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Petco Health & Wellness Company, Inc. - 10-Q Summary

Business Context and Reporting Period

This filing is a Quarterly Report on Form 10-Q for Petco Health & Wellness Company, Inc. (Petco), covering the thirteen-week period ended May 2, 2026. Petco operates as a leading pet specialty retailer with over 1,500 stores across the U.S., Mexico, and Chile, managing its business as a single reportable segment. The company focuses on a multicategory strategy integrating digital assets with its physical footprint.

Key Financial Metrics

Note: Liquidity includes cash and cash equivalents plus $487.6 million available under the ABL Revolving Credit Facility.

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 0.2% year-over-year, driven by a 6.8% increase in Services and other revenue, partially offset by declines in Consumables (-0.2%) and Supplies/Companion Animals (-2.5%). Comparable sales increased 0.7%.
• Profitability: Operating income improved by $8.2 million (50.5% increase) due to a 40 basis point improvement in gross margin and a reduction in SG&A expenses as a percentage of sales (36.7% vs. 37.1%).
• Debt Restructuring: On February 2, 2026, Petco refinanced its First Lien Term Loan. The company issued $600.0 million in Senior Secured Notes and amended its term loan to $900.0 million. This transaction resulted in a $11.8 million loss on extinguishment and modification of debt, which significantly impacted the net loss for the quarter.
• Cash Flow: Net cash used in operating activities increased to $31.0 million (from $15.5 million used in the prior year), primarily due to increased inventory purchases and timing of payments. Free Cash Flow was negative $69.1 million.

Outlook, Risks, and Management Commentary

• Management Focus: Management continues to focus on profitability through disciplined unit cost management, pricing, and promotional strategies. They are optimizing their veterinary footprint and investing in customer acquisition and retention.
• Tariff Refunds: Following a U.S. Supreme Court decision invalidating certain tariffs under the IEEPA, Petco has applied for refunds of previously paid tariffs. The company will recognize these receivables when realized.
• Risks: Key risks include macroeconomic pressures (inflation, interest rates), supply chain constraints, increased competition from mass retailers and e-commerce, and the ability to successfully execute transformation initiatives. The company notes that forward-looking statements are subject to significant uncertainties.
• Capital Resources: Petco believes its current resources and borrowing capacity are sufficient to fund operations and capital investments for at least the next 12 months.

Investor Verification Checklist

• Debt Refinancing Impact: Verify the long-term interest rate implications of the new $600M Senior Secured Notes (8.25%) and the amended term loan (variable + 4.25% over SOFR) versus the previous structure.
• Inventory Levels: Review the increase in merchandise inventories (from $590.2M to $632.9M) and assess if this aligns with sales trends or indicates potential overstocking.
• Comparable Sales Quality: Analyze the 0.7% comparable sales increase in the context of a lower pet care center count (1,378 vs. 1,393) to understand the underlying store performance.
• Tariff Receivables: Monitor the status of the IEEPA tariff refund application and the likelihood of realizing these receivables in future periods.
• Adjusted EBITDA Reconciliation: Review the specific adjustments made to reach Adjusted EBITDA, particularly the inclusion of the Mexico joint venture EBITDA and the exclusion of the debt extinguishment loss.