Sabrina Louise Simmons, Petco's chief financial officer. In addition to their earnings release, we have posted a slide presentation on our website at ir.petco.com. I would like to remind everyone that on this call, we will make certain forward-looking statements, 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.
With that, I will turn the call over to Joel.
Thanks, Roxanne, and good afternoon, everyone. Thank you for joining us to discuss our first quarter resul...