Delivers 6% Same-Store Sales Growth⁽¹⁾ and Reaffirms Guidance

MARKHAM, ON, Aug. 8, 2023 /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 second quarter ended July 1, 2023.

• System-wide sales⁽¹⁾ were $343.9 million, an increase of 10.1% versus the prior year. Same-store sales growth was 6.0%, with both basket and traffic growth contributing.
• Revenue was $256.4 million, up 12.6% versus last year.
• Adjusted EBITDA⁽²⁾ was $53.8 million, up 3.9% versus the prior year, representing 21.0% of revenue. Operating income was $40.2 million, up 2.3% versus the prior year.
• Net income was $24.1 million, down from $25.3 million in the prior year.
• Adjusted Net Income⁽²⁾ was $26.3 million or $0.36 per diluted share, compared to $27.9 million or $0.39 per diluted share, respectively, in the prior year.
• Opened 7 new stores and ended the quarter with 758 stores across the network.
• The Board of Directors of the Company declared a dividend of $0.10 per common share.

• The Company expects 2023 revenue between $1,050 and $1,075 million, driven by same-store sales growth between 7% and 10% and 40-50 new store openings, Adjusted EBITDA between $230 and $237 million and Adjusted Net Income per Diluted Share⁽²⁾ between $1.60 and $1.66.

"We are pleased with our second quarter results, rounding out strong performance for the first half of 2023, in which our business delivered on all key metrics," said Richard Maltsbarger, President and Chief Executive Officer of Pet Valu. "Our double-digit growth in consumables, such as pet food and cat litter, makes it clear our expert level customer service, curated offering of premium products and strengthening omni-channel shopping capabilities continue to resonate with devoted pet lovers across Canada.

"With a recent shift in consumer demand, our teams are prioritizing key projects, investments and talent to those actions that will continue to deliver the greatest value across the second half of 2023 and support our long-term profitable growth," continued Mr. Maltsbarger. "Our Supply Chain transformation proceeds on-plan with shipments to stores from our new GTA facility commencing this month. We are also investing in our customer-facing ACEs, growing our franchise ownership base, and accelerating investments in our e-commerce experience, all while closely managing key cost levers."

All comparative figures below are for the 13-week period ended July 1, 2023, compared to the 13-week period ended July 2, 2022.

Revenue was $256.4 million in Q2 2023, an increase of $28.7 million, or 12.6%, compared to $227.7 million in Q2 2022. The increase in revenue was driven by growth in retail sales, as well as franchise and other revenues.

Same-store sales growth was 6.0% in Q2 2023 primarily driven by a 4.8% increase in same-store average spend per transaction and a 1.2% increase in same-store transactions. This is compared to same-store sales growth of 21.2% in Q2 2022, which primarily consisted of a 19.3% increase in same-store transactions and a 1.5% increase in same-store average spend per transaction.  Q2 2022 same-store sales growth was elevated given the comparative period, Q2 2021, was impacted by a shift in consumer behaviour associated with COVID-19 restrictions.

Gross profit increased by $6.7 million, or 7.9%, to $92.1 million in Q2 2023, compared to $85.4 million in Q2 2022. Gross profit margin was 35.9% in Q2 2023, compared to 37.5% in Q2 2022. Excluding costs related to the supply chain transformation of 0.20%, the gross profit margin was 36.1%  and decreased by 1.4%. The decrease was primarily driven by: (i) the unfavourable impact of the weaker Canadian dollar on non-domestic sourced products primarily denominated in U.S. dollars; (ii) higher wholesale merchandise sales due to increased franchise penetration and improved fill rates to franchisees; partially offset by (iii) favourable product margins as lower inbound freight costs more than offset higher distribution costs.

Selling, general and administrative ("SG&A") expenses were $51.9 million in Q2 2023, an increase of $5.8 million, or 12.6%, compared to $46.1 million in Q2 2022. SG&A expenses represented 20.2% and 20.2% of total revenue for Q2 2023 and Q2 2022, respectively. The increase of $5.8 million in SG&A expenses was primarily due to: (i) increased compensation costs as a result of headcount and salary investments; (ii) higher depreciation and amortization from store growth and investments, and other assets; partially offset by (iii) lower professional fees.

Adjusted EBITDA increased by $2.0 million, or 3.9%, to $53.8 million in Q2 2023, compared to $51.8 million in Q2 2022. Adjusted EBITDA excludes $0.5 million of lower costs from business transformation, investment in associate, other professional fees, information technology transformation, share-based compensation, and loss (gain) on foreign exchange. Adjusted EBITDA was also impacted by higher EBITDA of $2.5 million in Q2 2023 compared to Q2 2022. Adjusted EBITDA as a percentage of revenue was 21.0% and 22.8% in Q2 2023 and Q2 2022, respectively.

Net interest expense was $7.2 million in Q2 2023, an increase of $2.6 million, or 56.9%, compared to $4.6 million in Q2 2022. The increase was primarily driven by higher interest expense on the 2021 Term Facility (as defined in the Company's management's discussion and analysis ("MD&A") for the second quarter ended July 1, 2023) resulting from higher interest rates compared to Q2 2022.

Income taxes were $9.0 million in Q2 2023 compared to $9.5 million in Q2 2022, a decrease of $0.5 million year over year. The decrease in income taxes was primarily the result of lower taxable earnings in Q2 2023. The effective income tax rate was 27.1% in Q2 2023 compared to 27.3% in Q2 2022. The Q2 2023 and Q2 2022 effective tax rate is higher than the blended statutory rate of 26.5% primarily because of non-deductible expenses.

Net income decreased by $1.2 million to $24.1 million in Q2 2023, compared to $25.3 million in Q2 2022. The change in net income is explained by the factors described above.

Adjusted Net Income decreased by $1.6 million to $26.3 million in Q2 2023, compared to $27.9 million in Q2 2022. Adjusted Net Income as a percentage of revenue was 10.2% in Q2 2023 and 12.2% in Q2 2022. The 2.0% year over year decrease results from the factors described above.

Adjusted Net Income per Diluted Share decreased by $0.03 to $0.36 in Q2 2023, compared to $0.39 in Q2 2022 primarily from the factors described above.

Cash at the end of the second quarter totaled $8.8 million.

Free Cash Flow⁽²⁾ amounted to $13.0 million in Q2 2023 compared to $20.4 million in Q2 2022, a decrease of $7.4 million primarily driven by an increase in cash used for investing activities primarily due to higher Net Capital Expenditures, an increase in repayment of principal and interest on lease liabilities due to store network expansion, partially offset by an increase in cash from operating activities.

Inventory at end of Q2 2023 was $130.8 million compared to $118.4 million at the end of Q4 2022, an increase of $12.4 million primarily due to growth in revenue, improved vendor fill rates and timing of receipts resulting from global supply chain improvements.

On August 7, 2023, the Board of Directors of the Company declared a dividend of $0.10 per common share payable on September 15, 2023 to holders of common shares of record as at the close of business on August 31, 2023.

For the full year 2023, the Company expects:

• Revenue between $1,050 and $1,075 million, supported by same-store sales growth of between 7% and 10%, and 40 to 50 new store openings;
• Gross profit margin slightly below the Company's historical range of 35% to 36%, as the Company faces unfavourable foreign exchange rates and incurs approximately 100 basis points of cost associated with its supply chain transformation;
• Adjusted EBITDA between $230 and $237 million, which incorporates expense leverage on investments made in 2022, partially offset by the unfavourable foreign exchange rates;
• Adjusted Net Income per Diluted Share between $1.60 and $1.66;
• Business transformation costs of approximately $17 million, Information Technology costs of approximately $4 million, and share-based compensation of approximately $7 million, all of which are excluded from Adjusted EBITDA and Adjusted Net Income per Diluted Share; and
• Net Capital Expenditures⁽²⁾ of approximately $60 million, roughly half of which is attributable to investments in the Company's supply chain transformation.

A conference call to discuss the Company's second quarter results is scheduled for August 8, 2023, at 8:30 a.m. ET. To access Pet Valu's conference call, please dial 1-833-950-0062 (ID: 675228). 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 1-226-828-7578 (ID: 869032) and will be accessible until August 15, 2023. 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.com.

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", "Free Cash Flow" and "Net Capital Expenditures". 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 second quarter ended July 1, 2023 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.

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. 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 "2023 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 6, 2023 ("AIF"). 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, 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.

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)

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

SOURCE Pet Valu Canada Inc.

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