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Petco Health + Wellness Company, Inc. Reports Strong Fourth Quarter and Full-Year 2020 Results, Issues 2021 Guidance

Fourth quarter revenue and comp sales increased 16% and 17%, respectively

Digital sales grew over 90%; Acquired approximately 1 million new customers in the quarter

Fiscal 2020 revenue and comp sales both grew 11%, reflecting continued success of Petco's transformation into an omnichannel Health and Wellness provider

PR Newswire

SAN DIEGO , March 18, 2021 /PRNewswire/ -- Petco Health and Wellness Company, Inc. (NASDAQ: WOOF), a complete partner in pet health and wellness, today released its financial results for fourth quarter and fiscal 2020 ended January 30 , 2021.

Petco logo (PRNewsfoto/Petco Health and Wellness Company, Inc.)

The company delivered fourth quarter comparable sales growth of 17 percent and net revenue growth of 16 percent, marking the ninth consecutive quarter of growth for Petco. A $17.5 million loss on the extinguishment of debt related to the company's initial public offering contributed to a net loss of $6.2 million or $0.03 per share, an improvement of 14 percent and 17 percent, respectively. Adjusted Net Income 1 increased 103 percent from prior year to $37.0 million or $0.17 per share, while fourth quarter Adjusted EBITDA 1 increased 13 percent to $148.6 million from prior year.

Fiscal year 2020 revenue increased 11 percent from prior year to $4.9 billion . A net loss of $26.5 million or $0.13 per share improved 72 percent and 73 percent, respectively, and was also inclusive of a $17.5 million loss on the extinguishment of debt related to the company's initial public offering. That 11 percent growth translated to a 14 percent improvement in Adjusted EBITDA 1 to $484.3 million , as well as a $68.0 million improvement in Adjusted Net Income 1 to $58.1 million or $0.28 per share, reflecting the strength of Petco's multi-channel pet care ecosystem.

"On the heels of a successful IPO in January, we closed the year with a strong fourth quarter, and that momentum has carried into 2021," said Ron Coughlin , Chairman and Chief Executive Officer of Petco. "Our comprehensive petcare ecosystem focused on health and wellness, coupled with our digitally-led, multichannel experience is resonating with pet parents and generating significant competitive advantages that are evident in our performance. Our category continues to grow powered by the millions of incremental new pets in households, which is creating an annuity for years to come. Whether it is eliminating products with artificial ingredients 3 , rapidly expanding vet clinics, training, grooming or customer-first fulfillment options like same-day delivery, we're expanding the ways we take care of beloved pets and stepping up to meet increased demand making Petco well positioned for long-term growth."

In addition, Petco reduced total debt by 49 percent to $1.7 billion and Net Debt 1 by 50 percent to $1.5 billion using the proceeds from the company's initial public offering, the recapitalization of a portion of debt outstanding at the time of the initial public offering and Free Cash Flow 1 generation. Net Debt 1 reduction and Adjusted EBITDA 1 improvement led to a decrease of 4.2x in Petco's Net Debt 1 to Adjusted EBITDA 1 ratio to 3.2x. On March 4 th , Petco announced the successful completion of the company's debt refinancing transaction which extended the maturity dates of the company's term loan to 2028 and revolving credit facility to 2026.

Fiscal Q4 2020 Highlights:
Comparisons are fourth quarter of 2020 ended January 30, 2021 versus fourth quarter of 2019 ended February 1, 2020 unless otherwise noted

  • Net sales increased 16 percent to $1.3 billion driven by comp sales growth of 17 percent
  • Net loss of $6.2 million or $0.03 per share was inclusive of a $17.5 million loss on the extinguishment of debt related to the company's initial public offering
  • Adjusted Net Income 1 increased $18.7 million to $37.0 million or $0.17 per share
  • Adjusted EBITDA 1 increased 13 percent to $148.6 million

Fiscal Year 2020 Highlights:
Comparisons are fiscal year of 2020 ended January 30, 2021 versus fiscal year of 2019 ended February 1, 2020 unless otherwise noted

  • Net sales increased 11 percent to $4.9 billion driven by comp sales growth of 11 percent
  • Net loss of $26.5 million or $0.13 per share inclusive of a $17.5 million loss on the extinguishment of debt related to the company's initial public offering
  • Adjusted Net Income 1 increased $68.0 million to $58.1 million or $0.28 per share
  • Adjusted EBITDA 1 increased 14 percent to $484.3 million
  • Net cash provided by operating activities increased $158.3 million to $268.6 million
  • Free Cash Flow 1 increased $155.6 million to $109.1 million
  • Total debt decreased $1.6 billion to $1.7 billion driven by the proceeds generated in the company's initial public offering, related recapitalization and Free Cash Flow generation
  • Net Debt 1 decreased $1.6 billion to $1.5 billion
  • Net Debt 1 / Adjusted EBITDA 1 improved 57 percent to 3.2x
  • Liquidity of $499.0 million inclusive of $111.4 million of cash and cash equivalents and $387.6 million of availability on revolving credit facility.
  • Ended 2020 with 1,454 Pet Care Centers, 125 Full Service Vet Hospitals within Pet Care Centers, and 96 Pet Care Centers in Mexico

Fiscal 2021 Guidance:

The following guidance as of March 18, 2021 reflects the company's expectations for fiscal year 2021 unless otherwise indicated.

Metric

Guidance

Revenue

$5.25 billion - $5.35 billion

Adjusted EBITDA 2

$520 million - $530 million

Adjusted EPS 2

$0.63 - $0.66

Assumptions in the guidance include that economic conditions, currency rates and the tax and regulatory landscape remain generally consistent. The company continues to monitor those assumptions and any potential financial impacts. Adjusted EPS guidance assumes approximately $90 million of interest expense, a 26% tax rate and 266 million weighted average diluted share count.

(1)

Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, Free Cash Flow, and Net Debt are non-GAAP financial measures. See "Non-GAAP Financial Measures" for additional information on Non-GAAP financial measures and a reconciliation to the most comparable GAAP measures.



(2)

We have not reconciled Adjusted EBITDA and Adjusted EPS outlook, which are non-GAAP measures to the most comparable GAAP measures because it is not possible to do so without unreasonable efforts due to the uncertainty and potential variability of reconciling items, which are dependent on future events and often outside of management's control and which could be significant. Because such items cannot be reasonably predicted with the level of precision required, we are unable to outlook for the comparable GAAP measures. Forward–looking estimates of Adjusted EBITDA and Adjusted EPS are estimated in a manner consistent with the relevant definitions and assumptions noted herein.



(3)

See how Petco defines artificial ingredients at petco.com/nutritionstandards.

Earnings Conference Call Webcast Information:

The company will host an earnings conference call on March 18, 2021 at 8:30 AM Eastern Time to discuss Petco's financial results. The conference call will be accessible through live webcast. Interested investors and other individuals can access the webcast, earnings press release, and earnings presentation via the company's investor relations page ( https://ir.petco.com/investor-relations ). A replay of the webcast will be archived on the company's website through April 1, 2021 at 5:00 PM Eastern Time .

About Petco:

Petco is a category-defining health and wellness company focused on improving the lives of pets, pet parents and our own Petco partners. Since our founding in 1965, we've been trailblazing new standards in pet care, delivering comprehensive wellness solutions through our products and services, and creating communities that deepen the pet-pet parent bond. We operate more than 1,500 Petco locations across the U.S., Mexico , and Puerto Rico , including a growing network of more than 100 in-store veterinary hospitals, and offer a complete online resource for pet health and wellness at petco.com and on the Petco app. In tandem with The Petco Foundation, an independent nonprofit organization, we work with and support thousands of local animal welfare groups across the country and, through in-store adoption events, we've helped find homes for more than 6.5 million animals.

Forward Looking Statements

This earnings release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, concerning expectations, beliefs plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not statements of historical fact. Although the company believes that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to be correct. There can be no assurance that any forward-looking results will occur or be realized, and nothing contained in this earnings release is, or should be relied upon as, a promise or representation or warranty as to any future matter, including any matter in respect of the operations or business or financial condition of Petco. Such forward-looking statements can be identified by the use of forward-looking terms such as "believes," "expects," "may," "intends," "will," "shall," "should," "anticipates," "opportunity," "illustrative", or the negative thereof or other variations thereon or comparable terminology. All forward-looking statements are based on assumptions or judgments about future events that may or may not be correct or necessarily take place and that are by their nature subject to significant uncertainties and contingencies, many of which are outside the control of Petco. Forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from the potential results discussed in the forward-looking statements, including, without limitation, those identified in this earnings release, the risk factors that the company identifies in its Securities and Exchange Commission filings, as well as the following: (i) increased competition (including from multi-channel retailers and e-Commerce providers); (ii) reduced consumer demand for our products and/or services; (iii) our reliance on key vendors; (iv) our ability to attract and retain qualified employees; (v) risks arising from statutory, regulatory and/or legal developments; (vi) macroeconomic pressures in the markets in which we operate; (vii) failure to effectively manage our costs; (viii) our reliance on our information technology systems; (ix) our ability to prevent or effectively respond to a privacy or security breach; (x) our ability to effectively manage strategic ventures, alliances or acquisitions; (xi) economic or regulatory developments that might affect our ability to provide attractive promotional financing; (xii) interruptions and other supply chain issues; (xiii) catastrophic events, health crises, and pandemics, including the potential effects that the ongoing COVID-19 pandemic and/or corresponding macroeconomic uncertainty could have on our financial position, results of operations and cash flows; (xiv) our ability to maintain positive brand perception and recognition; (xv) product safety and quality concerns; (xvi) changes to labor or employment laws or regulations; (xvii) our ability to effectively manage our real estate portfolio; (xviii) constraints in the capital markets or our vendor credit terms; and (xix) changes in our credit ratings. The occurrence of any such factors, events, or circumstances would significantly alter the results set forth in these statements.

Petco cautions that the foregoing list of important factors is not complete, and any forward-looking statements speak only as of the date they are made. Petco undertakes no duty to update publicly any forward-looking statement that it may make, whether as a result of new information, future events or otherwise, except as may be required by applicable law, regulation or other competent legal authority.

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENT OF EARNINGS

(In millions, except per share amounts)

(Unaudited and subject to reclassification)





















13 Weeks Ended



52 Weeks Ended



January 30, 2021


February 1, 2020


Percent Change


January 30, 2021


February 1, 2020


Percent Change

Net Sales


$

1,337.7


$

1,148.7


16%


$

4,920.2


$

4,434.5


11%

Cost of goods sold



768.4



650.8


18%



2,813.5



2,528.0


11%

Gross profit



569.3



497.9


14%



2,106.7



1,906.5


11%

Selling, general and administrative expenses



502.3



437.8


15%



1,912.3



1,776.9


8%

Goodwill and indefinite-lived intangible impairment



-



19.0


NA



-



19.0


NA

Operating income



67.0



41.1


63%



194.4



110.6


76%

Interest expense, net



49.7



60.7


(18%)



218.4



252.7


(14%)

Loss on extinguishment of debt



17.5



-


NA



17.5



-


NA

Loss before income from equity method investees



(0.2)



(19.5)


(99%)



(41.6)



(142.1)


(71%)

Income tax expense/(benefit)



10.2



(7.4)


NA



(3.3)



(35.7)


(91%)

Income from equity method investees



(3.5)



(2.1)


67%



(6.5)



(2.4)


166%

Net loss



(6.9)



(10.0)


(31%)



(31.7)



(104.0)


(69%)

Net Loss Attributable to Noncontrolling Interest



(0.8)



(2.8)


(74%)



(5.3)



(8.1)


(35%)

Net Loss Attributable to Class A and B-1 common shareholders


$

(6.2)


$

(7.2)


(14%)


$

(26.5)


$

(95.9)


(72%)


















Net Loss Per Class A and B-1 Common Share:

















Basic earnings per share


$

(0.03)


$

(0.03)


(17%)


$

(0.13)


$

(0.46)


(73%)

Diluted earnings per share


$

(0.03)


$

(0.03)


(17%)


$

(0.13)


$

(0.46)


(73%)


















Weighted-Average Common Shares Outstanding:

















Basic



215.7



209.0


3%



210.7



208.9


1%

Diluted



215.7



209.0


3%



210.7



208.9


1%

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED BALANCE SHEET

(In Thousands)

(Unaudited and subject to reclassification)











January 30,



February 1,

2021

2020

ASSETS








Current assets:








Cash and cash equivalents


$

111,402



$

148,785

Receivables, less allowance for credit losses 1



41,827




31,516

Merchandise inventories, net



538,675




478,968

Prepaid expenses



40,032




24,854

Other current assets



45,613




26,882

Total current assets



777,549




711,005

Fixed assets, net



627,547




656,256

Operating lease right-of-use assets



1,328,108




1,459,604

Goodwill



2,179,310




2,179,310

Trade name



1,025,000




1,025,000

Other intangible assets, net



714




1,553

Other long-term assets



137,474




122,390

Total assets


$

6,075,702



$

6,155,118

LIABILITIES AND EQUITY








Current liabilities:








Accounts payable and book overdrafts


$

339,485



$

293,203

Accrued salaries and employee benefits



129,484




93,685

Accrued expenses and other liabilities



145,846




148,181

Current portion of operating lease liabilities



258,289




278,229

Current portion of long-term debt and other lease liabilities



2,203




28,643

Total current liabilities



875,307




841,941

Senior secured credit facilities, net, excluding current portion



1,646,281




2,362,302

Senior notes, net



-




866,145

Operating lease liabilities, excluding current portion



1,083,575




1,156,742

Deferred taxes, net



280,920




265,276

Other long-term liabilities



134,354




101,651

Total liabilities



4,020,437




5,594,057









Stockholders' equity / members' equity:








Members' interest



-




1,358,130

Class A common stock 2



226




-

Class B-1 common stock 3



38




-

Class B-2 common stock 4



-




-

Preferred stock 5



-




-

Additional paid-in-capital



2,092,110




-

Accumulated deficit



(22,251)




(780,466)

Accumulated other comprehensive loss



(1,275)




(8,273)

Total stockholders' equity / members' equity



2,068,848




569,391

Noncontrolling interest



(13,583)




(8,330)

Total equity



2,055,265




561,061

Total liabilities and equity


$

6,075,702



$

6,155,118

(1)

Allowances for credit losses are $3,267 for fiscal year end January 30, 2021 and $1,982 for fiscal year end February 1, 2020, respectively

(2)

Class A common stock, par value $0.001 per share (1,000,000,000 shares authorized and 226,424,140 shares issued and outstanding as of January 30, 2021)

(3)

Class B-1 common stock, par value $0.001 per share (75,000,000 shares authorized and 37,790,781 shares issued and outstanding as of January 30, 2021)

(4)

Class B-2 common stock, par value $0.000001 per share (75,000,000 shares authorized and 37,790,781 shares issued and outstanding as of January 30, 2021)

(5)

Preferred stock, par value $0.001 per share (25,000,000 shares authorized and no shares issued or outstanding as of January 30, 2021)

PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(In Thousands)

(Unaudited and subject to reclassification)











January 30,



February 1,

2021

2020

Cash flows from operating activities:








Net loss


$

(31,736)



$

(103,984)

Adjustments to reconcile net loss to net cash provided by operating activities:








Depreciation and amortization



174,836




173,544

Amortization of debt discounts and issuance costs



24,237




23,455

Provision for deferred taxes



25,548




(45,087)

Equity-based compensation



12,915




9,489

Impairments, write-offs and losses on sale of fixed and other assets



15,606




11,871

Loss on extinguishment of debt



17,549




-

(Income) loss from equity method investees



(6,482)




(2,441)

Amounts reclassified out of accumulated other comprehensive income



10,793




2,806

Change in contingent consideration obligation



(398)




883

Goodwill and indefinite-lived intangible impairment



-




19,000

Non-cash operating lease costs



430,359




441,981

Changes in assets and liabilities:








Receivables



(10,311)




(3,845)

Merchandise inventories



(60,635)




(8,193)

Prepaid expenses and other assets



(13,842)




(5,223)

Accounts payable and book overdrafts



46,303




15,928

Accrued salaries and employee benefits



34,295




(1,395)

Accrued expenses and other liabilities



(28,289)




(3,043)

Operating lease liabilities



(399,557)




(408,562)

Other long-term liabilities



27,424




(6,847)

Net cash provided by operating activities



268,615




110,337

Cash flows from investing activities:








Cash paid for fixed assets



(159,560)




(156,906)

Cash paid for intangible assets



-




(450)

Insurance recoveries



-




489

Cash paid for other acquisitions, net of cash acquired



-




(2,813)

Cash from consolidation of joint venture



-




1,205

Cash paid for investments



(1,000)




(585)

Proceeds from sale of investment



73




-

Proceeds from sale of assets



3,302




-

Proceeds from sale-leasebacks, net



-




18,549

Proceeds from partial surrender of officers' life insurance



-




1,470

Net cash used in investing activities



(157,185)




(139,041)

Cash flows from financing activities:








Borrowings under long-term debt agreements



476,000




1,297,000

Repayments of long-term debt



(1,554,890)




(1,293,250)

Debt prepayment, issuance and refinancing costs



-




(58)

Payments for finance and capital lease liabilities



(3,404)




(3,447)

Partial settlement of member note



-




(809)

Cash received from noncontrolling interest



-




243

Proceeds from initial public offering, net of issuance costs



936,041




-

Repurchase of equity



(105)




-

Payment of contingent consideration



(250)




(2,750)

Net cash used in financing activities



(146,608)




(3,071)









Net (decrease) increase in cash, cash equivalents and restricted cash



(35,178)




(31,775)

Cash, cash equivalents and restricted cash at beginning of year



154,718




186,493

Cash, cash equivalents and restricted cash at end of year


$

119,540



$

154,718

Non-GAAP Financial Measures

The following information provides definitions and reconciliations of the non-GAAP financial measures presented in this earnings release to the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles (GAAP). The company has provided this non-GAAP financial information, which is not calculated or presented in accordance with GAAP, as information supplemental and in addition to the financial measures presented in the earnings release that are calculated and presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for or alternative to, and should be considered in conjunction with, the GAAP financial measures presented in the earnings release. The non-GAAP financial measures in the earnings release may differ from similarly-titled measures used by other companies.

Adjusted EBITDA

Adjusted EBITDA is considered a non-GAAP financial measure under the SEC's rules because it excludes certain charges included in net (loss) income calculated in accordance with GAAP. Management believes that Adjusted EBITDA is a meaningful measure to share with investors because it best allows comparison with that of the current period performance with that of the comparable period. In addition, Adjusted EBITDA affords investors a view of what management considers Petco's operating performance to be and the ability to make a more informed assessment of such operating performance as compared with that of the prior period.

Please see the company's Registration Statement on Form filed on January 6, 2021 , as amended, for additional information on the reconciliation of Net Loss Attributable to Class A and B-1 Common Stockholders to Adjusted EBITDA. The table below reflects the calculation of Adjusted EBITDA for the thirteen weeks and fiscal year ended January 30, 2021 compared to prior year ended February 1, 2020 .

(In Thousands)


13 Weeks Ended


52 Weeks Ended

Reconciliation of Net Loss Attributable to Class A and B-1 Common Stockholders to Adjusted EBITDA


January 30,
2021


February 1,
2020


January 30,
2021


February 1,
2020

Net loss attributable to Class A and B-1 common stockholders


$ (6,159)


$ (7,171)


$ (26,483)


$ (95,873)

Add (deduct):









Interest expense, net


49,666


60,662


218,430


252,683

Income tax expense (benefit)


10,200


(7,395)


(3,337)


(35,658)

Depreciation and amortization


45,875


43,944


174,836


173,544

Income from equity method investees


(3,530)


(2,115)


(6,482)


(2,441)

Loss on debt extinguishment


17,549


-


17,549


-

Goodwill & indefinite-lived intangible impairment


-


19,000


-


19,000

Asset impairments and write offs


7,955


2,615


15,606


11,871

Equity-based compensation


5,451


2,487


12,915


9,489

Mexico Joint Venture EBITDA 1


6,655


4,787


19,074


14,227

Store pre-opening expenses


2,218


2,280


9,228


10,325

Store closing expenses


1,835


2,540


7,782


4,068

Severance


1,524


1,602


5,283


10,164

Non-cash occupancy-related costs 2


2,151


6,757


19,240


32,763

Non-recurring costs 3


7,209


1,926


20,707


20,385

Adjusted EBITDA


$ 148,599


$ 131,919


$ 484,348


$ 424,547

Net sales


$1,337,713


$1,148,656


$4,920,202


$4,434,514

Net margin 4


(0.5%)


(0.6%)


(0.5%)


(2.2%)

Adjusted EBITDA Margin 4


11.1%


11.5%


9.8%


9.6%

Adjusted Net Income and Adjusted EPS

Adjusted Net Income and Adjusted diluted earnings per share attributable to Petco (Adjusted Net Income and Adjusted EPS respectively) are considered non-GAAP financial measures under the SEC's rules because they exclude certain amounts included in the net loss attributable to common stockholders and diluted earnings per share attributable to Petco calculated in accordance with GAAP (net loss and EPS respectively), the most directly comparable financial measures calculated in accordance with GAAP. Management believes that Adjusted Net Income and Adjusted EPS are meaningful measures to share with investors because they best allow comparison of the current period performance with that of the comparable period. In addition, Adjusted Net Income and Adjusted EPS afford investors a view of what management considers Petco's earnings performance to be and the ability to make a more informed assessment of such earnings performance with that of the prior period.

The tables below reflect the calculation of Adjusted Net Income and Adjusted EPS for the thirteen weeks and fiscal year ended January 30, 2021 compared to prior year ended February 1, 2020 .

(In Thousands, except per share amounts)


13 Weeks Ended

Reconciliation of GAAP Diluted Loss per Share to Non-GAAP Diluted EPS


January 30, 2021


February 1, 2020



Amount


Per share


Amount


Per share

GAAP net loss attributable to common stockholders / diluted loss per share


$ (6,159)


$ (0.03)


$ (7,171)


$ (0.03)

Add (deduct):









Income tax expense (benefit)


10,200


0.05


(7,395)


(0.04)

Loss on debt extinguishment


17,549


0.08


-


-

Goodwill & indefinite-lived intangible impairment


-


-


19,000


0.09

Asset impairments and write offs


7,955


0.03


2,615


0.01

Equity-based compensation


5,451


0.03


2,487


0.01

Store pre-opening expenses


2,218


0.01


2,280


0.01

Store closing expenses


1,835


0.01


2,540


0.01

Severance


1,524


0.01


1,602


0.01

Non-cash occupancy-related costs


2,151


0.01


6,757


0.04

Non-recurring costs


7,209


0.03


1,926


0.01

Non-GAAP adjusted pre-tax income (loss) / diluted earnings (loss) per share


$ 49,933


$ 0.23


$ 24,641


$ 0.12

Income tax expense (benefit) at 26% normalized tax rate


12,983


0.06


6,407


0.03

Non-GAAP Adjusted Net Income (Loss) / Adjusted EPS


$ 36,950


$ 0.17


$ 18,234


$ 0.09







(In Thousands, except per share amounts)


52 Weeks Ended

Reconciliation of GAAP Diluted Loss per Share to Non-GAAP Diluted EPS


January 30, 2021


February 1, 2020



Amount


Per share


Amount


Per share

GAAP net loss attributable to common stockholders / diluted loss per share


$ (26,483)


$ (0.13)


$ (95,873)


$ (0.46)

Add (deduct):









Income tax expense (benefit)


(3,337)


(0.02)


(35,658)


(0.17)

Loss on debt extinguishment


17,549


0.08


-


-

Goodwill & indefinite-lived intangible impairment


-


-


19,000


0.09

Asset impairments and write offs


15,606


0.07


11,871


0.06

Equity-based compensation


12,915


0.06


9,489


0.04

Store pre-opening expenses


9,228


0.05


10,325


0.05

Store closing expenses


7,782


0.04


4,068


0.02

Severance


5,283


0.03


10,164


0.05

Non-cash occupancy-related costs


19,240


0.09


32,763


0.16

Non-recurring costs


20,707


0.10


20,385


0.10

Non-GAAP adjusted pre-tax income (loss) / diluted earnings (loss) per share


$ 78,490


$ 0.37


$ (13,466)


$ (0.06)

Income tax expense (benefit) at 26% normalized tax rate


20,407


0.09


(3,501)


(0.01)

Non-GAAP Adjusted Net Income (Loss) / Adjusted EPS


$ 58,083


$ 0.28


$ (9,965)


$ (0.05)

Free Cash Flow

Free Cash Flow is a non-GAAP financial measure that is calculated as net cash generated by operations less cash paid for fixed assets. Management believes that Free Cash Flow, which measures the ability to generate additional cash from business operations, is an important financial measure for use in evaluating the company's financial performance.

Although other companies report their Free Cash Flow numerous methods exist for calculating a company's Free Cash Flow. As a result, the method used by Petco's management to calculate Free Cash Flow may differ from the methods used by other companies to calculate their Free Cash Flow.

The following table sets forth a reconciliation of Free Cash Flow to net cash provided by operating activities, which Petco believes to be the GAAP financial measure most directly comparable to Free Cash Flow. The table below reflects the calculation of Free Cash Flow for the thirteen weeks and fiscal year ended January 30, 2021 compared to prior year ended February 1, 2020 .

(In Thousands)


13 Weeks Ended


52 Weeks Ended



January 30,
2021


February 1,
2020


January 30,
2021


February 1,
2020

Net cash provided by operating activities


$ 67,135


$ 144,585


$ 268,615


$ 110,337

Cash paid for fixed assets


(63,271)


(37,706)


(159,560)


(156,906)

Free cash flow


$ 3,864


$ 106,879


$ 109,055


$ (46,569)

Net Debt

Net Debt is a non-GAAP financial measure that is calculated as the sum of current and non-current debt, less cash and cash equivalents. Management considers this adjustment useful because it reduces the volatility of total debt caused by fluctuations between cash paid against the company's revolving credit facility and cash held on hand in cash and cash equivalents.

Although other companies report their Net Debt, numerous methods exist for calculating a company's Net Debt. As a result, the method used by Petco's management to calculate Net Debt may differ from the methods used by other companies to calculate their Net Debt.

The following table sets forth a reconciliation of Net Debt, to total debt, which Petco believes to be the GAAP financial measure most directly comparable to Net Debt. The table below reflects the calculation of Net Debt as of the period ended January 30, 2021 compared to prior year ended February 1, 2020 .


(In Thousands)


January 30,



February 1,


2021

2020


Total Debt:









Senior secured credit facilities, net, including current portion


$

1,646,281



$

2,387,552


Senior notes, net



-




866,145


Finance leases



13,639




16,434


Total debt



1,659,920




3,270,131


Less cash and cash equivalents



(111,402)




(148,785)


Net Debt


$

1,548,518



$

3,121,346


Adjusted EBITDA


$

484,348



$

424,547


Net debt / adjusted EBITDA ratio



3.2x




7.4x



(1)

Mexico Joint Venture EBITDA represents 50% of the entity's operating results for all years, as Adjusted to reflect the results on a basis comparable to Adjusted EBITDA. In the financial statements, this joint venture is accounted for as an equity method investment, and reported net of depreciation and income taxes. Because such a presentation would not reflect the adjustments made in the calculation of Adjusted EBITDA, we include the 50% interest in the company's Mexico Joint Venture on an Adjusted EBITDA basis to ensure consistency. The table below presents a reconciliation of Mexico Joint Venture net income to Mexico Joint Venture EBITDA.








(In Thousands)


13 Weeks Ended


52 Weeks Ended




January 30,


February 1,


January 30,


February 1,


2021

2020

2021

2020


Net Income


$

7,060


$

4,102


$

14,225


$

8,662


Depreciation



3,478



3,276



12,249



11,298


Income tax expense



1,702



882



6,229



4,107


Foreign currency gain (loss)



(163)



(324)



704



(406)


Interest expense (income), net



1,232



1,638



4,740



4,793


EBITDA


$

13,309


$

9,574


$

38,147


$

28,454


50% of EBITDA


$

6,655


$

4,787


$

19,074


$

14,227

(2)

Non-cash occupancy-related costs include the difference between cash and straight-line rent for all periods. Beginning in Fiscal 2019, in connection with the adoption of the lease accounting standard, favorable lease rights of $125.2 million and unfavorable lease rights of $30.8 million were reclassified from intangible assets and other long-term liabilities, respectively, to right-of-use lease assets and the related amortization is now included in non-cash occupancy costs. In addition to the reclassification, the amortization period of these lease right assets has decreased to align with the terms of the underlying right-of-use lease assets, thus resulting in an acceleration of expense compared to prior years. The overall adoption of the lease accounting standard did not have an impact on Adjusted EBITDA, as this increase in addback was completely offset in other impacted lines such as lower depreciation and amortization, asset impairments and write-offs, and store closing expenses.

(3)

Non-recurring costs include: unrealized fair market value adjustments on non-operating investments; class action settlements and related legal fees; one-time consulting and other costs associated with the company's strategic transformation initiatives; discontinuation and liquidation costs; and costs related to the company's initial public offering. While we have incurred significant costs associated with the COVID-19 pandemic during fiscal 2020, we have not classified any of these costs as non-recurring due to the uncertainty surrounding the pandemic's length and long-term impact on the macroeconomic operating environment.

(4)

We define net margin as net loss divided by net sales and Adjusted EBITDA margin as Adjusted EBITDA divided by net sales.

WOOF-F

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SOURCE Petco Health and Wellness Company, Inc.