(PRESS RELEASE)MARKHAM, ON — 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 1, 2023.
First Quarter Highlights
- System-wide sales(1) were $339.6 million, an increase of 18.8% versus the prior year, or 12.6% excluding Chico(2). Same-store sales growth was 9.4%.
- Revenue was $250.3 million, up 17.4% versus last year. Excluding Chico, revenue grew 16.1%.
- Adjusted EBITDA(3) was $48.8 million, up 4.3% versus the prior year, representing 19.5% of revenue. Operating income was $34.9 million, down 0.8% versus the prior year.
- Net income was $18.7 million, down from $22.6 million in the prior year.
- Adjusted Net Income(3) was $23.0 million or $0.32 per diluted share, compared to $24.8 million or $0.35 per diluted share, respectively, in the prior year.
- Opened 7 new stores and ended the quarter with 751 stores across the network.
- The Board of Directors of the Company declared a dividend of $0.10 per common share.
2023 Outlook
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(3) between $1.60 and $1.66.
“Our business is off to a great start in 2023, with strong top-line growth and margins in the first quarter performing in-line with our expectations,” said Richard Maltsbarger, President and Chief Executive Officer of Pet Valu. “Exceptional execution from merchandising teams helped to navigate significant foreign exchange headwinds, while improving supply chain conditions enabled our best fill rates to our corporate and franchise stores in five years, all while achieving a key milestone with the opening of our 750th store.
“We are excited for our growth potential in 2023, and are reaffirming our full year outlook,” continued Mr. Maltsbarger. “Our teams remain steadfast in their focus on our strategic priorities, which are anchored in delivering long-term, profitable growth.”
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Financial Results for the First Quarter Fiscal 2023
All comparative figures below are for the 13-week period ended April 1, 2023, compared to the 13-week period ended April 2, 2022.
Revenue was $250.3 million in Q1 2023, an increase of $37.0 million, or 17.4%, compared to $213.3 million in Q1 2022. The current quarter includes $3.6 million of franchise and other revenues from Chico compared to $0.8 million in the comparative quarter given the timing of the acquisition. The increase in revenue was driven by growth in retail sales, as well as franchise and other revenues.
Same-store sales growth was 9.4% in Q1 2023 primarily driven by a 3.0% increase in same-store transactions and a 6.3% increase in same-store average spend per transaction. Same-store sales growth in Q1 2023 included a negative impact of approximately 1.2% due to the timing of New Year’s day. This is compared to same-store sales growth of 22.8% in Q1 2022, which primarily consisted of an 18.4% increase in same-store transactions and a 3.7% increase in same-store average spend per transaction. Q1 2022 same-store sales growth was elevated given the comparative period, Q1 2021, was impacted by a shift in consumer behaviour associated with COVID-19 restrictions.
Gross profit increased by $10.1 million, or 13.1%, to $87.2 million in Q1 2023, compared to $77.1 million in Q1 2022. Gross profit margin was 34.8% in Q1 2023, compared to 36.1% in Q1 2022. The gross profit margin 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 due to lower freight costs; and (iv) the acquisition of Chico.
Selling, general and administrative (“SG&A”) expenses were $52.3 million in Q1 2023, an increase of $10.4 million, or 24.9%, compared to $41.9 million in Q1 2022. SG&A expenses represented 20.9% and 19.7% of total revenue for Q1 2023 and Q1 2022, respectively. The $10.4 million increase in SG&A expenses was primarily due to: (i) increased compensation costs as a result of headcount and salary investments; (ii) higher technology costs to modernize our systems including our warehousing and omni-channel capabilities; (iii) higher advertising expenses; (iv) higher depreciation and amortization from store growth and investments and other assets; partially offset by (v) lower professional fees.
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Adjusted EBITDA increased by $2.0 million, or 4.3%, to $48.8 million in Q1 2023, compared to $46.8 million in Q1 2022. Adjusted EBITDA excludes $2.3 million of higher costs from business transformation, investment in associate including the derecognition of the related call option in Q1 2023, other professional fees, information technology transformation, share-based compensation, and loss (gain) on foreign exchange. Adjusted EBITDA was also impacted by lower EBITDA of $0.3 million in Q1 2023 compared to Q1 2022. Adjusted EBITDA as a percentage of revenue was 19.5% and 21.9% in Q1 2023 and Q1 2022, respectively.
Net interest expense was $6.9 million in Q1 2023, an increase of $2.9 million, or 73.5%, compared to $4.0 million in Q1 2022. The increase was primarily driven by higher 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 1, 2023) resulting from higher interest rates compared to Q1 2022.
Income taxes were $7.5 million in Q1 2023 compared to $8.6 million in Q1 2022, a decrease of $1.1 million year over year. The decrease in income taxes was primarily the result of lower taxable earnings in Q1 2023. The effective income tax rate was 28.6% in Q1 2023 compared to 27.4% in Q1 2022. The Q1 2023 and Q1 2022 effective tax rate is higher than the blended statutory rate of 26.5% primarily because of the loss on the derecognition of the call option related to an investment in associate and non-deductible expenses.
Net income decreased by $3.9 million to $18.7 million in Q1 2023, compared to $22.6 million in Q1 2022. The decrease in net income is primarily explained by the loss on the derecognition of the call option related to an investment in associate, higher net interest expense, as described above, and partially offset by the lower income taxes, as described above.
Adjusted Net Income decreased by $1.9 million to $23.0 million in Q1 2023, compared to $24.8 million in Q1 2022. Adjusted Net Income as a percentage of revenue was 9.2% in Q1 2023 and 11.6% in Q1 2022. The 2.5% year over year decrease results from the factors described above.
Adjusted Net Income per Diluted Share decreased by $0.03 to $0.32 in Q1 2023, compared to $0.35 in Q1 2022. The 8.6% year over year decrease results primarily from the factors described above.
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Cash at the end of the first quarter totaled $12.3 million.
Free Cash Flow(3) amounted to $(16.7) million in Q1 2023 compared to $(15.1) million in Q1 2022, a decrease of $1.6 million mostly driven by an increase in repayment of principal on lease liabilities due to the timing of year-end in Q4 2022, lower cash provided by operating activities, partially offset by lower use of cash in investing activities.
Inventory at end of Q1 2023 was $140.1 million compared to $118.4 million at the end of Q4 2022, an increase of $21.7 million primarily due to growth in revenue, improved vendor fill rates and timing of receipts resulting from global supply chain improvements.
Dividends
On May 8, 2023, the Board of Directors of the Company declared a dividend of $0.10 per common share payable on June 15, 2023 to holders of common shares of record as at the close of business on May 31, 2023.
Outlook
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 80 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 $13 million, Information Technology costs of approximately $7 million, and share-based compensation of approximately $8 million, all of which are excluded from Adjusted EBITDA and Adjusted Net Income per Diluted Share; and
- Net Capital Expenditures(3) of approximately $60 million, roughly half of which is attributable to investments in the Company’s supply chain transformation.
Conference Call Details
A conference call to discuss the Company’s first quarter results is scheduled for May 9, 2023, at 8:30 a.m. ET. To access Pet Valu’s conference call, please dial 1-833-950-0062 (ID: 686748). A live webcast of the call will also be available through the Events & Presentations section of the Company’s website here.
For those unable to participate, a playback will be available shortly after the conclusion of the call by dialing 1-226-828-7578 (ID: 261296) and will be accessible until May 16, 2023. The webcast will also be archived and available through the Events & Presentations section of the Company’s website here.
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.
