Pet Valu Reports First Quarter 2022 Results and Raises Full-Year Outlook

Same-store sales grew 23% and Adjusted EBITDA rose 30%; Completed acquisition of Chico

MARKHAM, ON, May 10, 2022 /CNW/ - Pet Valu Holdings Ltd. ("Pet Valu" or the "Company") (TSX: PET), the leading Canadian specialty retailer of pet food and pet-related supplies, today announced its financial results for the first quarter ended April 2, 2022.

First Quarter Highlights

• System-wide sales(1) were $285.9 million, an increase of 30.2% versus the prior year. Excluding Chico(2), system-wide sales grew 25.8%, primarily driven by same-store sales growth(1) of 22.8%. On a two-year basis, same-store sales growth(1)was 29.7%.
• Revenue was $213.3 million, up 25.4% versus the prior year, in-line with system-wide sales growth. Excluding Chico, revenue grew 24.9%.
• Adjusted EBITDA(3) grew 29.9% to $46.8 million, representing 21.9% of revenue, up 70 basis points versus the prior year. Operating income was $35.2 million, up 55.4% versus the prior year.
• Net income was $22.6 million, up from $3.4 million in the prior year.
• Adjusted Net Income(3) was $24.8 million or $0.35 per diluted share.
• Opened 6 new stores and acquired 66 stores through the acquisition of Chico, ending the quarter with 705 stores across the network.
• The Board of Directors declared a dividend of $0.06 per common share.

2022 Outlook

• The Company now expects revenue between $870 and $895 million, supported by same-store sales growth between 9% and 12% and 35-45 new store openings, Adjusted EBITDA between $191 and $198 million and Adjusted Net Income per Diluted Share(2) between $1.37 and $1.44.

"We are very pleased with our performance in the first quarter as the business once again delivered on each element of our growth formula," said Richard Maltsbarger, President, and Chief Executive Officer. "Our strong same-store sales growth was supported by favourable traffic and basket trends, which together with our loyalty data highlights our continued ability to draw in new devoted pet lovers, while increasing share-of-wallet with our existing customers, driving overall market share gains.

"Factoring in our recent performance, we have raised our outlook for the full-year," continued Mr. Maltsbarger. "As we navigate the confluence of rising fuel, freight and vendor product costs, our teams remain acutely focused on delivering value together with the best retail experience to our devoted pet lovers, coast to coast in our 700+ local store network and everywhere online."

Financial Results for the First Quarter Fiscal 2022

All comparative figures below are for the 13-week period ended April 2, 2022, compared to the 13-week period ended April 3, 2021.

Revenue increased by 25.4% to $213.3 million, compared to $170.1 million in the first quarter last year. The current quarter includes $0.8 million of franchise and other revenues from the acquisition of Chico. The increase in revenue was driven by growth in retail sales, as well as franchise and other revenues.

Same-store sales growth(1) was 22.8% in Q1 2022 primarily driven by a 18.4% increase in same-store transactions and a 3.7% increase in same-store average spend per transaction. This is compared to same-store sales growth of 6.9% in Q1 2021 primarily consisted of a 11.2% increase in same-store average spend per transaction and a (3.8)% decrease in same-store transactions. Same-store transactions and same-store average spend per transaction in Q1 2021 were impacted by a shift in consumer behaviour associated with COVID-19 restrictions.

Gross profit increased by $17.4 million, or 29.2%, to $77.1 million in Q1 2022, compared to $59.7 million in Q1 2021. Gross profit margin was 36.1% in Q1 2022 compared to 35.1% in Q1 2021. The gross profit margin increase was primarily driven by: (i) favourable product margins due to compression of margins in Q1 2021 related to pandemic operating restrictions; (ii) leverage gained on fixed costs due to higher revenue; partially offset by (iii) the absorption of incremental freight costs due to global supply chain constraints; and (iv) higher wholesale merchandise sales due to recovery from pandemic operating restrictions in Ontario in Q1 2021 and increased franchise penetration.

Selling, general and administrative ("SG&A") expenses increased by 13.2% to $41.9 million, compared to $37.0 million in the first quarter last year. SG&A expenses were 19.7% of revenue compared to 21.8% of revenue in the first quarter last year. The increase of $4.9 million in SG&A expenses was primarily due to: (i) increased compensation costs as a result of headcount investments and higher share-based compensation; (ii) higher technology and telecommunication costs to modernize our technology infrastructure and expand our omni-channel capabilities; (iii) higher depreciation and amortization; and (iv) partially offset by lower professional fees as the comparative quarter included fees to support the preparation of the initial public offering (the "Offering") and separation activities.

Adjusted EBITDA(3) was $46.8 million, or 21.9% of revenue, compared to $36.0 million, or 21.2% of revenue, in the first quarter last year.

Net interest expense was $4.0 million in Q1 2022, a decrease of $14.0 million, or 77.9%, compared to $18.0 million in Q1 2021. The decrease was primarily driven by lower interest expense on the 2021 Term Facility (as defined in the Company's Management Discussion and Analysis ("MD&A") for the first quarter ended April 2, 2022) resulting from lower interest rates and lower total debt outstanding compared the to 2016 Term Loan (as defined in the MD&A) which was outstanding in Q1 2021 and a decrease in other financing fees.

Income taxes were $8.6 million in Q1 2022 compared to $1.3 million in Q1 2021, an increase of $7.2 million year over year. The increase in income taxes was primarily the result of higher taxable earnings in Q1 2022. The effective income tax rate was 27.4% in Q1 2022 compared to 27.8% in Q1 2021. The effective tax rates are higher than the blended statutory rate of 26.5% primarily because of non-deductible expenses.

Net income was $22.6 million, an increase of $19.2 million from net income of $3.4 million in the first quarter last year. The change in net income is explained from the factors described above.

Adjusted Net Income(3) increased by $17.5 million to $24.8 million in Q1 2022, compared to $7.3 million in Q1 2021. Adjusted Net Income as a percentage of revenue was 11.6% in Q1 2022 and 4.3% in Q1 2021.

Adjusted Net Income per Diluted Share(3) was $0.35 compared to $0.13 in the first quarter last year.

Cash and cash equivalents at the end of the first quarter totaled $30.2 million.

Free Cash Flow(3) amounted to $(15.1) million in Q1 2022 including the acquisition of Chico. This compares to Free Cash Flow(3) of $(14.6) million in Q1 2021.

Inventory at end of the first quarter of 2022 was $100.5 million compared to $91.7 million at the end of fiscal 2021, an increase of $8.8 million primarily to support supply chain stability in light of global supply chain challenges and growth in revenue.

Dividends

On May 9, 2022, the Board of Directors of the Company declared a dividend of $0.06 per common share payable on June 15, 2022 to holders of common shares of record as at the close of business on May 31, 2022. This represents an increase of $0.05 per common share versus the dividend paid in fourth quarter 2021.

Outlook

The following information, except for same-store sales growth, includes the impact of Chico, which was acquired on February 25, 2022. Based on performance in the first quarter, and expectations for the balance of the year, the Company now expects to achieve the following for the full year 2022:

• Revenue between $870 and $895 million, supported by same-store sales growth of between 9% and 12%, and 35 to 45 new store openings;
• Adjusted EBITDA between $191 and $198 million, which incorporates a full year of public company costs, as well as incremental investments in labour as well as storage and throughput capacity, disclosed in late 2021;
• Adjusted Net Income per Diluted Share between $1.37 and $1.44;
• Information technology expenses of approximately $9 million and share-based compensation of approximately $7 million, both of which are excluded from Adjusted EBITDA and Adjusted Net Income per diluted share; and
• Net Capital Expenditures(4) between $35 and $40 million, including approximately $15 million in advanced payments and leasehold improvements related to the build-out of the new distribution centre in the Greater Toronto Area.

Due to the impact of various forms of government mandated operating restrictions imposed in early 2021, the Company expects year-over-year growth to be stronger in the first half of 2022, compared to year-over-year growth in the second half of the year. The relative distribution of revenue is expected to be more representative of pre-pandemic years, such as 2019.

Conference Call Details

A conference call to discuss the Company's first quarter results is scheduled for May 10, 2022, at 8:30 a.m. ET. To access Pet Valu's conference call, please dial 1-888-350-3870, (access code: 5518274). A live webcast of the call will also be available through the Events & Presentations section of the Company's website at https://investors.petvalu.com/.

For those unable to participate, a playback will be available shortly after the conclusion of the call by dialing 1-800-770-2030 (ID: 5518274#) and will be accessible until May 17, 2022. The webcast will also be archived and available through the Events & Presentations section of the Company's website at https://investors.petvalu.com/.

About Pet Valu

Pet Valu is Canada's leading retailer of pet food and pet-related supplies with over 700 corporate-owned or franchised locations across the country. For more than 40 years, Pet Valu has earned the trust and loyalty of pet parents by offering knowledgeable customer service, a premium product offering and engaging in-store services. Pet Valu's neighbourhood stores offer more than 7,000 competitively-priced products, including a broad assortment of premium, super premium, holistic and award-winning proprietary brands. To learn more, please visit: www.petvalu.com.

Basis of Presentation - Carve-out Financial Information

Prior to the Offering, the Company was not operating as a stand-alone entity and as a result, the financial information for periods prior to June 30, 2021 are presented on a carve-out basis that includes only legal entities representing the Canadian operations of Pet Valu Holdings Ltd. (referred to as the "Group", prior to the distribution of its U.S. operations to its shareholder). For more information, see the Company's unaudited condensed consolidated financial statements and related MD&A for the 13-week periods ended April 2, 2022 and April 3, 2021, respectively.

Non-IFRS Measures and Supplementary Financial Measures

This press release makes reference to certain non-IFRS measures. These measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS. They are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement IFRS measures by providing further understanding of the Company's results of operations from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company's financial information reported under IFRS. Pet Valu uses non-IFRS measures, including "EBITDA", "Adjusted EBITDA", "Adjusted Net Income", Adjusted Net Income per Diluted Share" and "Free Cash Flow". This press release also makes reference to certain supplementary financial measures that are commonly used in the retail industry, including "System-wide stores", "System-wide sales", "Same-store sales", and "Same-store sales growth". These non-IFRS measures and supplementary financial measures are used to provide investors with supplemental measures of Pet Valu's operating performance and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures. The Company also believes that securities analysts, investors and other interested parties frequently use non-IFRS measures and these supplementary financial measures in the evaluation of issuers. Management uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and to determine components of management compensation. Refer to the MD&A for the first quarter ended April 2, 2022 for further information on non-IFRS measures and industry metrics, including for their definition and, for non-IFRS measures, a reconciliation to the most comparable IFRS measure.

Forward-Looking Information

Some of the information contained in this press release is forward-looking information. Forward-looking information is provided as of the date of this press release and is based on management's opinions, estimates and assumptions in light of its experience and perception of historical trends, current trends, current conditions and expected future developments, as well as other factors that management believes appropriate and reasonable in the circumstances. Pet Valu does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws in Canada. Actual results and the timing of events may differ materially from those anticipated in the forward-looking information as a result of various factors. Particularly, information regarding our expectations of future results, targets, performance achievements, prospects or opportunities is forward-looking information, which is based on the factors and assumptions, and subject to the risks, as set out herein and in the Company's annual information form ("AIF") dated March 8, 2022. Often but not always, forward-looking information can be identified by the use of forward-looking terminology such as "may", "will", "expect", "believe", "estimate", "plan", "could", "should", "would", "outlook", "forecast", "anticipate", "foresee", "continue" or the negative of these terms or variations of them or similar terminology.

Many factors could cause our actual results, level of activity, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking information, including, without limitation, the factors discussed in the "Risk Factors" section of the AIF. A copy of the AIF and the Company's other publicly filed documents can be accessed under the Company's profile on the System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com.

The Company cautions that the list of risk factors and uncertainties described in the AIF is not exhaustive and other factors could also adversely affect its results. Readers are urged to consider the risks, uncertainties and assumptions carefully in evaluating forward-looking information and are cautioned not to place undue reliance on such information.

SELECTED CONSOLIDATED FINANCIAL INFORMATION

Condensed Interim Consolidated Statements of Income and Comprehensive Income
(Unaudited, expressed in thousands of Canadian dollars, except per share amounts)

Reconciliation of Net Income to EBITDA and Adjusted EBITDA
(Unaudited, in thousands of Canadian dollars unless otherwise noted)

Reconciliation of Net Income to Adjusted Net Income
(Unaudited, in thousands of Canadian dollars unless otherwise noted)

Condensed Interim Consolidated Statements of Cash Flows
(Unaudited, in thousands of Canadian dollars)

Free Cash Flows
(Unaudited, expressed in thousands of Canadian dollars)

Consolidated Statements of Financial Position
(Unaudited, expressed in thousands of Canadian dollars)

SOURCE Pet Valu Canada Inc.

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