Pet Valu Reports First Quarter 2024 Results

Grows Q1 Revenue by 4%, Increases Adjusted EBITDA(1) by 16%, and Reaffirms 2024 Outlook

MARKHAM, ON, May 7, 2024 /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 March 30, 2024.

• System-wide sales(2) were $352.9 million, an increase of 3.9% versus the prior year. Same-store sales growth(2) was 0.8%, driven by same-store average spend per transaction growth(2).
• Revenue was $260.8 million, up 4.2% versus the prior year, similar to system-wide sales growth.
• Adjusted EBITDA was $56.6 million, up 15.9% versus the prior year, representing 21.7% of revenue. Operating income was $33.3 million, down 4.5% versus the prior year.
• Net income was $17.5 million, down from $18.7 million in the prior year.
• Adjusted Net Income(1) was $25.3 million or $0.35 per diluted share, compared to $23.0 million or $0.32 per diluted share, respectively, in the prior year.
• Opened 11 new stores and ended the quarter with 794 stores across the network.
• The Board of Directors of the Company declared a dividend of $0.11 per common share.

• The Company expects revenue between $1.11 and $1.14 billion, supported by same-store sales growth between 2% and 5% and 40-50 new store openings, Adjusted EBITDA between $248 and $254 million, and Adjusted Net Income per Diluted Share(3) between $1.57 and $1.63.

"Our business delivered solid performance in the first quarter, underpinned by the resilience of our unique positioning, together with the exceptional efforts and agility of our teams," said Richard Maltsbarger, President and Chief Executive Officer of Pet Valu. "Our differentiated offering of compelling value, premium products, leading expertise and unmatched convenience continues to resonate with devoted pet lovers coast-to-coast.

"We also advanced several key strategic initiatives set to go live in the second quarter," continued Mr. Maltsbarger. "Excitement is mounting as we rollout our highly anticipated performatrin CulinaryTM/MC line-up, activate goods-to-picker automation in our new GTA distribution centre in June, and upgrade our digital platform at the end of the quarter."

All comparative figures below are for the 13-week period ended March 30, 2024, compared to the 13-week period ended April 1, 2023.

Revenue was $260.8 million in Q1 2024, an increase of $10.5 million, or 4.2%, compared to $250.3 million in Q1 2023. The increase in revenue was mostly driven by growth in franchise and other revenues.

Same-store sales growth was 0.8% in Q1 2024 primarily driven by a 3.2% increase in same-store average spend per transaction and partially offset by a 2.3% decrease in same-store transactions. This is compared to same-store sales growth of 9.4% in Q1 2023, which primarily consisted of a 3.0% increase in same-store transactions and a 6.3% increase in same-store average spend per transaction.

Gross profit increased by $0.1 million, or 0.2%, to $87.4 million in Q1 2024, compared to $87.2 million in Q1 2023. Gross profit margin was 33.5% in Q1 2024, compared to 34.8% in Q1 2023. Excluding costs related to the supply chain transformation of 0.9%, the gross profit margin was 34.4% and decreased by 0.4%. The decrease was primarily driven by: (i) higher distribution and occupancy costs from the new Greater Toronto Area ("GTA") distribution centre; (ii) higher wholesale merchandise sales; partially offset by (iii) lower inbound freight costs.

Selling, general and administrative ("SG&A") expenses were $54.1 million in Q1 2024, an increase of $1.7 million, or 3.3%, compared to $52.3 million in Q1 2023. SG&A expenses represented 20.7% and 20.9% of total revenue for Q1 2024 and Q1 2023, respectively. The increase of $1.7 million in SG&A expenses was primarily due to: (i) increased compensation costs as a result of share-based compensation and salary investments; (ii) higher depreciation and amortization from store growth and investments in other assets; partially offset by (iii) higher gain on sale of assets for re-franchised stores; and (iv) lower professional fees and other expenses.

Adjusted EBITDA increased by $7.8 million, or 15.9%, to $56.6 million in Q1 2024, compared to $48.8 million in Q1 2023. Adjusted EBITDA excludes $2.5 million of overall net higher costs from share-based compensation, information technology transformation, other professional fees, loss on foreign exchange, business transformation costs and investment in associate. Adjusted EBITDA also increased due to higher EBITDA(1) of $5.3 million in Q1 2024 compared to Q1 2023. Adjusted EBITDA as a percentage of revenue(3) was 21.7% and 19.5% in Q1 2024 and Q1 2023, respectively.

Net interest expense was $8.6 million in Q1 2024, an increase of $1.6 million, or 23.9%, compared to $6.9 million in Q1 2023. The increase was primarily driven by higher interest expense on lease liabilities resulting from the new GTA distribution centre and the new Metro Vancouver Region ("MVR") distribution centre.

Income taxes were $6.8 million in Q1 2024 compared to $7.5 million in Q1 2023, a decrease of $0.7 million year over year. The decrease in income taxes was primarily the result of lower taxable earnings in Q1 2024. The effective income tax rate was 28.0% in Q1 2024 compared to 28.6% in Q1 2023. The Q1 2024 and Q1 2023 effective tax rate was higher than the blended statutory rate of 26.5% primarily due to non-deductible expenses.

Net income decreased by $1.2 million to $17.5 million in Q1 2024, compared to $18.7 million in Q1 2023. The decrease in net income is primarily explained by the lower operating income, higher net interest expense partially offset by lower income taxes, as described above, and by the loss recognized on the derecognition of the call option related to an investment in associate included in Q1 2023.

Adjusted Net Income increased by $2.4 million to $25.3 million in Q1 2024, compared to $23.0 million in Q1 2023. Adjusted Net Income as a percentage of revenue(3) was 9.7% in Q1 2024 and 9.2% in Q1 2023, respectively. The 0.5% year over year increase results from the factors described above.

Adjusted Net Income per Diluted Share increased by $0.03 to $0.35 in Q1 2024, compared to $0.32 in Q1 2023. The 9.4% year over year increase results primarily from the factors described above.

Cash at the end of the first quarter totaled $41.2 million.

Free Cash Flow(1) amounted to $23.1 million in Q1 2024 compared to $(16.7) million in Q1 2023, an increase of $39.8 million primarily driven by an increase in cash from operating activities and a decrease in payments of principal on lease liabilities due to the timing of quarter end, partially offset by an increase in interest paid on lease liabilities driven by the new GTA and MVR distribution centres and store network expansion.

Inventory at the end of Q1 2024 was $129.8 million compared to $122.1 million at the end of Q4 2023, an increase of $7.7 million primarily due to replenishment following the holiday season and to support the growth of our store network, and timing of receipts resulting from global supply chain improvements.

On May 6, 2024, the Board of Directors of the Company declared a dividend of $0.11 per common share payable on June 17, 2024 to holders of common shares of record as at the close of business on May 31, 2024.

For the full year 2024, the Company expects:

• Revenue between $1.11 and $1.14 billion, supported by same-store sales growth of between 2% and 5%, 40 to 50 new store openings and higher wholesale merchandise sales penetration with Chico franchisees;
• Adjusted EBITDA between $248 and $254 million, supported by operating expense leverage, partially offset by pricing investment;
• Adjusted Net Income per Diluted Share between $1.57 and $1.63, which incorporates approximately $20 million pre-tax, or $0.20 per diluted share, of incremental depreciation and lease liability interest expense associated with the new GTA and MVR distribution centres;
• Business transformation costs of approximately $17 million pre-tax, information technology costs of approximately $7 million pre-tax, and share-based compensation of approximately $12 million pre-tax, all of which are excluded from Adjusted EBITDA and Adjusted Net Income per Diluted Share; and
• Net Capital Expenditures(1) of approximately $55 million, roughly half of which is attributable to investments in the Company's supply chain transformation.

A conference call to discuss the Company's first quarter results is scheduled for May 7, 2024, at 8:30 a.m. ET. To access Pet Valu's conference call, please dial 1-833-950-0062 (ID: 440652). 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 1-866-813-9403 (ID: 139856) and will be accessible until May 14, 2024. The webcast will also be archived and available through the Events & Presentations section of the Company's website at https://investors.petvalu.com/.

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.ca.

This press release makes reference to certain non-IFRS measures and non-IFRS ratios. These measures and ratios 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", "Free Cash Flow" and "Net Capital Expenditures", and non-IFRS ratios, including "Adjusted EBITDA as a percentage of revenue", "Adjusted Net Income as a percentage of revenue", and "Adjusted Net Income per Diluted Share". This press release also makes reference to certain supplementary financial measures that are commonly used in the retail industry, including "System-wide sales", "Same-store sales", "Same-store sales growth", and "Same-store average spend per transaction growth". These non-IFRS measures, non-IFRS ratios 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, non-IFRS ratios and these supplementary financial measures in the evaluation of issuers. Management uses non-IFRS measures, non-IFRS ratios and supplementary financial 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 March 30, 2024 for further information on non-IFRS measures, non-IFRS ratios (including each non-IFRS measure that is used as a component of such non-IFRS ratios) and supplementary measures, including for their definition and, for non-IFRS measures, a reconciliation to the most comparable IFRS measure.

Some of the information contained in this press release is forward-looking information. Forward-looking information is provided as at 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. Such forward-looking information is intended to provide information about management's current expectations and plans, and may not be appropriate for other purposes. 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 Canadian securities laws. 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, including the information under the headings "2024 Outlook" and "Outlook" in this press release, is "future-oriented financial information" or a "financial outlook" within the meaning of applicable securities legislation, 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 dated March 4, 2024 ("AIF"). In some cases, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "targets", "expects" or "does not expect", "is expected", "an opportunity exists", "budget", "scheduled", "estimates", "outlook", "forecasts", "projection", "prospects", "strategy", "intends", "anticipates", "does not anticipate", "believes", "continue", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "should", "might", "will", "will be taken", "occur" or "be achieved". In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances contain forward-looking information.

Many factors could cause our actual results, level of activity, performance or achievements, future events or developments, or outlook 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 SEDAR+ at www.sedarplus.ca.

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.

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)

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

SOURCE Pet Valu Canada Inc.

View original content to download multimedia: http://www.newswire.ca/en/releases/archive/May2024/07/c9494.html