Revenue up 22%, exceeding 20% for the third consecutive quarter Raises full-year outlook following strong performance in Q3 2022
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 third quarter ended October 1, 2022.
- System-wide sales(1) were $331.6 million, an increase of 28.3% versus the prior year. Excluding Chico(2), system-wide sales grew 17.6%, driven predominantly by same-store sales growth(1) of 14.7%, with both basket and traffic growth contributing.
- Revenue was $244.7 million, an increase of 21.9% versus the prior year. Excluding Chico, revenue grew 20.3%, similar to system-wide sales growth.
- Adjusted EBITDA(3) was $57.0 million, up 12.4%, representing 23.3% of revenue. Operating income was $43.3 million, up 11.2% versus the prior year.
- Net income was $27.0 million, up from $24.3 million in the prior year.
- Adjusted Net Income(3) was $30.7 million or $0.43 per diluted share, up 11.1% and 10.3%, respectively, versus the prior year.
- Opened 13 new stores and ended the quarter with 729 stores across the network.
- Launched AutoShip subscription service on September 21, 2022.
- The Board of Directors declared a dividend of $0.06 per common share.
- The Company now expects 2022 revenue between $938 and $947 million, driven by same-store sales growth between 15.5% and 16.5% and 40-45 new store openings, Adjusted EBITDA between $212 and $214 million and Adjusted Net Income per Diluted Share(3) between $1.56 and $1.58.
"Our momentum continued into Q3 as we delivered another quarter of exceptional same-store sales growth across our network, bolstered by the resilient strength of the pet industry and further market share gains," said Richard Maltsbarger, President and Chief Executive Officer of Pet Valu. "At the same time, we made significant advancements on our strategic agenda, including the rollout of our AutoShip subscription service, initial launch of our Performatrin Ultra brand in Chico stores and the introductions of what we believe are our best ever seasonable product lineups for fall, winter and the holidays.
"We continue to see robust signals from devoted pet lovers across Canada as our team and franchisees work tirelessly to provide value to our customers," continued Mr. Maltsbarger. "We have once again raised our 2022 outlook, built on recent performance and our excitement as we head into the holiday season."
All comparative figures below are for the 13-week period ended October 1, 2022, compared to the 13-week period ended October 2, 2021.
Revenue was $244.7 million in Q3 2022, an increase of $44.0 million, or 21.9%, as compared to $200.7 million in Q3 2021. The current quarter includes $3.3 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 was 14.7% in Q3 2022 driven by a 7.6% increase in same-store transactions and a 6.6% increase in same-store average spend per transaction. This is compared to same-store sales growth of 20.3% in Q3 2021, which primarily consisted of a 12.9% increase in same-store transactions and a 6.6% increase in same-store average spend per transaction.
Gross profit increased by $15.2 million, or 19.4%, to $93.5 million in Q3 2022, compared to $78.3 million in Q3 2021. Gross profit margin was 38.2% in Q3 2022 compared to 39.0% in Q3 2021. The gross profit margin decrease was primarily driven by: (i) lower product margins as pricing adjustments were more than offset by higher costs including incremental freight costs and rebates to our franchisees; (ii) the unfavourable impact of the weaker Canadian dollar on non-domestic sourced products primarily denominated in U.S. dollars; partially offset by (iii) a duty recovery associated to COVID relief measures; and (iv) the acquisition of Chico.
Selling, general and administrative ("SG&A") expenses were $50.2 million in Q3 2022, an increase of $10.9 million, or 27.6%, compared to $39.4 million in Q3 2021. SG&A expenses represented 20.5% and 19.6% of total revenue for Q3 2022 and Q3 2021, respectively. The $10.9 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 and telecommunication costs to modernize our technology infrastructure and expand our omni-channel capabilities; (iii) higher advertising expenses; (iv) higher travel and meeting expenses; partially offset by (v) lower professional fees as Q3 2021 included fees to support post-initial public offering (the "Offering") and separation activities.
Adjusted EBITDA increased by $6.3 million, or 12.4%, to $57.0 million in Q3 2022, compared to $50.7 million in Q3 2021. The increase in Adjusted EBITDA was primarily due to higher EBITDA of $5.1 million as explained by the factors above and excludes share-based compensation, business transformation costs, readiness for the Offering and separation costs, loss on foreign exchange, information technology transformation costs, investment in associate, and other professional fees. Adjusted EBITDA as a percentage of revenue was 23.3% and 25.2% respectively in Q3 2022 and Q3 2021.
Net interest expense was $5.5 million in Q3 2022, an increase of $1.0 million, or 22.6%, compared to $4.5 million in Q3 2021. The increase was primarily driven by: (i) higher interest expense on the 2021 Term Facility (as hereinafter defined) resulting from higher interest rates on lower total debt outstanding compared to Q3 2021.
Income taxes were $10.1 million in Q3 2022 compared to $9.8 million in Q3 2021, an increase of $0.3 million year over year. The increase in income taxes was primarily the result of higher taxable earnings in Q3 2022. The effective income tax rate was 27.2% in Q3 2022 compared to 28.6% in Q3 2021. The Q3 2022 and Q3 2021 effective tax rate is higher than the blended statutory rate of 26.5% primarily because of non-deductible expenses.
Net income increased by $2.6 million to $27.0 million in Q3 2022, compared to $24.3 million in Q3 2021. The change in net income is explained by the factors described above.
Adjusted Net Income increased by $3.1 million to $30.7 million in Q3 2022, compared to $27.7 million in Q3 2021. Adjusted Net Income as a percentage of revenue was 12.6% in Q3 2022 and 13.8% in Q3 2021. The 1.2% year over year decrease results from the factors described above.
Adjusted Net Income per Diluted Share increased by $0.04 to $0.43 in Q3 2022, compared to $0.39 in Q3 2021. The 10.3% year over year increase results primarily from the factors described above.
Cash and cash equivalents at the end of the third quarter totaled $47.8 million.
Free Cash Flow(3) amounted to $19.9 million in Q3 2022 compared to $46.8 million in Q3 2021, a decrease of $26.9 million mostly driven by a decrease in cash from operating activities and investing activities, and higher repayment of principal and interest on lease liabilities given the growth in store count and the renewal of existing leases.
Inventory at end of the third quarter of 2022 was $136.0 million compared to $91.7 million at the end of Fiscal 2021, an increase of $44.3 million primarily due to higher demand, inflation in product cost, a heightened level of safety stock and accelerated purchase of seasonal goods in light of global supply chain challenges, and initial load-ins to support proprietary brand launches at Chico.
On November 7, 2022, the Board of Directors of the Company declared a dividend of $0.06 per common share payable on December 15, 2022 to holders of common shares of record as at the close of business on November 30, 2022.
The following information, except for same-store sales growth, includes the impact of Chico, which was acquired on February 25, 2022. Based on strong performance year-to-date, and expectations for fourth quarter, the Company now expects to achieve the following for the full year 2022:
- Revenue between $938 and $947 million, supported by same-store sales growth of between 15.5% and 16.5%, and 40 to 45 new store openings;
- Adjusted EBITDA between $212 and $214 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 $1.56 and $1.58;
- Information technology transformation costs of approximately $8 million and share-based compensation of approximately $6 million, both of which are excluded from Adjusted EBITDA and Adjusted Net Income per Diluted Share; and
- Net Capital Expenditures 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.
A conference call to discuss the Company's third quarter results is scheduled for November 8, 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 November 15, 2022. 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.
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 interim consolidated financial statements and related MD&A for the 13-week and 39-week periods ended October 1, 2022 and October 2, 2021, respectively.
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 second quarter ended October 1, 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.
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 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 heading "Outlook" in this press release, 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, 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 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