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What changed in Petco Health & Wellness Company, Inc.'s 10-K — 2025 vs 2026

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Paragraph-level year-over-year comparison of Petco Health & Wellness Company, Inc.'s 2025 and 2026 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2026 report.

+320 added−318 removedSource: 10-K (2025-03-31) vs 10-K (2024-04-03)

Top changes in Petco Health & Wellness Company, Inc.'s 2026 10-K

320 paragraphs added · 318 removed · 268 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeIn fiscal 2023, we are proud to have provided nearly 650,000 hours of training across our pet care center partners. In addition, nearly 40% of open General Manager and District General Managers positions were filled by internal candidates, either through lateral moves or promotions.
Biggest changeIn addition, over 40% of open Store General Manager and District Manager positions were filled by internal candidates, either through lateral moves or promotions. Distribution We currently have seven primary and two regional distribution centers in our network, which are located in various parts of the United States, that handle almost all distribution for our company.
The FDA has issued guidance regarding products that provide nutrients in support of an animal’s daily nutrient needs but which are also labeled as being 10 intended for use to diagnose, cure, mitigate, treat, or prevent disease, thereby meeting the statutory definitions of both a food and a drug.
The FDA has issued guidance regarding products that provide nutrients in support of an animal’s daily nutrient needs but which are also labeled as being 9 intended for use to diagnose, cure, mitigate, treat, or prevent disease, thereby meeting the statutory definitions of both a food and a drug.
In addition, our owned product assortment, such as WholeHearted, Reddy, and Well & Good, serves as a significant driver of sales, customer loyalty, and repeat purchasing and was a meaningful contributor to enterprise sales in fiscal 2023.
In addition, our owned product assortment, such as WholeHearted, Reddy, and Well & Good, serves as a significant driver of sales, customer loyalty, and repeat purchasing and was a meaningful contributor to enterprise sales in fiscal 2024.
Building on nearly 60 years of providing solutions for pets and the people who love and care for them, we serve our customers as a fully-integrated, omnichannel provider of pet health and wellness products, services, and solutions.
Building on 60 years of providing solutions for pets and the people who love and care for them, we serve our customers as a fully-integrated, omnichannel provider of pet products, services, and solutions.
Distributing these much-needed vaccinations in under-resourced communities is something Petco Love believes gives all pets the best chance to live long and healthy lives. 9 Our Trademarks and Other Intellectual Property We believe that our rights in our intellectual property, including trademarks and domain names, as well as contractual provisions and restrictions on access to our proprietary technology, are important to our marketing efforts to develop brand recognition and differentiate our brand from our competitors.
Providing these much-needed vaccinations in under-resourced communities is something Petco Love believes gives more pets the best chance to live long and healthy lives. 8 Our Trademarks and Other Intellectual Property We believe that our rights in our intellectual property, including trademarks and domain names, as well as contractual provisions and restrictions on access to our proprietary technology, are important to our marketing efforts to develop brand recognition and differentiate our brand from our competitors.
Our product offering leverages a broad assortment of national, owned brand, and exclusive merchandise, providing customers with a wide variety of nutritional options, including health-focused options free from artificial ingredients, complemented by a wide variety of pet care supplies and companion animals.
Our product offering leverages a broad assortment of national, owned brand, and exclusive merchandise, providing customers with a wide variety of nutritional options at a wide range of price points, including health-focused options free from artificial ingredients, complemented by a wide variety of pet care supplies and companion animals.
By integrating our veterinary hospitals into existing pet care centers, we benefit from certain structural advantages compared to stand-alone veterinary care providers, such as lower cost of acquisition and additional basket opportunities (including further tapping into the prescription food and drug market).
By integrating our veterinary hospitals into existing pet care centers, we benefit from certain structural advantages compared to stand-alone veterinary care providers, such as additional basket opportunities (including further tapping into the prescription food and drug market).
Our marketing efforts leverage our integrated ecosystem and health & wellness positioning to drive customer acquisition, monetization, and retention. We also utilize personalization technology to provide relevant content to our first-party customers. Human Capital Our Partners Our employees, who we call Petco partners, are our most significant assets, critical to the delivery of our transformation and our continued progress.
Our marketing efforts leverage our integrated ecosystem and competitive positioning to drive customer acquisition, monetization, and retention. We also utilize personalization technology to provide relevant content to our first-party customers. Human Capital Our Partners Our employees, who we call Petco partners, are our most significant asset, critical to the delivery of our transformation and our continued progress.
Sitting at the intersection of value and loyalty, Vital Care Premier makes it easier and more affordable for pet parents to care for their pet’s whole health and links pet parents with our merchandise and services offerings, while Vital Care Core provides pet parents with a suite of loyalty offerings.
Sitting at the intersection of value and loyalty, Vital Care Premier makes it easier and more affordable for pet parents to care for their pets and links pet parents with our merchandise and services offerings, while Vital Care Core provides pet parents with a suite of loyalty offerings.
Since its founding in 1999, Petco Love has inspired and empowered animal welfare organizations to make a difference, investing nearly $380 million in adoption and medical care programs, spay/neuter services, pet cancer research, service and therapy animals, and numerous other lifesaving initiatives.
Since its founding in 1999, Petco Love has inspired and empowered animal welfare organizations to make a difference, investing nearly $410 million in adoption and medical care programs, reuniting lost pets, spay/neuter services, pet cancer research, service and therapy animals, and numerous other lifesaving initiatives.
As of February 3, 2024, we had over 29,000 total partners. Our over 26,000 pet care center partners offer a level of customer engagement and content that is differentiated in retail and based on a true passion for pets. Our partners are primarily employed on an at-will basis and are compensated through base salary and incentive programs.
As of February 1, 2025, we had over 29,000 total partners. Our over 26,000 pet care center partners offer a level of customer engagement and content that is differentiated in retail and grounded in a true passion for pets. Our partners are primarily employed on an at-will basis and are compensated through base salary and incentive programs.
Petco.com, our e-commerce site, and the Petco app, our personalized mobile app, together serve as hubs for pet parents to book appointments and manage their pets’ health, wellness, and merchandise needs, while enabling them to shop wherever, whenever, and however they want.
Petco.com, our e-commerce site, and the Petco app, our personalized mobile app, together serve as hubs for pet parents to book appointments and manage all of their pets’ needs, while enabling them to shop wherever, whenever, and however they want.
Item 1. B usiness . Our Company Founded in 1965, Petco is a pet health and wellness company focused on improving the lives of pets, pet parents, and our own Petco partners.
Item 1. B usiness . Our Company Founded in 1965, Petco is a pet specialty retailer focused on improving the lives of pets, pet parents, and our own Petco partners.
Through our ecosystem, we provide our customers with a comprehensive offering of products and services to fulfill their pets’ health and wellness needs through our 1,423 pet care centers in the U.S. and Puerto Rico, our digital channel, and our flexible fulfillment options. We also operate 131 pet care centers in Mexico and 2 in Chile through a joint venture.
Through our ecosystem, we provide our customers with a comprehensive offering of products and services to fulfill all of their pets’ needs through our 1,398 pet care centers in the U.S. and Puerto Rico, our digital channel, and our flexible fulfillment options. We also operate 142 pet care centers in Mexico and 2 in Chile through a joint venture.
These trademarks include Bond & Co., EveryYay, Good 2 Go, Good Lovin’, Harmony, Imagitarium, Leaps & Bounds, Pals Rewards, Petco, Petco Love, PetCoach, Reddy, Ruff & Mews, So Phresh, Vetco, Well & Good, WholeHearted, You & Me, Youly, Vital Care Core, and Vital Care Premier.
These trademarks include Bond & Co., EveryYay, Good 2 Go, Good Lovin’, Harmony, Imagitarium, Leaps & Bounds, Petco, Petco Love, Petco Park, PetCoach, Reddy, Ruff & Mews, So Phresh, Vetco, Well & Good, Where the Pets Go, WholeHearted, You & Me, Youly, Vital Care Core, and Vital Care Premier.
The majority of relationships we have with third-party domestic transportation and logistics providers are governed by non-exclusive agreements that do not obligate us to minimum volume or fees, and such agreements may generally be terminated by either party on 45 days’ prior written notice. Vendor Arrangements In fiscal 2023, we purchased merchandise from approximately 680 vendors.
The majority of relationships we have with third-party domestic transportation and logistics providers are governed by non-exclusive agreements that do not obligate us to minimum volume or fees, and such agreements may generally be terminated by either party on 45 days’ prior written notice.
To date, nearly 3,000 animal welfare organizations and pet industry partners across the U.S. have adopted the platform, and Petco Love Lost has helped return over 34,000 pets to their loving homes.
To date, more than 3,000 animal welfare organizations and pet industry partners across the U.S. utilize the platform, and Petco Love Lost has helped return over 100,000 pets to their loving homes.
Petco Love Petco Love is a nonprofit organization changing lives by making communities and pet families healthier, stronger, and closer. It is a separately incorporated 501(c)(3) nonprofit organization supported both by contributions from us and contributions from Petco customers and community partners.
Petco Love Petco Love is a nonprofit organization changing lives by making communities and pet families closer, stronger, and healthier. It is an independent 501(c)(3) nonprofit organization supported by contributions from us, Petco customers, corporate partners, and individual donors.
Due to the essential, repeat nature of pet care, the industry has demonstrated resilience across economic cycles. However, during fiscal 2023, we observed a softening in discretionary spend and shifting consumer preferences for more value-centric products associated with the current inflationary macroeconomic environment.
Due to the essential, repeat nature of pet care, the industry has demonstrated resilience across economic cycles. However, during fiscal 2024, we continued to observe softening discretionary spending and shifts in consumer preferences for more value-centric products associated with the current inflationary environment, macroeconomic and political uncertainty and increased competition.
Though we do face competition from both large and small pet specialty retailers, e-commerce retailers, and mass and grocery retailers, among others, we believe that we have built an ecosystem that appeals to a broad base of consumers through the breadth and depth of our assortment and services capabilities, including veterinary care, that we offer across an integrated omnichannel platform. 7 Marketing and Advertising In fiscal 2023, we continued to evolve our marketing and media strategy, creating an in-house retail media network to enable advertising activities across paid and owned channels.
Though we do face competition from both large and small pet specialty retailers, e-commerce retailers, and mass and grocery retailers, among others, we believe that we have built an ecosystem that can appeal to a broad base of consumers through the breadth and depth of our assortment and services capabilities, all offered across an integrated ecosystem. 6 Marketing and Advertising In fiscal 2024, we continued to evolve our marketing and media strategy, growing our in-house retail media network to enable advertising activities across paid and owned channels, and enhancing our search engine optimization capabilities through the launch of our in-house content hub.
In response to this shifting demand, during fiscal 2023, we broadened our assortment to include more national brands and implemented strategic pricing actions to offer more balanced price points in an effort to appeal to a broader base of consumers. We are strategically focused on growing our presence in veterinary care, e-commerce, and services.
In response to this shifting demand, we have broadened our assortment to include more national brands, and implemented strategic pricing and promotional actions to offer more balanced price points in an effort to appeal to a broader base of consumers.
Additionally, our pet insurance plans must be registered with certain state departments of insurance and comply with their requirements. Available Information Our website address is petco.com , and our investor relations website is ir.petco.com . We promptly make available on our investor relations website, free of charge, the reports that we file or furnish with the U.S.
Additionally, our pet insurance plans must be registered with certain state departments of insurance and comply with their requirements. Available Information Our website address is petco.com , and our investor relations website is ir.petco.com .
In recent years, we have introduced foundational leadership development training for all new General Managers and above, provided comprehensive pet health and wellness certifications in select pet care centers (with plans to expand to all pet care centers in fiscal 2024), and continuous development of sales and customer engagement skills.
In recent years, we have introduced foundational leadership development training for all new General Managers and above, provided comprehensive pet health and wellness certifications in all pet care centers, and continuously develop our partners’ customer 7 engagement skills. In fiscal 2024, we proudly provided nearly 600,000 hours of training to our pet care center partners.
In addition to base cash compensation, we offer our partners a mix of annual bonuses, restricted stock units, various incentive plans, an Employee Stock Purchase Plan, a 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, and a range of employee assistance programs, including investments in fertility care, medical travel, and mental health benefits that were implemented in fiscal 2023.
In addition to base cash compensation, we offer our partners a mix of annual bonuses, equity awards, various incentive plans, an Employee Stock Purchase Plan, a 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, and family leave. In fiscal 2024, we also made investments in our 401(k) plan to meet safe-harbor requirements.
As such, we do not materially rely on third-party distributors to conduct our business. We onboard our vendors using a standardized process to confirm their adherence to our applicable standards, policies, and procedures, including those relating to legal compliance, human rights, standard payment terms, and product quality.
Our policy is to onboard our vendors using a standardized process to confirm their adherence to our applicable standards, policies, and procedures, including those relating to legal compliance, standard payment terms, and product quality.
We strive for our partners to grow and develop in their careers, and offer competitive compensation and benefits programs, incentive compensation, and a range of health and wellness offerings. None of our partners are represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our partners to be good.
We strive for our partners to grow and develop in their careers, and offer competitive compensation and benefits programs, incentive compensation, and a range of health and wellness offerings.
As of February 3, 2024, we operated 288 full service veterinary hospitals, and 1,400 Vetco clinics on a weekly basis.
As of February 1, 2025, we had approximately 300 full service veterinary hospitals in our network and operated over 1,500 Vetco clinics on a weekly basis.
Diversity and Inclusion Our employees are our partners and we strive to create an environment that embraces diverse backgrounds and perspectives. Our commitment to fostering equal employment opportunities and a diverse, equitable, and inclusive environment is key to our mission of improving the lives of pets, pet parents, and the Petco partners who work for us.
Culture Our employees are our partners and we strive to create an environment that values diverse backgrounds and identities. We understand that an inclusive workplace unlocks diversity of perspectives which enable critical innovation, creative problem solving and high engagement that is key to our mission of improving the lives of pets, pet parents, and our Petco partners.
Distribution We currently have seven primary and two regional distribution centers in our network, which are located in various parts of the United States, that handle almost all distribution for our company. In addition, our ship-from-store, BOPUS, and curbside programs enhance our distribution network, affording us the opportunity to utilize our pet care centers as micro-distribution centers.
In addition, our ship-from-store, same day delivery, BOPUS, and curbside programs enhance our distribution network, affording us the opportunity to utilize our pet care centers as micro-distribution centers.
Our top 10 vendors represented approximately 42% of our annual sales, and no single vendor accounted for more than 9% of our sales. In addition, we only sell the products we carry directly to consumers and primarily purchase our products directly from our vendors rather than through third-party distributors.
In addition, we only sell the products we carry directly to consumers and primarily purchase our products directly from our vendors rather than through third-party distributors. As such, we do not materially rely on third-party distributors to conduct our overall business.
Securities and Exchange Commission (“SEC”), corporate governance information (including our Code of Business Conduct and Ethics and Principles of Corporate Governance) and select press releases.
We promptly make available on our investor relations website, free of charge, the reports that we file or furnish with the SEC, corporate governance information (including our Code of Business Conduct and Ethics and Principles of Corporate Governance) and select press releases.
In partnership with our Diversity, Equity, and Inclusion team, these seven groups facilitate engagement activities to increase cultural competencies, educate partners on issues facing affinity group members, and deepen our workplace connections. Compensation and Benefits We provide competitive compensation and benefits programs to help meet the needs of our partners and their families.
Compensation and Benefits We provide competitive compensation and benefits programs to help meet the needs of our partners and their families.
In addition, we offer a range of webinars, trainings, and subscriptions to support our partners’ total wellbeing. Finally, in fiscal 2023 we completed the implementation of an increase in every non-trainee partner's base wage to at least $15 an hour.
In addition, we offer a range of webinars, trainings, and subscriptions to support our partners’ total wellbeing. Talent Development We invest significant resources to attract, develop, and retain top talent.
Launched in August 2021, Petco Love’s Vaccinated and Loved initiative marked a significant milestone when it reached its two millionth free pet vaccine in November 2023, and subsequently committed to distributing another one million free pet vaccines.
Launched in August 2021, Petco Love’s Vaccinated and Loved initiative provides free pet vaccines to its partners. 3.2 million vaccines have been distributed towards a current commitment of 4 million.
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We are committed to creating a culture where partners feel as if they can achieve their career goals through ongoing growth and development opportunities, and fair and transparent performance management and promotion processes.
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In connection with these efforts, in late fiscal 2024 we also began efforts to optimize our assortment and store labor model, and take costs out of all areas of our business in an effort to enhance our profitability and drive performance. We are strategically focused on growing our presence in veterinary care, e-commerce, and services.
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So that our partners feel valued and heard, we gather and respond to our partners’ feedback, including, but not limited to, anonymous, periodic, formal, partner engagement surveys, round table sessions, and one-on-one interactions. Based on the feedback received, leaders review and create action plans in an effort to drive meaningful changes in our business.
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Though we have encountered a small number of union campaigns, none have been successful to date and, accordingly, none of our partners are represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our partners to be good.
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In addition, all Petco leaders participate in diversity, equity, and inclusion training aimed at building respect in the workplace. Partner Communities We believe that building and supporting connections between our partners and our communities creates a more fulfilling and enjoyable workplace experience.
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Embedded in our values is the fundamental belief that we are all accepted as we are, and this sentiment is reinforced in teams across our company.
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We have continued to expand our partner resource groups, which enable partners to build connections among themselves and their communities, as well as our diversity, inclusion and belonging programs to encourage partners to bring their “whole selves” to work. Petco currently has seven Partner Resource Groups that are foundational to our culture of inclusion and belonging.
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To better serve our diverse customers across our more than 1,500 pet care centers across the United States, Mexico, and Puerto Rico, we are intentional about bringing the skillsets and experiences that help us meet the needs of all pets and pet parents.
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Our current partner-led Partner Resource Groups are: Ability at Petco; Black at Petco; LGBTQIA+ at Petco; Pan Asian American at Petco; Petcontigo (Latinx) at Petco; Military and Veterans at Petco; and Women at Petco.
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From attracting bilingual talent that help us serve multicultural market segments to finding experiences that help us innovate in a competitive and changing industry, we continue to evaluate and enhance our recruiting and development strategies to find and build the best talent.
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This change, along with other adjustments, resulted in approximately 15% average wage increases for our pet care center partners. 8 Talent Development We invest significant resources to attract, develop, and retain top talent.
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As the need for pet care grows, we collaborate with community and industry associations to inspire the next generation of doctors and expand the field of veterinarian medicine. Partner Communities We believe that building and supporting connections between our partners creates a more fulfilling and enjoyable workplace experience and enables us to tap into the diverse expertise of our partners.
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Since that milestone, Petco Love continued the distribution of free pet vaccines to its partners, bringing the total number of vaccines distributed as part of its Vaccinated and Loved initiative to more than 2.2 million to date.
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Petco’s seven Partner Resource Groups are partner-led and organized, and lead this effort by fostering community and a sense of belonging by facilitating engagement activities to increase cultural competencies, educate partners on issues involving a variety of topics, and help our business better reach our diverse customer base.
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However, the agreements with our top three domestic transportation and logistics providers have certain minimum volume requirements and/or cannot be terminated early without penalty. Vendor Arrangements In fiscal 2024, we purchased merchandise from approximately 650 vendors. Our top 10 vendors represented approximately 41% of our annual sales, and no single vendor accounted for more than 9% of our sales.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese restrictions, subject in certain cases to ordinary course of business and other exceptions, may limit our ability to engage in some transactions, including the following: • incurring additional debt; • paying dividends, redeeming capital stock, or making other restricted payments or investments; • selling assets, properties, or licenses; • creating liens on assets; • entering into sale and lease-back transactions; • undergoing a change in control; • merging, consolidating, or disposing of substantially all assets; • entering into new lines of business; • entering into transactions with affiliates; and • placing restrictions on the ability of subsidiaries to pay dividends or make other payments.
Biggest changeThese restrictions, subject in certain cases to ordinary course of business and other exceptions, may limit our ability to engage in some transactions, including the following: • incurring additional debt; • paying dividends, redeeming capital stock, or making other restricted payments or investments; • selling assets, properties, or licenses; • creating liens on assets; • entering into sale and lease-back transactions; • undergoing a change in control; • merging, consolidating, or disposing of substantially all assets; • entering into new lines of business; • entering into transactions with affiliates; and • placing restrictions on the ability of subsidiaries to pay dividends or make other payments. 32 Any of these restrictions on our ability to operate our business in our discretion could adversely affect our business by, among other things, limiting our ability to adapt to changing economic, financial, or industry conditions and to take advantage of corporate opportunities, including opportunities to obtain debt financing, repurchase stock, refinance or pay principal on our outstanding debt, or complete acquisitions for cash or debt.
In that case, the trading price of our Class A common stock could decline, and you could lose all or part of your investment. For a summary of these risks, please read “Risk Factors Summary,” which immediately precedes Part I, Item 1 of this Annual Report on Form 10-K.
In that case, the trading price of our Class A common stock could decline, and you could lose all or part of your investment. For a 10 summary of these risks, please read “Risk Factors Summary,” which immediately precedes Part I, Item 1 of this Annual Report on Form 10-K.
We have experienced, and could continue to experience, declines in sales of certain products and changes in the types of products and services purchased during economic downturns.
We have experienced, and could continue to experience, declines in sales of certain products and services and changes in the types of products and services purchased during economic downturns.
The pet care industry has become increasingly competitive due to the expansion of pet-related product offerings by certain supermarkets, warehouse clubs, other retail merchandisers, and online retailers, and the entrance of additional independent pet stores with unique product and service offerings and other pet specialty retailers into the pet food and pet supply market, some of which have developed store formats similar to ours.
The pet care industry has become increasingly competitive due to the expansion of pet-related product and service offerings by certain supermarkets, warehouse clubs, other retail merchandisers, and online retailers, and the entrance of additional independent pet stores with unique product and service offerings and other pet specialty retailers into the pet food and pet supply market, some of which have developed store formats similar to ours.
We collect, store, and transmit proprietary or confidential information regarding our customers, employees, job applicants, and others, including credit card information and personally identifiable information. We also collect, store, and transmit employees’ health information in order to administer employee benefits, accommodate disabilities and injuries, and to comply with public health requirements.
We collect, store, and/or transmit proprietary or confidential information regarding our customers, employees, job applicants, and others, including credit card information and personally identifiable information. We also collect, store, and transmit employees’ health information in order to administer employee benefits, accommodate disabilities and injuries, and to comply with public health requirements.
Our failure to comply with such laws and regulations may result in enforcements, recalls, and other adverse actions that could disrupt our operations and adversely affect our financial results. Our operations, including those of some of our vendors, are subject to federal, state, and local laws and regulations established by the OSHA, the FDA, the USDA, the DEA, the U.S.
Our failure to comply with such laws and regulations may result in enforcements, recalls, and other adverse actions that could disrupt our operations and adversely affect our financial results. Our operations, including those of some of our vendors, are subject to federal, state, and local laws and regulations established by OSHA, the FDA, the USDA, the DEA, the U.S.
For more information regarding laws and regulations that we are subject to, please read “Business—Government Regulation.” Violations of or liability under applicable laws and regulations may result in administrative, civil or criminal fines, penalties, or sanctions against us, revocation or modification of applicable permits, licenses, or authorizations, environmental, health and safety investigations or remedial activities, voluntary or involuntary product recalls, warning or untitled letters or cease and desist orders against operations that are not in compliance, or third-party liability claims against us, among other things.
For more information regarding laws and regulations that we are subject to, please read “Business—Government Regulation.” Violations of or liability under applicable laws and regulations may result in administrative, civil or criminal fines, penalties, or sanctions against us, revocation or modification of applicable permits, licenses, or authorizations, environmental, health and safety investigations or remedial activities, voluntary or involuntary product recalls, warning or untitled letters or cease and desist orders against operations that are not in compliance, and/or third-party liability claims against us, among other things.
We are involved in litigation arising in the ordinary course of business, including claims related to federal or state wage and hour laws, working conditions, product liability, consumer protection, advertising, employment, intellectual property, tort, privacy, and data protection, disputes with landlords and vendors, claims from customers or employees alleging failure to maintain safe premises, and other matters.
We are involved in litigation arising in the ordinary course of business, including claims related to federal or state wage and hour laws, working conditions, product liability, consumer protection, advertising, employment, intellectual property, tort, privacy, data protection, disputes with landlords and vendors, claims from customers or employees alleging failure to maintain safe premises, and other matters.
Our certificate of incorporation and bylaws include provisions that: 35 • provide that, except with regard to directors nominated by our Principal Stockholder, vacancies on our board of directors shall be filled only by a majority of directors then in office, even though less than a quorum, or by a sole remaining director; • establish that our board of directors is divided into three classes, with each class serving three-year staggered terms; • provide that our directors can be removed for cause only, once our Principal Stockholder (including its permitted transferees under the stockholder’s agreement with our Principal Stockholder (the “stockholder’s agreement”)) no longer beneficially owns 50% or more of our outstanding Class A common stock and Class B-1 common stock; • provide that, once our Principal Stockholder (including its permitted transferees under the stockholder’s agreement) no longer beneficially owns 50% or more of our outstanding Class A common stock and Class B-1 common stock, any action required or permitted to be taken by the stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing in lieu of a meeting of such stockholders; • specify that, once our Principal Stockholder (including its permitted transferees under the stockholder’s agreement) no longer beneficially owns 50% or more of our outstanding Class A common stock and Class B-1 common stock, special meetings of our stockholders can be called only by our board of directors, or the Chairman of our board of directors (prior to such time, special meetings of the stockholders of our company shall be called by the Chairman of our board of directors or our Secretary at the request of our Principal Stockholder, in addition to being able to be called by the Chairman of our board of directors and by our board of directors); • require the approval of the holders of at least two-thirds of the voting power of all outstanding stock entitled to vote thereon, voting together as a single class, to amend or repeal our bylaws and certain articles of our certificate of incorporation once our Principal Stockholder (including its permitted transferees under the stockholder’s agreement) ceases to beneficially own at least 50% of the Class A common stock and Class B-1 common stock; • establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors; • authorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock; and • reflect three classes of common stock.
Our certificate of incorporation and bylaws include provisions that: • provide that, except with regard to directors nominated by our Principal Stockholder, vacancies on our board of directors shall be filled only by a majority of directors then in office, even though less than a quorum, or by a sole remaining director; • establish that our board of directors is divided into three classes, with each class serving three-year staggered terms; • provide that our directors can be removed for cause only, once our Principal Stockholder (including its permitted transferees under the stockholder’s agreement with our Principal Stockholder (the “stockholder’s agreement”)) no longer beneficially owns 50% or more of our outstanding Class A common stock and Class B-1 common stock; • provide that, once our Principal Stockholder (including its permitted transferees under the stockholder’s agreement) no longer beneficially owns 50% or more of our outstanding Class A common stock and Class B-1 common stock, any action required or permitted to be taken by the stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing in lieu of a meeting of such stockholders; • specify that, once our Principal Stockholder (including its permitted transferees under the stockholder’s agreement) no longer beneficially owns 50% or more of our outstanding Class A common stock and Class B-1 common stock, special meetings of our stockholders can be called only by our board of directors, or the Chairman of our board of directors (prior to such time, special meetings of the stockholders of our company shall be called by the Chairman of our board of directors or our Secretary at the request of our Principal Stockholder, in addition to being able to be called by the Chairman of our board of directors and by our board of directors); • require the approval of the holders of at least two-thirds of the voting power of all outstanding stock entitled to vote thereon, voting together as a single class, to amend or repeal our bylaws and certain articles of our certificate of incorporation once our Principal Stockholder (including its permitted transferees under the stockholder’s agreement) ceases to beneficially own at least 50% of the Class A common stock and Class B-1 common stock; • establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors; • authorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock; and • reflect three classes of common stock.
Our operating results and the trading price of our shares may fluctuate in response to various factors, including: • market conditions in the broader stock market; • actual or anticipated fluctuations in our quarterly financial and operating results; • introduction of new products or services by us or our competitors; • issuance of new or changed securities analysts’ reports or recommendations; • changes in debt ratings; • results of operations that vary from expectations of securities analysts and investors; • guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance; • strategic actions by us or our competitors; • announcement by us, our competitors, or our vendors of significant contracts or acquisitions; • sales, or anticipated sales, of large blocks of our stock; • additions or departures of key personnel; • regulatory, legal, or political developments; • public response to press releases or other public announcements by us or third parties, including our filings with the SEC; • litigation and governmental investigations; • changing economic conditions, including interest rates and financial market uncertainty; • changes in accounting principles; • default under agreements governing our indebtedness; and • other events or factors, including those from severe weather events (including as a result of climate change), natural disasters, pandemic, pet disease, war, acts of terrorism, or responses to these events.
Our operating results and the trading price of our shares may fluctuate in response to various factors, including: • market conditions in the broader stock market; • actual or anticipated fluctuations in our quarterly financial and operating results; • introduction of new products or services by us or our competitors; • issuance of new or changed securities analysts’ reports or recommendations; • changes in debt ratings; • results of operations that vary from expectations of securities analysts and investors; • guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance; • strategic actions by us or our competitors; • announcement by us, our competitors, or our vendors of significant contracts or acquisitions; • sales, or anticipated sales, of large blocks of our stock; • additions or departures of key personnel; • regulatory, legal, or political developments; • public response to press releases or other public announcements by us or third parties, including our filings with the SEC; • litigation and governmental investigations; • changing economic conditions, including interest rates, tariffs, and financial market uncertainty; • changes in accounting principles; • default under agreements governing our indebtedness; and • other events or factors, including those from severe weather events (including as a result of climate change), natural disasters, pandemic, pet disease, war, acts of terrorism, or responses to these events.
Our results may be increasingly affected by the risks of our international activities, including: • challenges anticipating or responding to the impact that local culture and market forces may have on local consumer preferences and trends; • fluctuations in currency exchanges rates; • changes in international staffing and employment issues; • the imposition of taxes, duties, tariffs, or other trade barriers; • shipping or customs delays; • greater difficulty in utilizing and enforcing our intellectual property rights; • the burden of complying with foreign laws, including regulatory regimes, tax laws, privacy laws, and financial accounting standards; • political and economic instability and developments; • issues or disputes arising with our joint venture partners, if any, in such operations; and • the risk that a health epidemic, pandemic or similar outbreak, or natural disaster or extreme weather event causes disruptions in any country where we have significant employee presence, facilities, or critical operations, thereby impairing our ability to manage day-to-day operations and service our customers, increasing our costs of operations, and resulting in potential losses in revenue.
Our results may be increasingly affected by the risks of our international activities, including: • challenges anticipating or responding to the impact that local culture and market forces may have on local consumer preferences and trends; • fluctuations in currency exchanges rates; • changes in international staffing and employment issues; • the imposition of taxes, duties, tariffs, or other trade barriers; • shipping or customs delays; • greater difficulty in utilizing and enforcing our intellectual property rights; • the burden of complying with foreign laws, including regulatory regimes, tax laws, privacy laws, and financial accounting standards; • political and economic instability and developments; • issues or disputes arising with our joint venture partners, if any, in such operations; and • the risk that a health epidemic, pandemic or similar outbreak, or natural disaster or extreme weather event causes disruptions in any country where we have, or rely on, significant employee presence, facilities, or critical operations, thereby impairing our ability to manage day-to-day operations and service our customers, increasing our costs of operations, and resulting in potential losses in revenue.
For example, it could: 31 • make it more difficult for us to satisfy our obligations with respect to our existing indebtedness; • increase our vulnerability to general adverse economic and industry conditions; • require us to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness, thereby reducing the availability of our cash flows to fund working capital and capital expenditures, and for other general corporate purposes; • limit our flexibility in planning for, or reacting to, changes in our business and industry, which may place us at a competitive disadvantage compared to our competitors that have less debt; • restrict us from making strategic acquisitions or other investments or cause us to make non-strategic divestitures; and • limit, along with the financial and other restrictive covenants in the documents governing our indebtedness, among other things, our ability to obtain additional financing for working capital and capital expenditures, and for other general corporate purposes.
For example, it could: • make it more difficult for us to satisfy our obligations with respect to our existing indebtedness; • increase our vulnerability to general adverse economic and industry conditions; • require us to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness, thereby reducing the availability of our cash flows to fund working capital and capital expenditures, and for other general corporate purposes; • limit our flexibility in planning for, or reacting to, changes in our business and industry, which may place us at a competitive disadvantage compared to our competitors that have less debt; • restrict us from making strategic acquisitions or other investments or cause us to make non-strategic divestitures; and • limit, along with the financial and other restrictive covenants in the documents governing our indebtedness, among other things, our ability to obtain additional financing for working capital and capital expenditures, and for other general corporate purposes.
Our ability to execute on these strategies depends on a number of factors, including: • whether we have adequate capital resources to expand our offerings and build out our digital and data capabilities; • our ability to include veterinary services in our existing pet care centers or in our remodeled or relocated pet care centers; • our ability to relocate our pet care centers and obtain favorable sites and negotiate acceptable lease terms; • our ability to hire, train, and retain skilled personnel, including veterinarians, information technology professionals, owned brand merchants, and groomers and trainers; • our acceptance in new markets, as well as our ability to withstand competition in such markets; and • our ability to continue to upgrade our information and other operating systems and to make use of the data that we collect through these systems to offer better products and services to our customers.
Our ability to execute on these strategies depends on a number of factors, including: • whether we have adequate capital resources to expand our offerings and build out our digital and data capabilities; • our ability to include veterinary services in our existing pet care centers or in our remodeled or relocated pet care centers; 12 • our ability to relocate our pet care centers and obtain favorable sites and negotiate acceptable lease terms; • our ability to hire, train, and retain skilled personnel, including veterinarians, information technology professionals, owned brand merchants, and groomers and trainers; • our acceptance in new markets, as well as our ability to withstand competition in such markets; and • our ability to continue to upgrade our information and other operating systems and to make use of the data that we collect through these systems to offer better products and services to our customers.
Reputational value is based in large part on perceptions of subjective qualities, and even isolated incidents (even if based on rumor or misunderstanding) that erode trust and confidence, particularly if they result in adverse publicity or widespread reaction on social media, governmental investigations, or litigation, can have an adverse impact on these perceptions and lead to adverse effects on our business, including decreased comparable 12 sales, consumer boycotts, loss of new pet care center development opportunities, lower partner morale and productivity, or partner recruiting and retention difficulties.
Reputational value is based in large part on perceptions of subjective qualities, and even isolated incidents (even if based on rumor or misunderstanding) that erode trust and confidence, particularly if they result in adverse publicity or widespread reaction on social media, governmental investigations, or litigation, can have an adverse impact on these perceptions and lead to adverse effects on our business, including decreased comparable sales, consumer boycotts, loss of new pet care center development opportunities, lower partner morale and productivity, or partner recruiting and retention difficulties.
It is possible that a court may find these provisions of our certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of 37 actions or proceedings, in which case we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially adversely affect our business, financial condition, or results of operations and result in a diversion of the time and resources of our management and board of directors.
It is possible that a court may find these provisions of our certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, in which case we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially adversely affect our business, financial condition, or results of operations and result in a diversion of the time and resources of our management and board of directors.
For additional details, please read Exhibit 4.3 to this Annual Report on Form 10-K. Since we have no current plans to pay regular cash dividends on our Class A common stock, you may not receive any return on investment unless you sell your Class A common stock for a price greater than that which you paid for it.
For additional details, please read Exhibit 4.3 to this Annual Report on Form 10-K. 36 Since we have no current plans to pay regular cash dividends on our Class A common stock, you may not receive any return on investment unless you sell your Class A common stock for a price greater than that which you paid for it.
Although we believe that this guidance will provide investors and analysts with a better understanding of management’s expectations for the future and is useful to our stockholders and potential stockholders, such guidance comprises forward-looking statements subject to the risks and uncertainties described in this Annual Report on Form 10-K and in our other public filings and public statements.
Although we believe that this guidance will provide investors and analysts with a better understanding of management’s expectations for the future and is useful to our current and potential stockholders, such guidance comprises forward-looking statements subject to the risks and uncertainties described in this Annual Report on Form 10-K and in our other public filings and public statements.
Although we routinely obtain broad indemnities from our vendors in respect of their products, we could be adversely affected if we were found not to be in compliance with applicable regulations and we were not made whole by our vendors. Among other regulatory requirements, the FDA regulates the inclusion of specific claims in pet product labeling.
Although we routinely obtain broad 24 indemnities from our vendors in respect of their products, we could be adversely affected if we were found not to be in compliance with applicable regulations and we were not made whole by our vendors. Among other regulatory requirements, the FDA regulates the inclusion of specific claims in pet product labeling.
Examples of such factors include evolving regulatory requirements affecting sustainability standards or disclosures or imposing different requirements, evolving disclosure standards and/or policies established by regulators and standards organizations, stockholders, ratings agencies, and proxy advisory firms, the pace of changes in technology, the availability of requisite financing, and the availability of suppliers that can meet our sustainability and other standards.
Examples of such factors include evolving regulatory requirements affecting sustainability standards or disclosures or imposing different requirements, evolving disclosure standards and/or policies established by regulators and standards organizations, stockholders, ratings agencies, and proxy advisory firms, the pace of changes in technology, the availability of requisite financing, and the availability of suppliers that can meet sustainability and other standards.
To the extent that we are unable to execute on our growth strategies in accordance with our 13 expectations, our sales growth would come primarily from the organic growth of existing product and service offerings. We have experienced difficulties recruiting and retaining skilled veterinarians due to shortages that could disrupt our business.
To the extent that we are unable to execute on our growth strategies in accordance with our expectations, our sales growth would come primarily from the organic growth of existing product and service offerings. We have experienced difficulties recruiting and retaining skilled veterinarians due to shortages that could disrupt our business.
In the event that we are unable to timely comply with regulatory changes or regulators do not believe we are complying with current regulations applicable to us, significant fines or penalties could result, and could adversely affect our reputation, financial condition, results of operations, and cash flows.
In the event that we are unable to timely comply with regulatory changes or regulators do not 28 believe we are complying with current regulations applicable to us, significant fines or penalties could result, and could adversely affect our reputation, financial condition, results of operations, and cash flows.
In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes brought securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending and/or settling the lawsuit.
In addition, in the past, when the market price of a stock has been volatile, 38 holders of that stock have sometimes brought securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending and/or settling the lawsuit.
Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation. 38 Your percentage ownership in us may be diluted by future issuances of capital stock, which could reduce your influence over matters on which stockholders vote.
Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation. Your percentage ownership in us may be diluted by future issuances of capital stock, which could reduce your influence over matters on which stockholders vote.
Our sales depend on consumer spending, which is influenced by factors beyond our control, including general economic conditions, disruption or volatility in global financial markets, changes in interest rates, inflation, the availability of discretionary income and credit, weather, consumer confidence, and unemployment levels.
Our sales depend on consumer spending, which is influenced by numerous factors beyond our control, including general economic conditions, disruption or volatility in global financial markets, changes in interest rates, inflation, the availability of discretionary income and credit, weather, consumer confidence, and unemployment levels.
If we are unable to successfully develop or otherwise acquire new products or services, our business, financial condition, and results of operations may be materially adversely affected. Our continued success is substantially dependent on positive perceptions of Petco, including our owned or exclusive brands.
If we are unable to successfully develop or otherwise acquire new products or services, our business, financial condition, and results of operations may be materially adversely affected. 11 Our continued success is substantially dependent on positive perceptions of Petco, including our owned or exclusive brands.
If we are not successful in generating or obtaining sufficient capital, we may be unable to invest in our growth, which may adversely affect our results of operations. 14 We depend on key personnel, and if we lose the services of any of our executive officers, we may not be able to run our business effectively.
If we are not successful in generating or obtaining sufficient capital, we may be unable to invest in our growth, which may adversely affect our results of operations. We depend on key personnel, and if we lose the services of any of our executive officers, we may not be able to run our business effectively.
In addition, various federal, state, and foreign legislative and regulatory bodies may expand existing laws or regulations, enact new laws or regulations, or issue revised rules or guidance applicable to our veterinary services. Any such changes may force us to incur substantial costs or require us to change our business practices.
In addition, various federal, state, and foreign legislative and regulatory bodies may expand existing laws 25 or regulations, enact new laws or regulations, or issue revised rules or guidance applicable to our veterinary services. Any such changes may force us to incur substantial costs or require us to change our business practices.
Although we have measures in place to detect, reduce, and mitigate the occurrence of such fraudulent activity, those measures are not always effective, and we have incurred, and could in the future incur, financial losses, losses of customers, and reputational harm for such fraudulent transactions, which could harm our business, financial condition, and results of operations.
Although we have measures in place to detect, reduce, and mitigate the occurrence of such fraudulent activity, those measures are not always effective, and we have incurred, and could in the future continue to incur, financial losses, losses of customers, and reputational harm for such fraudulent transactions, which could harm our business, financial condition, and results of operations.
Our assets and cash flows may not be sufficient to fully repay borrowings under our outstanding debt instruments. In addition, we may not be able to refinance or restructure the payments on the applicable debt. Even if we were able to secure additional financing, it may not be available on favorable terms.
Our assets and 33 cash flows may not be sufficient to fully repay borrowings under our outstanding debt instruments. In addition, we may not be able to refinance or restructure the payments on the applicable debt. Even if we were able to secure additional financing, it may not be available on favorable terms.
As a result, our access to credit under the ABL Revolving Credit Facility is potentially subject to significant fluctuations depending on the value of the 33 borrowing base of eligible assets as of any measurement date, as well as certain discretionary rights of the agents in respect of the calculation of such borrowing base value.
As a result, our access to credit under the ABL Revolving Credit Facility is potentially subject to significant fluctuations depending on the value of the borrowing base of eligible assets as of any measurement date, as well as certain discretionary rights of the agents in respect of the calculation of such borrowing base value.
Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and 36 will depend on, among other things, our financial condition, results of operations, cash requirements, contractual restrictions, and other factors that our board of directors may deem relevant.
Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our financial condition, results of operations, cash requirements, contractual restrictions, and other factors that our board of directors may deem relevant.
As a result of any such events, day-to-day operations, particularly our ability to receive products from our vendors or transport products to our pet care centers, could be adversely affected, or we could be required to close pet care centers or distribution centers in the affected areas or in areas served by the affected distribution center.
As a result of any such events, day-to-day operations, particularly our ability to receive products from our vendors or transport products to our pet care centers, could be adversely 22 affected, or we could be required to close pet care centers or distribution centers in the affected areas or in areas served by the affected distribution center.
In particular, we must perform system and process evaluation, document our controls and 39 perform testing of our key control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act.
In particular, we must perform system and process evaluation, document our controls and perform testing of our key control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act.
If any of these risks materialize, they could have an adverse effect on our business. Additionally, customer expectations about the methods by which they purchase and receive products or services are also becoming more demanding.
If any of these risks materialize, they could have an adverse effect on our business. 13 Additionally, customer expectations about the methods by which they purchase and receive products or services are also becoming more demanding.
The FDA has issued guidance containing a list of specific factors it will consider in determining whether to initiate enforcement action against such products if they do not comply with the regulatory requirements applicable to drugs.
The FDA has issued guidance containing a list of specific factors it will consider in determining whether to initiate an enforcement action against such products if they do not comply with the regulatory requirements applicable to drugs.
Furthermore, positions we take or do not take on social issues may be unpopular with some of our customers, partners, advocacy groups, or other stakeholders in the communities in which we operate, which may lead to adverse effects on our business.
Furthermore, positions we take or do not take on social issues may be unpopular with some of our 31 customers, partners, advocacy groups, or other stakeholders in the communities in which we operate, which may lead to adverse effects on our business.
Throughout 2023, costs of certain commodities increased due to increased fuel prices, heightened transportation costs, and general inflationary pressures, and at times we have resultingly observed increases in the costs we pay for certain vendor-supplied products.
Throughout 2023 and 2024, costs of certain commodities increased due to increased fuel prices, heightened transportation costs, and general inflationary pressures, and at times we have resultingly observed increases in the costs we pay for certain vendor-supplied products.
We collect, maintain, use, and share personal information provided to us through online activities and other consumer, employee, and business-to-business interactions in order to provide a better experience for our customers, employees, and vendors.
We collect, maintain, use, and share personal information provided to us through online activities and other consumer, employee, and business-to-business interactions in order to provide a better experience for our customers, 26 employees, and vendors.
Any person or entity purchasing or otherwise acquiring or holding any interest in our common stock shall be deemed to have notice of and to have consented to the forum selection provisions described in our certificate of incorporation.
Any person or entity purchasing or otherwise acquiring or holding any interest in our common stock 37 shall be deemed to have notice of and to have consented to the forum selection provisions described in our certificate of incorporation.
For further information on our evaluation of impairment of our goodwill and indefinite-lived trade name, please read the discussion under "Management’s Discussion and Analysis of Financial Condition and Results of Operations– Critical Accounting Policies and Estimates." 40
For further information on our evaluation of impairment of our goodwill and indefinite-lived trade name, please read the discussion under "Management’s Discussion and Analysis of Financial Condition and Results of Operations– Critical Accounting Policies and Estimates."
These laws and regulations govern, among other things: our relationships with employees, including minimum wage requirements, overtime, terms and conditions of employment, working conditions, and citizenship requirements; the weights and measures of our products; the manufacturing and distribution of foods, drugs, and controlled substances intended for animal use; our businesses that provide veterinary services and pet insurance plans; the transportation, handling, and sale of small pets; emissions to air and water and the generation, handling, storage, discharge, transportation, disposal, and remediation of waste and hazardous materials; the processing, storage, distribution, safety, advertising, labeling, promotion, and import or export of our products; providing services to our customers; contracted services with various third-party providers; credit and debit card processing; the handling, security, protection, and use of customer and associate information; and the licensing and certification of services.
These laws and regulations govern, among other things: our relationships with employees, including minimum wage requirements, overtime, terms and conditions of employment, working conditions, and citizenship requirements; the weights and measures of our products; the manufacturing and distribution of foods, drugs, and controlled substances intended for animal use; our businesses that provide veterinary services and pet insurance plans; the transportation, handling, and sale of small pets; emissions to air and water and the generation, handling, storage, discharge, transportation, disposal, and remediation of waste and hazardous materials; the processing, storage, distribution, safety, advertising, labeling, promotion, and import or export of our products; providing services to our customers; contracted services with various third-party providers; credit and debit card processing; the handling, security, protection, and use of personal information; and the licensing and certification of services.
In addition, the governmental authorities that regulate our business have broad latitude to make, interpret, and enforce the laws and regulations that govern our operations and continue to interpret and enforce those laws and regulations more strictly and more aggressively each year.
In addition, the 30 governmental authorities that regulate our business have broad latitude to make, interpret, and enforce the laws and regulations that govern our operations and continue to interpret and enforce those laws and regulations more strictly and more aggressively each year.
Additionally, some providers of consumer devices and web browsers have implemented, or announced plans to implement, means to make it easier for internet users to prevent the placement of cookies or to block other tracking technologies, which could, if widely adopted, result in the use of third-party cookies and other methods of online tracking becoming significantly less effective, including for recruiting purposes.
Additionally, some providers of consumer devices and web browsers have implemented, or announced plans to implement, means to make it easier for internet users to prevent the placement of cookies or to block other tracking technologies, which could, if widely adopted, result in the use of third-party cookies and other methods of online tracking becoming significantly less effective, including for behavioral advertising and recruiting purposes.
In some circumstances, increased transactions through our website may result in reduced customer traffic in our pet care centers, particularly as customers take advantage of buy online and pick up in store, curbside pickup, and home delivery services available for online orders when making certain types of purchases, such as for bulk orders or heavy pet products.
In some circumstances, increased transactions through our website may result in reduced customer traffic in our pet care centers, particularly as customers take advantage of buy online and pick up in store, curbside pickup, and home delivery services available for online orders when making certain types of purchases, such as for bulk orders, repeat deliveries, or heavy pet products.
Further, new pet care centers and service offerings tend to experience higher payroll, advertising, and other store-level expenses as a percentage of net sales than more mature pet care centers, and such openings also often contribute to lower pet care center operating margins until those pet care centers become established, which may result in quarterly fluctuations in operating results.
Further, new pet care centers and service offerings tend to experience higher payroll, advertising, and other store-level expenses as a percentage of net sales than more mature pet care centers, and such openings also often contribute to lower pet care center operating margins until those pet care centers mature, which may result in quarterly fluctuations in operating results.
While we strive to comply with all such regulatory and contractual obligations and believe that we are good stewards of our customers’ data, this area is rapidly evolving, and it is possible that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another, may conflict with other rules, or may conflict with our practices.
While we strive to comply with all such regulatory and contractual obligations and believe that we are good stewards of our customers’ data, this area is rapidly evolving, and these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another, may conflict with other rules, or may conflict with our practices.
To help mitigate the impact of these cost increases, we have in the past implemented select price increases, which is consistent with our historical practice. However, our ability to pass on increased purchase costs in the future will be significantly impacted by market conditions and competitive factors.
To help mitigate the impact of these cost increases, we have in the past implemented select price increases, which is consistent with our historical practice. However, our ability to pass on increased purchase costs both now and in the future is and will be significantly impacted by market conditions and competitive factors.
In addition, the use of AI may increase cybersecurity and data privacy risks, such as intended, unintended, or inadvertent transmission of proprietary or sensitive information. The technologies underlying AI and their use cases are rapidly developing, and it is not possible to predict all of the legal, operational or technological risks related to the use of AI.
In addition, the use of AI may increase regulatory, cybersecurity, and data privacy risks, such as intended, unintended, or inadvertent transmission of proprietary or sensitive information. The technologies underlying AI and their use cases are rapidly developing, 23 and it is not possible to predict all of the legal, operational or technological risks related to the use of AI.
The protection of customer, employee, and company data in the information technology systems we use (including those maintained by third-party providers) is critical. In the normal course of business, we are and have been the target of malicious cyber-attack attempts and have experienced other security incidents.
The protection of customer, employee, and company data in the information technology systems we use (including those maintained by third-party providers) is critical. In the normal course of business, we are and have been the target of malicious cyber-attack attempts and have experienced other cybersecurity incidents.
Although we believe that we have structured our operations to comply with our understanding of the veterinary medicine laws of each state or jurisdiction in which we operate, interpretive legal precedent and regulatory guidance varies by jurisdiction and is often sparse and not fully developed.
Although we believe that we have structured our operations to comply with our understanding of the veterinary medicine laws of each state or jurisdiction in which we operate, interpretive legal precedent and regulatory guidance varies by jurisdiction and is sometimes sparse and not fully developed.
Federal or state regulatory authorities or private litigants may claim that the notices and disclosures we provide, form of consents we obtain, or our SMS texting or calling practices are not adequate or violate applicable law, resulting in civil claims against us.
Federal or state regulatory authorities or private litigants could claim that the notices and disclosures we provide, form of consents we obtain, or our SMS texting or calling practices are not adequate or violate applicable law, resulting in civil claims against us.
We may not prevail in such proceedings given the complex technical issues and inherent uncertainties in intellectual property litigation.
We may not prevail in such proceedings given the complex 29 technical issues and inherent uncertainties in intellectual property litigation.
Our marketing programs, e-commerce initiatives, and use of consumer information are governed by an evolving set of laws and enforcement trends, and changes in privacy laws or trends, or our failure to comply with existing or future laws, could substantially harm our business and results of operations.
Our marketing programs, e-commerce initiatives, and use of personal information are governed by an evolving set of laws and enforcement trends, and changes in privacy laws or trends, or our failure to comply with existing or future laws, could substantially harm our business and results of operations.
Our systems and those of our vendors are vulnerable to damage from fire, floods, earthquakes, power loss, telecommunications failures, terrorist and cyber-attacks, and similar events. Our disaster recovery planning and those of our vendors may not be sufficient to adequately respond to any such events.
Our systems and those of our vendors are vulnerable to damage from fire, floods, earthquakes, power loss, telecommunications failures, terrorist and cyber-attacks, employee error, and similar events. Our disaster recovery planning and those of our vendors may not be sufficient to adequately respond to any such events.
We do not have any control over these analysts. If one or more of these analysts cease coverage of our company, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline.
We do not have any control over these analysts. If one or more of these analysts cease coverage, or insufficiently cover, of our company, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline.
During the third quarter of fiscal 2023, we concluded indicators of impairment existed due to declines in the Company's share price, as well as current macroeconomic conditions, and performed an interim impairment test of our goodwill and indefinite-lived trade name, which resulted in a pre-tax goodwill impairment charge of $1,222.5 million for the thirteen week period ended October 28, 2023.
For example, during the third quarter of fiscal 2023, we concluded indicators of impairment existed due to declines in the Company's share price as well as macroeconomic conditions, and performed an interim impairment 40 test of our goodwill and indefinite-lived trade name, which resulted in a pre-tax goodwill impairment charge of $1,222.5 million for the thirteen week period ended October 28, 2023.
Moreover, failure to achieve and maintain a diverse workforce and leadership team, maintain a safe and inclusive environment or promote the well-being of our employees could affect our reputation and also result in lower performance and an inability to retain valuable employees.
Moreover, failure to achieve and maintain a talented workforce and leadership team, maintain a safe and inclusive environment or promote the well-being of our employees could affect our reputation and also result in lower performance and an inability to retain valuable employees.
Such laws have potentially conflicting requirements that make compliance challenging. We have incurred and may continue to incur costs to adapt our systems and practices to comply with these requirements, and these costs may adversely affect our financial condition and results of operations.
Such laws have conflicting requirements that make compliance challenging. We have incurred and expect to continue to incur costs to adapt our systems and practices to comply with these requirements, and these costs may adversely affect our financial condition and results of operations.
Further, increased transportation costs, including sustained increases fuel costs, have resulted in higher operating costs in the past.
Further, increased transportation costs, including sustained increases fuel costs, 15 have resulted in higher operating costs in the past.
We cannot assure you that some or all of our employees will not become covered by a collective bargaining agreement or that we will not encounter labor conflicts or strikes. In addition, organized labor may benefit from new legislation or legal interpretations by the current presidential administration, as well as current or future unionization efforts among other large employers.
We cannot assure you that some or all of our employees will not become covered by a collective bargaining agreement or that we will not encounter labor conflicts or strikes. In addition, organized labor may benefit from new legislation or legal interpretations, as well as current or future unionization efforts among other large employers.
Each of these privacy, security, and data protection laws and regulations—and others, including the CAN-SPAM Act of 2003, regulating our use of certain electronic mail marketing and state data breach notification laws 27 requiring notifications to state residents in certain instances—and any other such changes or new laws or regulations, could impose significant limitations, require changes to our business, or restrict our use or storage of personal information, which may increase our compliance expenses and make our business costlier or less efficient to conduct.
Each of these privacy, security, and data protection laws and regulations—and others, including the CAN-SPAM Act of 2003, regulating our use of certain electronic mail marketing and state data breach notification laws requiring notifications to state residents in certain instances—and any other such changes or new laws or regulations, could impose significant limitations, require ongoing changes to our business, or restrict our use or storage of personal information, which would increase our compliance expenses and make our business costlier or less efficient to conduct.
Our business could be harmed by any material decline 11 in the amount of consumer spending, which could reduce our sales, or a decrease in the sales of higher-margin products, which could reduce our profitability and adversely affect our business.
Our business could be harmed by any material decline in the amount of consumer spending, which could reduce our sales, or a decrease in the sales of higher-margin products and services, which could reduce our profitability and adversely affect our business.
Even if we prevail, litigation can be time-consuming and expensive. An unfavorable outcome in one or more of these existing lawsuits, or future litigation to which we become a party, could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Even if we prevail, litigation is time-consuming and expensive. An unfavorable outcome in one or more of these existing lawsuits, or future litigation to which we become a party, could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Such laws and regulations generally have become more stringent over time and may become more so in the future, and we may incur (directly, or indirectly through our outsourced private brand manufacturing partners) material costs to comply with current or future laws and regulations or in any required product recalls.
Such laws and regulations generally have become more stringent over time and may become more so in the future, and we expect to incur (directly, or indirectly through our outsourced private brand manufacturing partners) significant costs to comply with current or future laws and regulations or in any required product recalls.
From time to time, third parties have asserted intellectual property infringement claims against us and may continue to do so in the future. These risks have been amplified by the increase in third parties whose sole or primary business is to assert such claims.
From time to time, third parties have asserted intellectual property infringement claims against us and are likely to continue to do so in the future. These risks have been amplified by the increase in third parties whose sole or primary business is to assert such claims.
Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq. Certain of our directors have relationships with our Sponsors, which may cause conflicts of interest with respect to our business. Four of our ten directors are affiliated with our Sponsors.
Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq. Certain of our directors have relationships with our Sponsors, which may cause conflicts of interest with respect to our business.
If sales of such products are not significant, we do not increase the average basket size of customers purchasing such products, or we are unsuccessful in transitioning such customers into higher margin products over time, then our profitability could be adversely affected.
Though sales of such products have been significant, if we do not increase the average basket size of customers purchasing such products, or we are unsuccessful in transitioning such customers into higher margin products over time, then our profitability could be adversely affected.
Moreover, our products are sourced from a wide variety of vendors, including from vendors overseas, particularly in China. In addition, some of the products that we purchase from vendors in the United States also depend, in whole or in part, on vendors located outside the U.S.
Moreover, our products are sourced from a wide variety of vendors, including from vendors overseas, such as China. In addition, some of the products that we purchase from vendors in the United States also depend, in whole or in part, on vendors located outside the U.S.
In addition, various federal and state legislative and regulatory bodies, or self-regulatory organizations, may expand or further enforce current laws or regulations, enact new laws or regulations, or issue revised rules or guidance regarding privacy, data protection, consumer protection, and advertising.
In addition, various federal and state legislative and regulatory bodies, or self-regulatory organizations, continue to expand or further enforce current laws or regulations, enact new laws or regulations, or issue revised rules or guidance regarding privacy, data protection, consumer protection, and advertising.
One of the ways we track consumer data and interactions for marketing purposes, as well as advertise certain employment opportunities, is through the use of third-party “cookies” and similar online tracking technologies.
One of the ways we track consumer data and interactions for marketing purposes, as well as advertise certain employment or independent contractor opportunities, is through the use of third-party “cookies” and similar online tracking technologies.
There continues to be uncertainty regarding the future of international trade agreements and ultimately the United States’ position on international trade.
There continues to be significant uncertainty regarding the future of international trade agreements and ultimately the United States’ consistent position on international trade.
Recently, various legislative movements have sought to increase the federal minimum wage in the United States and the minimum wage in a number of individual states, some of which have been successful at the state level.
In recent years, various legislative movements have sought to increase the federal minimum wage in the United States and the minimum wage in a number of individual states, some of which have been successful at the state level.
While to date, we do not believe such identified security events have been material to us, including to our reputation or business operations, or had a material financial impact, we cannot assure you that such incidents or future cyber-attacks will not expose us to material liability.
While to date, we do not believe such identified cybersecurity incidents have been material to us, including to our reputation or business operations, or had a material financial impact, we cannot assure you that such incidents or future cyber-incidents will not expose us to material liability.
Quarterly operating results may also vary depending on a number of factors, many of which are outside of our control, including: • changes in our pricing policies or those of our competitors; • our sales and channels mix and the relevant gross margins of the products and services sold; 19 • the hiring and retention of key personnel; • wage, cost, and inflationary pressures; • changes in fuel prices or electrical rates; • costs related to acquisitions of businesses; and • general economic factors.
Quarterly operating results are not necessarily accurate predictors of long-term performance. 19 Quarterly operating results may also vary depending on a number of factors, many of which are outside of our control, including: • changes in our pricing policies or those of our competitors; • our sales and channels mix and the relevant gross margins of the products and services sold; • the hiring and retention of key personnel; • wage, cost, and inflationary pressures; • changes in fuel prices or electrical rates; • costs related to acquisitions of businesses; and • general economic factors.
Similarly, our failure or perceived failure to pursue or fulfill our goals, targets, and objectives, to comply with ethical, environmental, or other standards, regulations, or expectations, or to satisfy various reporting standards with respect to these matters, within required timelines or those which we announce, or at all, could have the same negative impacts, as well as expose us to federal and state government enforcement actions and private litigation.
Similarly, our failure or perceived failure to pursue or fulfill our targets and initiatives, to comply with environmental regulations, or to satisfy various reporting standards with respect to these matters, within required timelines or those which we announce, or at all, could have the same negative impacts, as well as expose us to federal and state government enforcement actions and private litigation.
We are party to routine litigation arising in the ordinary course of our business and may become involved in additional litigation, all of which could require time and attention from certain members of management and result in significant legal expenses.
We are party to routine litigation arising in the ordinary course of our business and may become involved in additional litigation, all of which requires time and attention from certain members of management and can result in significant legal expenses.
The actual or perceived improper sending of text messages or placing of telephone calls may subject us to potential risks, including liabilities or claims relating to consumer protection laws.
The actual or perceived improper sending of text messages or placing of telephone calls subjects us to potential risks, including liabilities or claims relating to consumer protection laws.
If our sustainability practices do not meet the expectations and standards of regulators, investors, or other stakeholders, which continue to evolve, our reputation, our ability to attract or retain employees and customers, and our attractiveness as an investment, business partner, or as an acquiror could be negatively impacted.
If our sustainability practices do not meet the expectations and standards of regulators, investors, or other stakeholders, which continue to evolve and may conflict with one another, our reputation, our ability to attract or retain employees and customers, and our attractiveness as an investment, business partner, or as an acquiror could be negatively impacted.
If any of these events were to occur, our business, financial condition, and results of operations could be materially and adversely affected. We also occasionally receive orders placed with fraudulent data.
If any of these events were to occur, our business, financial condition, and results of operations could be materially and adversely affected. We also occasionally receive orders placed with fraudulent cardholder, customer, or account data.
All other key terms of the ABL Revolving Credit Facility remained unchanged. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for descriptions of the First Lien Term Loan and ABL Revolving Credit Facility. The agreements governing our indebtedness include restrictive covenants that limit our operating flexibility, which could harm our long-term interests.
Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for descriptions of the First Lien Term Loan and ABL Revolving Credit Facility. The agreements governing our indebtedness include restrictive covenants that limit our operating flexibility, which could harm our long-term interests.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe lease all of our distribution center locations and all of our 1,423 pet care centers in the U.S. and Puerto Rico. The original lease term for pet care centers is generally ten years, with certain leases being shorter or longer, and many of these leases contain renewal options.
Biggest changeWe lease all of our distribution center locations and all of our 1,398 pet care centers in the U.S. and Puerto Rico. The original lease term for pet care centers is generally ten years, with certain leases being shorter or longer, 42 and many of these leases contain renewal options.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. We are involved in the legal proceedings described in Note 14, Commitments and Contingencies, in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, and we are subject to 42 other claims and litigation arising in the ordinary course of business.
Biggest changeItem 3. Legal Proceedings. We are involved in the legal proceedings described in Note 14, Commitments and Contingencies, in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, and we are subject to other claims and litigation arising in the ordinary course of business.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our Class A common stock. 1/14/21 1/21 4/21 7/21 10/21 1/22 4/22 7/22 10/22 1/23 4/23 7/23 10/23 2/24 Petco Health and Wellness Company Inc. 100.00 88.54 80.34 70.17 84.12 62.24 65.51 47.35 35.82 39.93 33.88 27.76 11.77 8.44 NASDAQ Composite 100.00 101.44 108.55 114.26 120.88 111.23 96.52 97.17 86.35 91.27 96.54 113.51 101.88 120.46 S&P 500 Consumer Discretionary Distribution & Retail 100.00 99.36 112.41 111.83 117.11 105.22 93.07 96.00 84.47 87.14 87.79 102.81 97.56 116.84 S&P Retail Select Industry 100.00 119.02 126.18 129.78 128.65 108.58 97.09 88.30 87.62 96.92 86.65 96.09 83.48 100.70 45 The above performance graph shall not be deemed "filed" for purposes of Section 18 of the Exchange Act, or incorporated by reference into any filing of Petco Health and Wellness Company, Inc. under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Biggest changeThe comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our Class A common stock. 1/14/21 1/21 1/22 1/23 2/24 1/25 Petco Health and Wellness Company Inc. 100.00 88.54 62.24 39.93 8.44 11.63 NASDAQ Composite 100.00 101.44 111.23 91.27 127.96 157.05 S&P Retail Select Industry 100.00 136.47 129.34 113.42 125.56 134.25 The above performance graph shall not be deemed "filed" for purposes of Section 18 of the Exchange Act, or incorporated by reference into any filing of Petco Health and Wellness Company, Inc. under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Please read “Risk Factors—The agreements governing our indebtedness include restrictive covenants that limit our operating flexibility, which could harm our long-term interests,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in this Annual Report on Form 10-K for descriptions of restrictions on our ability to pay dividends. 44 Performance Graph The graph below compares the cumulative total return on our Class A common stock with the cumulative total returns of the Nasdaq Composite index, S&P 500 Consumer Discretionary Distribution & Retail index (formerly the S&P Retail index), and S&P Retail Select Industry index from January 14, 2021 (the initial day of trading for our Class A common stock) through February 3, 2024.
Please read “Risk Factors—The agreements governing our indebtedness include restrictive covenants that limit our operating flexibility, which could harm our long-term interests,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in this Annual Report on Form 10-K for descriptions of restrictions on our ability to pay dividends. 44 Performance Graph The graph below compares the cumulative total return on our Class A common stock with the cumulative total returns of the Nasdaq Composite index and S&P Retail Select Industry index from January 14, 2021 (the initial day of trading for our Class A common stock) through January 31, 2025.
The graph assumes that the value of the investment in our Class A common stock and in each index (including reinvestment of dividends) was $100 on January 14, 2021 and tracks it through February 3, 2024.
The graph assumes that the value of the investment in our Class A common stock and in each index (including reinvestment of dividends) was $100 on January 14, 2021 and tracks it through January 31, 2025.
The number of record holders of our Class A common stock does not reflect the number of persons or entities holding their stock in “street” name through brokerage firms or other nominee holders. Recent Sales of Unregistered Equity Securities None. Issuer Purchases of Equity Securities None.
The number of record holders of our Class A common stock does not reflect the number of persons or entities holding their stock in “street” name through brokerage firms or other nominee holders.
Holders As of March 28, 2024, there were eighty-nine shareholders of record of our Class A common stock, one shareholder of record of our Class B-1 common stock, and two shareholders of record of our Class B-2 common stock.
Holders As of March 27, 2025, there were ninety-eight shareholders of record of our Class A common stock, one shareholder of record of our Class B-1 common stock, and two shareholders of record of our Class B-2 common stock.
Dividend Policy We do not anticipate declaring or paying any cash dividends to holders of our Class A common stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance the growth of our business and pay down our indebtedness.
We currently intend to retain future earnings, if any, to finance the growth of our business and pay down our indebtedness.
Removed
In 2023, we elected to replace the S&P 500 Consumer Discretionary Distribution & Retail index with the S&P Retail Select Industry index because due to the broader recognition of the S&P Retail Select Industry index. In future years, we will no longer provide a comparison to the S&P 500 Consumer Discretionary Distribution & Retail index.
Added
Recent Sales of Unregistered Equity Securities As previously disclosed, on May 13, 2024 the Company issued 1,470,589 shares of Class A Common Stock to GSSB Corporation, an Ontario corporation, of which Glenn Murphy, the Company's Executive Chairman, is the sole stockholder, at a price per share equal to $1.70 for a total purchase price of $2,500,001.30.
Added
The shares were issued in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof. Issuer Purchases of Equity Securities None. Dividend Policy We do not anticipate declaring or paying any cash dividends to holders of our Class A common stock in the foreseeable future.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeExecutive Summary Comparing fiscal 2023 and fiscal 2022, our results included the following: • an increase in net sales from $6.04 billion to $6.26 billion, representing period-over-period growth of 3.6%; • comparable sales growth of 1.8%; • net loss attributable to Class A and B-1 common stockholders of $1,280.2 million impacted by goodwill impairment, compared to net income attributable to Class A and B-1 common stockholders of $90.8 million in the prior year; and • A decrease in Adjusted EBITDA from $530.8 million to $401.1 million. 51 Results of Operations The following tables summarize our results of operations and the percent of net sales of line items included in our consolidated statements of operations (dollars in thousands): Fiscal years ended February 3, 2024 January 28, 2023 January 29, 2022 (53 weeks) (52 weeks) (52 weeks) Net sales: Products $ 5,273,710 $ 5,230,515 $ 5,136,859 Services and other 981,574 805,452 670,290 Total net sales 6,255,284 6,035,967 5,807,149 Cost of sales: Products 3,269,628 3,035,249 2,875,313 Services and other 631,821 573,611 505,226 Total cost of sales 3,901,449 3,608,860 3,380,539 Gross profit 2,353,835 2,427,107 2,426,610 Selling, general and administrative expenses 2,311,625 2,201,548 2,160,539 Goodwill impairment 1,222,524 — — Operating (loss) income (1,180,314 ) 225,559 266,071 Interest income (3,405 ) (1,032 ) (62 ) Interest expense 150,909 101,643 77,397 Loss on extinguishment and modification of debt 920 — 20,838 Other non-operating (income) loss (4,727 ) 12,667 (34,497 ) (Loss) income before income taxes and income from equity method investees (1,324,011 ) 112,281 202,395 Income tax (benefit) expense (27,613 ) 35,347 53,473 Income from equity method investees (16,188 ) (12,976 ) (10,883 ) Net (loss) income (1,280,210 ) 89,910 159,805 Net loss attributable to noncontrolling interest — (891 ) (4,612 ) Net (loss) income attributable to Class A and B-1 common stockholders $ (1,280,210 ) $ 90,801 $ 164,417 52 Fiscal years ended February 3, 2024 January 28, 2023 January 29, 2022 (53 weeks) (52 weeks) (52 weeks) Net sales: Products 84.3 % 86.7 % 88.5 % Services and other 15.7 13.3 11.5 Total net sales 100.0 100.0 100.0 Cost of sales: Products 52.3 50.3 49.5 Services and other 10.1 9.5 8.7 Total cost of sales 62.4 59.8 58.2 Gross profit 37.6 40.2 41.8 Selling, general and administrative expenses 37.0 36.5 37.2 Goodwill impairment 19.5 — — Operating (loss) income (18.9 ) 3.7 4.6 Interest income (0.1 ) (0.0 ) (0.0 ) Interest expense 2.5 1.6 1.3 Loss on extinguishment and modification of debt 0.0 — 0.4 Other non-operating (income) loss (0.1 ) 0.2 (0.6 ) (Loss) income before income taxes and income from equity method investees (21.2 ) 1.9 3.5 Income tax (benefit) expense (0.4 ) 0.6 0.9 Income from equity method investees (0.3 ) (0.2 ) (0.2 ) Net (loss) income (20.5 ) 1.5 2.8 Net loss attributable to noncontrolling interest — 0.0 0.0 Net (loss) income attributable to Class A and B-1 common stockholders (20.5 )% 1.5 % 2.8 % Fiscal years ended February 3, 2024 January 28, 2023 January 29, 2022 (53 weeks) (52 weeks) (52 weeks) Operational Data: Comparable sales increase 1.8 % 4.5 % 18.9 % Total pet care centers (U.S. and Puerto Rico) at end of period 1,423 1,430 1,433 Total veterinarian practices at end of period 288 247 197 Fiscal 2023 (53 weeks) Compared with Fiscal 2022 (52 weeks) Net Sales and Comparable Sales Fiscal years ended (dollars in thousands) February 3, 2024 January 28, 2023 $ Change % Change Consumables $ 3,063,845 $ 2,859,602 $ 204,243 7.1 % Supplies and companion animals 2,209,865 2,370,913 (161,048 ) (6.8 %) Services and other 981,574 805,452 176,122 21.9 % Net sales $ 6,255,284 $ 6,035,967 $ 219,317 3.6 % Net sales increased $219.3 million, or 3.6%, to $6.26 billion in fiscal 2023 compared to net sales of $6.04 billion in fiscal 2022, driven by a 1.8% increase in our comparable sales and an increase of $116.6 million as a result of the 53rd week in fiscal 2023.
Biggest changeResults of Operations The following tables summarize our results of operations and the percent of net sales of line items included in our consolidated statements of operations (dollars in thousands): Fiscal years ended February 1, 2025 February 3, 2024 January 28, 2023 (52 weeks) (53 weeks) (52 weeks) Net sales: Products $ 5,116,891 $ 5,273,710 $ 5,230,515 Services and other 999,571 981,574 805,452 Total net sales 6,116,462 6,255,284 6,035,967 Cost of sales: Products 3,173,269 3,269,628 3,035,249 Services and other 618,791 631,821 573,611 Total cost of sales 3,792,060 3,901,449 3,608,860 Gross profit 2,324,402 2,353,835 2,427,107 Selling, general and administrative expenses 2,317,351 2,311,625 2,201,548 Goodwill impairment — 1,222,524 — Operating income (loss) 7,051 (1,180,314 ) 225,559 Interest income (3,714 ) (3,405 ) (1,032 ) Interest expense 143,531 150,909 101,643 Loss on partial extinguishment of debt — 920 — Other non-operating (income) loss (4,800 ) (4,727 ) 12,667 (Loss) income before income taxes and income from equity method investees (127,966 ) (1,324,011 ) 112,281 Income tax (benefit) expense (7,481 ) (27,613 ) 35,347 Income from equity method investees (18,669 ) (16,188 ) (12,976 ) Net (loss) income (101,816 ) (1,280,210 ) 89,910 Net loss attributable to noncontrolling interest — — (891 ) Net (loss) income attributable to Class A and B-1 common stockholders $ (101,816 ) $ (1,280,210 ) $ 90,801 50 Fiscal years ended February 1, 2025 February 3, 2024 January 28, 2023 (52 weeks) (53 weeks) (52 weeks) Net sales: Products 83.7 % 84.3 % 86.7 % Services and other 16.3 15.7 13.3 Total net sales 100.0 100.0 100.0 Cost of sales: Products 51.9 52.3 50.3 Services and other 10.1 10.1 9.5 Total cost of sales 62.0 62.4 59.8 Gross profit 38.0 37.6 40.2 Selling, general and administrative expenses 37.9 37.0 36.5 Goodwill impairment — 19.5 — Operating income (loss) 0.1 (18.9 ) 3.7 Interest income (0.1 ) (0.1 ) (0.0 ) Interest expense 2.4 2.5 1.6 Loss on partial extinguishment of debt — 0.0 — Other non-operating (income) loss (0.1 ) (0.1 ) 0.2 (Loss) income before income taxes and income from equity method investees (2.1 ) (21.2 ) 1.9 Income tax (benefit) expense (0.1 ) (0.4 ) 0.6 Income from equity method investees (0.3 ) (0.3 ) (0.2 ) Net (loss) income (1.7 ) (20.5 ) 1.5 Net loss attributable to noncontrolling interest — — 0.0 Net (loss) income attributable to Class A and B-1 common stockholders (1.7 )% (20.5 )% 1.5 % Fiscal years ended February 1, 2025 February 3, 2024 January 28, 2023 (52 weeks) (53 weeks) (52 weeks) Operational Data: Comparable sales increase 0.3 % 1.8 % 4.5 % Total pet care centers (U.S. and Puerto Rico) at end of period 1,398 1,423 1,430 Adjusted EBITDA (in thousands) $ 336,526 $ 401,103 $ 530,769 Fiscal 2024 (52 weeks) Compared with Fiscal 2023 (53 weeks) Net Sales and Comparable Sales Fiscal years ended (dollars in thousands) February 1, 2025 February 3, 2024 $ Change % Change Consumables $ 3,043,178 $ 3,063,845 $ (20,667 ) (0.7 %) Supplies and companion animals 2,073,713 2,209,865 (136,152 ) (6.2 %) Services and other 999,571 981,574 17,997 1.8 % Net sales $ 6,116,462 $ 6,255,284 $ (138,822 ) (2.2 %) Net sales decreased $138.8 million, or 2.2%, to $6.12 billion in fiscal 2024 compared to net sales of $6.26 billion in fiscal 2023, primarily driven by $116.6 million attributable to the 53rd week in fiscal 2023.
Our cost of sales includes the following types of expenses: • direct costs (net of vendor rebates, allowances, and discounts for products sold) including inbound freight charges; • shipping and handling costs associated with sales to customers; • freight costs associated with moving merchandise inventories; • inventory shrinkage costs and write-downs; • payroll and benefit costs of pet groomers, trainers, veterinarians, and other direct costs of services; and 49 • costs associated with operating our distribution centers including payroll and benefits, occupancy costs, and depreciation.
Our cost of sales includes the following types of expenses: • direct costs (net of vendor rebates, allowances, and discounts for products sold) including inbound freight charges; • shipping and handling costs associated with sales to customers; • freight costs associated with moving merchandise inventories; • inventory shrinkage costs and write-downs; • payroll and benefit costs of pet groomers, trainers, veterinarians, and other direct costs of services; and • costs associated with operating our distribution centers including payroll and benefits, occupancy costs, and depreciation.
We perform our annual impairment test during the fourth quarter of each year or whenever events or changes in circumstances indicate the carrying value may not be recoverable. Management has the option to first perform a qualitative assessment of its trade name asset to determine whether it is necessary to perform a quantitative impairment test.
We perform our annual impairment test during the fourth 59 quarter of each year or whenever events or changes in circumstances indicate the carrying value may not be recoverable. Management has the option to first perform a qualitative assessment of its trade name asset to determine whether it is necessary to perform a quantitative impairment test.
Selling, General, and Administrative Expense The following types of expenses are included in our selling, general, and administrative costs (“SG&A”): • payroll and benefit costs of pet care center employees and corporate employees; • occupancy and operating costs of pet care centers and corporate facilities; • depreciation and amortization related to pet care centers and corporate assets; • credit card fees; • store pre-opening and remodeling costs; • advertising costs; and • other selling and administrative costs.
Selling, General, and Administrative Expense The following types of expenses are included in our selling, general, and administrative costs (“SG&A”): • payroll and benefit costs of pet care center employees and corporate employees; • occupancy and operating costs of pet care centers and corporate facilities; • depreciation and amortization related to pet care centers and corporate assets; • credit card fees; • store pre-opening and remodeling costs; • advertising costs; and 48 • other selling and administrative costs.
Macroeconomic factors, including rising interest rates, inflationary pressures, supply chain constraints, and global economic and geopolitical developments have had varying impacts on our results of operations, such as decreases in sales of discretionary items like supplies, that are difficult to isolate and quantify.
Macroeconomic factors, including rising interest rates, inflationary pressures, supply chain constraints, tariffs, and global economic and geopolitical developments have had varying impacts on our results of operations, such as decreases in sales of discretionary items like supplies, that are difficult to isolate and quantify.
Principal payments are typically $4.25 million quarterly. In March 2023, May 2023 and August 2023, the Company repaid $35.0 million, $25.0 million and $15.0 million in principal, respectively, of the First Lien Term Loan using existing cash on hand. The repayments were applied to remaining principal payments in order of scheduled payment date.
Principal payments are typically $4.25 million quarterly. The Company voluntarily repaid $35.0 million, $25.0 million and $15.0 million of the principal of the First Lien Term Loan using existing cash on hand in March 2023, May 2023, and August 2023, respectively. The repayments were applied to remaining principal payments in order of scheduled payment date.
A new location or digital site is included in comparable sales beginning on the first day of the fiscal month following 12 full fiscal months of operation and is subsequently compared to like time periods from the previous year.
A new location or digital site is included in comparable sales beginning on the first 46 day of the fiscal month following 12 full fiscal months of operation and is subsequently compared to like time periods from the previous year.
How We Assess the Performance of Our Business In assessing our performance, we consider a variety of performance and financial measures including the following: 47 Comparable Sales Comparable sales is an important measure throughout the retail industry and includes both retail and digital sales of products and services.
How We Assess the Performance of Our Business In assessing our performance, we consider a variety of performance and financial measures including the following: Comparable Sales Comparable sales is an important measure throughout the retail industry and includes both retail and digital sales of products and services.
The discussion and analysis below contain certain forward-looking statements about our business and operations that are subject to the risks, uncertainties, and other factors described in the section entitled “Risk Factors,” included in Part I, Item 1A, and elsewhere in this Annual Report on Form 10-K.
The discussion and analysis below contains certain forward-looking statements about our business and operations that are subject to the risks, uncertainties, and other factors described in the section entitled “Risk Factors,” included in Part I, Item 1A, and elsewhere in this Annual Report on Form 10-K.
We are increasingly linking our offerings with membership programs such as Vital Care Premier and pet health insurance in an effort to create deeper engagement with our customers, and with our Vital Care Core loyalty program members specifically, which members accounted for over 90% of transactions in fiscal 2023.
We are increasingly linking our offerings with membership programs such as Vital Care Premier and pet health insurance in an effort to create deeper engagement with our customers, and with our Vital Care Core loyalty program members specifically, which members accounted for over 90% of transactions in fiscal 2024.
Management believes that Free Cash Flow, which measures our ability to generate additional cash from our business operations, is an important financial measure for use in evaluating the Company’s financial performance. 56 Although other companies report their free cash flow, numerous methods exist for calculating a company’s free cash flow.
Management believes that Free Cash Flow, which measures our ability to generate additional cash from our business operations, is an important financial measure for use in evaluating the Company’s financial performance. 54 Although other companies report their free cash flow, numerous methods exist for calculating a company’s free cash flow.
Refer also to further discussion on our debt refinancing transaction in “Sources of Liquidity” below. Purchase obligations and commitments consist of open purchase orders, non-cancellable commitments for information technology, marketing and other products and services used in the normal course of business as well as our commitment for naming rights to the baseball stadium.
Refer also to further discussion on our debt refinancing transaction in “Sources of Liquidity” below. Purchase obligations and commitments consist of open purchase orders, as well as non-cancellable commitments for information technology, marketing and other products and services used in the normal course of business. We also have a commitment for naming rights to the baseball stadium.
In December 2022, we amended our first lien term loan facility and our revolving credit facility to replace the LIBOR-based rate with a SOFR-based rate as the interest rate benchmark. Please read the discussion under “Liquidity and Capital Resources—Sources of Liquidity” for further information.
In December 2022, we amended our first lien term loan facility and our revolving credit facility to replace the LIBOR-based rate with a SOFR-based rate as the interest rate benchmark. Refer to the discussion under “Liquidity and Capital Resources—Sources of Liquidity” for further information.
However, if estimates of losses are inaccurate, we may be exposed to losses or gains that could be material. A 10% difference in our actual shrink reserve at February 3, 2024 would have affected pre-tax loss by $3.5 million in fiscal 2023. Vendor Allowances We receive various forms of consideration from our merchandise vendors (vendor allowances).
However, if estimates of losses are inaccurate, we may be exposed to losses or gains that could be material. A 10% difference in our actual shrink reserve at February 1, 2025 would have affected pre-tax loss by $3.3 million in fiscal 2024. Vendor Allowances We receive various forms of consideration from our merchandise vendors (vendor allowances).
Refer to Note 5, “ Leases ,” and Note 7, “ Senior Secured Credit Facilities ,” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for amounts outstanding as of February 3, 2024 related to operating leases and debt, respectively.
Refer to Note 5, “ Leases ,” and Note 7, “ Senior Secured Credit Facilities ,” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for amounts outstanding as of February 1, 2025 related to operating leases and debt, respectively.
These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the consolidated balance sheet as of February 3, 2024, while others are considered future obligations. Our contractual obligations primarily consist of operating leases and long-term debt and related interest payments.
These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the consolidated balance sheet as of February 1, 2025, while others are considered future obligations. Our contractual obligations primarily consist of operating leases and long-term debt and related interest payments.
Historically, adjustments to our vendor income deferral have not been material. A 10% difference in our vendor income deferred at February 3, 2024 would have affected pre-tax loss by $2.3 million in fiscal 2023. We have not made any material changes in the accounting methodology we use to assess vendor allowances during the past three fiscal years.
Historically, adjustments to our vendor income deferral have not been material. A 10% difference in our vendor income deferred at February 1, 2025 would have affected pre-tax loss by $2.2 million in fiscal 2024. 58 We have not made any material changes in the accounting methodology we use to assess vendor allowances during the past three fiscal years.
In response to this shifting demand, during fiscal 2023, we broadened our assortment to include more national brands and implemented strategic pricing actions to offer more balanced price points in an effort to appeal to a broader base of consumers.
In response to this shifting demand, we have broadened our assortment to include more national brands and implemented strategic pricing actions to offer more balanced price points in an effort to appeal to a broader base of consumers.
Please read the discussion of these assets under “Critical Accounting Policies and Estimates.” Interest Expense Our interest expense in fiscal 2021 was primarily associated with a term loan facility, and a revolving credit facility.
Please read the discussion of these assets under “Critical Accounting Policies and Estimates.” Interest Expense Our interest expense in fiscal 2022 was primarily associated with a first lien term loan facility and a revolving credit facility.
We are unable to quantify the factors impacting gross profit rate described above due to the fact that such factors are based on input measures or qualitative information that do not lend themselves to quantification. Selling, General and Administrative Expenses SG&A expenses increased $110.1 million, or 5.0%, to $2.31 billion for fiscal 2023 compared to $2.20 billion for fiscal 2022.
We are unable to quantify the factors impacting gross profit rate described above due to the fact that such factors are based on input measures or qualitative information that do not lend themselves to quantification. Selling, General and Administrative Expenses SG&A expenses increased $5.7 million, or 0.2%, to $2.32 billion for fiscal 2024 compared to $2.31 billion for fiscal 2023.
Through our omnichannel ecosystem, we provide our customers with a comprehensive offering of products and services to fulfill their pets’ health and wellness needs through our more than 1,500 pet care centers in the U.S., Mexico, and Puerto Rico, including a growing network of 288 full service veterinary hospitals, our digital channel, and our flexible fulfillment options.
Through our omnichannel ecosystem, we provide our customers with a comprehensive offering of products and services to fulfill their pets’ needs through our more than 1,500 pet care centers in the U.S., Mexico, and Puerto Rico, including a network of in-store veterinary hospitals, our digital channel, and our flexible fulfillment options.
As a percentage of net sales, SG&A expenses increased from 36.5% in fiscal 2022 to 37.0% in fiscal 2023. The increase in SG&A expenses period-over-period was to support our growth as we continue to invest in infrastructure and our people.
As a percentage of net sales, SG&A expenses increased from 37.0% in fiscal 2023 to 37.9% in fiscal 2024. The increase in SG&A expenses period-over-period was to support our growth as we continue to invest in infrastructure and our people.
Net Income (Loss) Attributable to Class A and B-1 Common Stockholders Net loss attributable to Class A and B-1 common stockholders was $(1,280.2) million for fiscal 2023 compared with a net income attributable to Class A and B-1 common stockholders of $90.8 million for fiscal 2022.
Net (Loss) Income Attributable to Class A and B-1 Common Stockholders Net loss attributable to Class A and B-1 common stockholders was $101.8 million for fiscal 2024 compared with a net loss attributable to Class A and B-1 common stockholders of $1,280.2 million for fiscal 2023.
The decrease in effective tax rate in fiscal 2023 as compared to fiscal 2022 is primarily driven by non-deductible goodwill impaired during the third quarter of fiscal 2023, in addition to a shortfall in tax deductions resulting from the exercise and vesting of equity-based compensation awards.
The increase in effective tax rate in fiscal 2024 as compared to fiscal 2023 is primarily driven by non-deductible goodwill impaired during fiscal 2023, in addition to a shortfall in tax deductions resulting from the exercise and vesting of equity-based compensation awards.
Prior Year Discussion of Results and Comparisons For information on fiscal 2022 results and similar comparisons, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our previous Annual Report on Form 10-K filed with the SEC on March 28, 2023.
Prior Year Discussion of Results and Comparisons For information on fiscal 2023 results and similar comparisons, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our previous Annual Report on Form 10-K filed with the SEC on April 3, 2024.
Sources of Liquidity Senior Secured Credit Facilities On March 4, 2021, the Company completed a refinancing transaction by entering into a $1,700 million secured term loan facility maturing on March 4, 2028 (the “First Lien Term Loan”) and the ABL Revolving Credit Facility, which matures on March 4, 2026 and has availability of up to $500.0 million, subject to a borrowing base.
Sources of Liquidity Senior Secured Credit Facilities On March 4, 2021, the Company completed a refinancing transaction by entering into the $1,700.0 million First Lien Term Loan maturing on March 4, 2028 and the ABL Revolving Credit Facility, originally maturing on March 4, 2026 with availability of up to $500.0 million, subject to a borrowing base.
Goodwill Impairment In fiscal 2023, the Company recorded a pre-tax goodwill impairment charge of $1.22 billion as a result of performing an interim impairment test in the third quarter of fiscal 2023 due to the identification of certain triggering events.
Goodwill Impairment In fiscal 2023, the Company recorded a pre-tax goodwill impairment charge of $1.22 billion as a result of performing an interim impairment test due to the identification of certain triggering events. There was no goodwill impairment charge recorded in fiscal 2024.
(“Petco”, the “Company”, “we”, “our” and “us”) is a pet health and wellness company focused on improving the lives of pets, pet parents, and our own partners.
(“Petco”, the “Company”, “we”, “our” and “us”) is a pet specialty retailer focused on improving the lives of pets, pet parents, and our own partners.
All other key terms of the ABL Revolving Credit Facility remained unchanged. For more information regarding this indebtedness, refer to Note 7, “ Senior Secured Credit Facilities ,” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
For more information regarding this indebtedness, refer to Note 7, “ Senior Secured Credit Facilities ,” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Cash Flows The following table summarizes our consolidated cash flows: Fiscal years ended (dollars in thousands) February 3, 2024 January 28, 2023 January 29, 2022 (52 weeks) (52 weeks) (52 weeks) Total cash provided by (used in): Operating activities $ 215,719 $ 346,003 $ 358,215 Investing activities (207,445 ) (320,324 ) (237,083 ) Financing activities (85,352 ) (33,842 ) (18,782 ) Net (decrease) increase in cash, cash equivalents and restricted cash $ (77,078 ) $ (8,163 ) $ 102,350 57 Operating Activities Our primary source of operating cash is sales of products and services to customers, which are substantially all on a cash basis, and therefore provide us with a significant source of liquidity.
Cash Flows The following table summarizes our consolidated cash flows: Fiscal years ended (dollars in thousands) February 1, 2025 February 3, 2024 January 28, 2023 (52 weeks) (53 weeks) (52 weeks) Total cash provided by (used in): Operating activities $ 177,673 $ 215,719 $ 346,003 Investing activities (123,903 ) (207,445 ) (320,324 ) Financing activities (8,754 ) (85,352 ) (33,842 ) Net increase (decrease) in cash, cash equivalents and restricted cash $ 45,016 $ (77,078 ) $ (8,163 ) 55 Operating Activities Our primary source of operating cash is sales of products and services to customers, which are substantially all on a cash basis, and therefore provide us with a significant source of liquidity.
However, during fiscal 2023, we observed a softening in discretionary spend and shifting consumer preferences for more value-centric products associated with the current inflationary macroeconomic environment.
However, during fiscal 2024, we continued to observe a softening discretionary spend and shifting consumer preferences for more value-centric products associated with the current inflationary macroeconomic environment.
A 10% difference in our actual valuation reserve at February 3, 2024 would have affected pre-tax loss by $1.6 million in fiscal 2023. Additionally, we do not believe there is a reasonable likelihood that there will be a material change in future estimates or assumptions we use to calculate our shrink 60 reserve.
A 10% difference in our actual valuation reserve at February 1, 2025 would have an insignificant effect on pre-tax loss in fiscal 2024. Additionally, we do not believe there is a reasonable likelihood that there will be a material change in future estimates or assumptions we use to calculate our shrink reserve.
For more information on this charge, refer to Note 6, "Goodwill," to the Notes to Consolidated Financial Statements included in Part II, Item 8 of this of this Annual Report on Form 10-K. Interest Expense Interest expense increased $49.3 million, or 48.5%, to $150.9 million in fiscal 2023 compared with $101.6 million in fiscal 2022.
For more information refer to Note 6, "Goodwill," to the Notes to Consolidated Financial Statements included in Part II, Item 8 of this of this Annual Report on Form 10-K. Interest Expense Interest expense decreased $7.4 million, or 4.9%, to $143.5 million in fiscal 2024 compared with $150.9 million in fiscal 2023.
In addition, other companies in our industry may define Adjusted EBITDA differently, limiting its usefulness as a comparative measure. 55 The table below reflects the calculation of Adjusted EBITDA and Adjusted EBITDA Margin for the periods presented: Fiscal years ended February 3, 2024 January 28, 2023 January 29, 2022 (dollars in thousands) (53 weeks) (52 weeks) (52 weeks) Net (loss) income attributable to Class A and B-1 common stockholders $ (1,280,210 ) $ 90,801 $ 164,417 Interest expense, net 147,504 100,611 77,335 Income tax (benefit) expense (27,613 ) 35,347 53,473 Depreciation and amortization 200,782 193,828 172,431 Income from equity method investees (16,188 ) (12,976 ) (10,883 ) Loss on extinguishment and modification of debt 920 — 20,838 Goodwill impairment 1,222,524 — — Asset impairments and write offs 2,833 1,992 10,918 Equity-based compensation expense 81,859 60,784 49,265 Other non-operating (income) loss (4,727 ) 12,667 (34,497 ) Mexico joint venture EBITDA (1) 38,226 29,584 26,837 Acquisition-related integration costs (2) — 15,314 — Other costs (3) 35,193 2,817 18,235 Adjusted EBITDA $ 401,103 $ 530,769 $ 548,369 Net sales $ 6,255,284 $ 6,035,967 $ 5,807,149 Net margin (4) (20.5 )% 1.5 % 2.8 % Adjusted EBITDA Margin 6.4 % 8.8 % 9.4 % (1) Mexico joint venture EBITDA represents 50% of the entity’s operating results for the periods presented, as adjusted to reflect the results on a basis comparable to our Adjusted EBITDA.
In addition, other companies in our industry may define Adjusted EBITDA differently, limiting its usefulness as a comparative measure. 53 The table below reflects the calculation of Adjusted EBITDA and Adjusted EBITDA Margin for the periods presented: Fiscal years ended February 1, 2025 February 3, 2024 January 28, 2023 (dollars in thousands) (52 weeks) (53 weeks) (52 weeks) Net (loss) income attributable to Class A and B-1 common stockholders $ (101,816 ) $ (1,280,210 ) $ 90,801 Interest expense, net 139,817 147,504 100,611 Income tax (benefit) expense (7,481 ) (27,613 ) 35,347 Depreciation and amortization 199,727 200,782 193,828 Income from equity method investees (18,669 ) (16,188 ) (12,976 ) Loss on partial extinguishment of debt — 920 — Goodwill impairment — 1,222,524 — Asset impairments and write offs 8,790 2,833 1,992 Equity-based compensation expense 50,212 81,859 60,784 Other non-operating (income) loss (4,800 ) (4,727 ) 12,667 Mexico joint venture EBITDA (1) 41,615 38,226 29,584 Acquisition and divestiture-related integration costs (2) 3,719 — 15,314 Other costs (3) 25,412 35,193 2,817 Adjusted EBITDA $ 336,526 $ 401,103 $ 530,769 Net sales $ 6,116,462 $ 6,255,284 $ 6,035,967 Net margin (4) (1.7 )% (20.5 )% 1.5 % Adjusted EBITDA Margin 5.5 % 6.4 % 8.8 % (1) Mexico joint venture EBITDA represents 50% of the entity’s operating results for the periods presented, as adjusted to reflect the results on a basis comparable to our Adjusted EBITDA.
The table below presents a reconciliation of Mexico joint venture net income to Mexico joint venture EBITDA: Fiscal years ended February 3, 2024 January 28, 2023 January 29, 2022 (dollars in thousands) (53 weeks) (52 weeks) (52 weeks) Net income $ 32,375 $ 24,757 $ 21,773 Depreciation 26,141 19,820 15,679 Income tax expense 11,449 9,409 11,390 Foreign currency loss (gain) 1,520 (268 ) (431 ) Interest expense, net 4,966 5,449 5,263 EBITDA $ 76,451 $ 59,167 $ 53,674 50% of EBITDA $ 38,226 $ 29,584 $ 26,837 (2) Acquisition-related integration costs include direct costs resulting from acquiring and integrating businesses.
The table below presents a reconciliation of Mexico joint venture net income to Mexico joint venture EBITDA: Fiscal years ended February 1, 2025 February 3, 2024 January 28, 2023 (dollars in thousands) (52 weeks) (53 weeks) (52 weeks) Net income $ 37,559 $ 32,375 $ 24,757 Depreciation 27,360 26,141 19,820 Income tax expense 16,010 11,449 9,409 Foreign currency loss (gain) 169 1,520 (268 ) Interest expense, net 2,131 4,966 5,449 EBITDA $ 83,229 $ 76,451 $ 59,167 50% of EBITDA $ 41,615 $ 38,226 $ 29,584 (2) Acquisition and divestiture-related integration costs include direct costs resulting from acquiring, integrating, or divesting businesses.
If management concludes, based on assessment of relevant events, facts, and circumstances, that it is more likely than not that a reporting unit’s fair value is greater than its carrying value, no further impairment testing is required. 61 If management’s assessment of qualitative factors indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then a quantitative assessment is performed.
If management concludes, based on assessment of relevant events, facts, and circumstances, that it is more likely than not that a reporting unit’s fair value is greater than its carrying value, no further impairment testing is required.
Net Loss Attributable to Noncontrolling Interest The noncontrolling interest represents 50% of the net loss of our veterinary joint venture, which was a variable interest entity for which we were deemed to be the primary beneficiary beginning in fiscal 2019 due to revisions made in the joint operating agreement.
Net Loss Attributable to Noncontrolling Interest The noncontrolling interest represents 50% of the net loss of our veterinary joint venture, which was a variable interest entity for which we were deemed to be the primary beneficiary.
For more information refer to Note 9, “Fair Value Measurements,” to the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
For more information refer to Note 7, “ Senior Secured Credit Facilities ,” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
The table below reflects the calculation of Free Cash Flow for the periods presented: Fiscal years ended February 3, 2024 January 28, 2023 January 29, 2022 (dollars in thousands) (53 weeks) (52 weeks) (52 weeks) Net cash provided by operating activities $ 215,719 $ 346,003 $ 358,215 Cash paid for fixed assets (225,598 ) (278,020 ) (239,110 ) Free Cash Flow $ (9,879 ) $ 67,983 $ 119,105 Liquidity and Capital Resources Overview Our primary sources of liquidity are funds generated by operating activities and available capacity for borrowings on our secured asset-based revolving credit facility (the “ABL Revolving Credit Facility”).
The table below reflects the calculation of Free Cash Flow for the periods presented: Fiscal years ended February 1, 2025 February 3, 2024 January 28, 2023 (dollars in thousands) (52 weeks) (53 weeks) (52 weeks) Net cash provided by operating activities $ 177,673 $ 215,719 $ 346,003 Cash paid for fixed assets (127,990 ) (225,598 ) (278,020 ) Free Cash Flow $ 49,683 $ (9,879 ) $ 67,983 Liquidity and Capital Resources Overview Our primary sources of liquidity are funds generated by operating activities and available capacity for borrowings on our $581 million ABL Revolving Credit Facility.
In June 2023, the Company entered into an interest rate collar agreement to limit the maximum interest on a portion of the Company’s variable-rate debt and decrease its exposure to interest rate variability relating to three-month Term SOFR.
Derivative Instruments The Company entered into interest rate cap, collar and swap agreements to limit the maximum interest on a portion of the Company’s variable-rate debt and decrease its exposure to interest rate variability relating to three-month Term SOFR.
Gross Profit Gross profit decreased $73.3 million, or 3.0%, to $2.35 billion in fiscal 2023 compared to gross profit of $2.43 billion for fiscal 2022. As a percentage of sales, our gross profit rate was 37.6% for fiscal 2023 compared to 40.2% for fiscal 2022.
Gross Profit Gross profit decreased $29.4 million, or 1.3%, to $2.32 billion in fiscal 2024 compared to gross profit of $2.35 billion for fiscal 2023. As a percentage of sales, our gross profit rate was 38.0% for fiscal 2024 compared to 37.6% for fiscal 2023.
This is the primary focus of our customer engagement efforts from digital, to performance marketing campaigns, to new product introductions, and to Petco partner cross- and up-selling activities in pet care centers.
This is the primary focus of our customer engagement efforts from digital, to performance marketing campaigns, to new product introductions, and to Petco partner cross- and up-selling activities in pet care centers. The ability to convert more of our customers to loyal, multi-channel shoppers will positively affect business performance.
Financing cash flows in fiscal 2022 primarily consisted of borrowings and repayments under the ABL Revolving Credit Facility, quarterly term loan repayments, and payments for tax withholdings on stock-based awards. Financing cash flows in fiscal 2021 primarily consisted of borrowings and repayments of debt in connection with the March 4, 2021 debt refinancing transaction discussed under “Sources of Liquidity” below.
Financing cash flows in fiscal 2022 primarily consisted of borrowings and repayments under the ABL Revolving Credit Facility, quarterly term loan repayments, and payments for tax withholdings on stock-based awards.
Critical Accounting Policies and Estimates The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make assumptions and estimates about future results and apply judgments that affect the reported amounts of assets, liabilities, net sales, expenses and related disclosures.
Seasonality Our financial performance is not significantly impacted by seasonality, as the majority of our sales are generated by pet parents caring for their pets year-round. 57 Critical Accounting Policies and Estimates The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make assumptions and estimates about future results and apply judgments that affect the reported amounts of assets, liabilities, net sales, expenses and related disclosures.
Our interest expense in fiscal 2022 was primarily associated with a first lien term loan facility and a revolving credit facility. In November 2022, we entered into a series of interest rate cap agreements to limit the maximum interest on a portion of our variable-rate debt and decrease our exposure to interest rate variability.
In November 2022, we entered into a series of interest rate cap agreements to limit the maximum interest on a portion of our variable-rate debt and decrease our exposure to interest rate variability.
As of February 3, 2024, our purchase obligations and commitments were $349.0 million of which $281.1 million is considered short-term.
As of February 1, 2025, our purchase obligations and commitments were $321.1 million of which $270.5 million is considered short-term.
The decrease in capital expenditures between fiscal 2023 and fiscal 2022 was primarily driven by reductions in capital spend partially offset by proceeds received from the sale of our investment in Rover Group, Inc. Additionally, in fiscal 2022, we paid $35.0 million for the remaining 50% stake in our veterinary joint venture.
In fiscal 2025, we expect to spend approximately $130 million to $140 million in capital expenditures. The decrease in capital expenditures between fiscal 2023 and fiscal 2022 was primarily driven by reductions in capital spend partially offset by proceeds received from the sale of our investment in Rover Group, Inc.
Our liquidity as of February 3, 2024 was $572.0 million inclusive of cash and cash equivalents of $125.4 million and $446.6 million of availability on the ABL Revolving Credit Facility.
Our liquidity as of February 1, 2025 was $681.4 million inclusive of cash and cash equivalents of $165.8 million and $515.6 million of availability on the ABL Revolving Credit Facility.
The second tranche has availability of up to $546.0 million, subject to a borrowing base, maturing on March 29, 2029. Interest on the ABL Revolving Credit Facility is now based on, at the Company's option, either the base rate subject to a 1% floor, or Term SOFR subject to a floor of 0%, plus an applicable margin.
Interest on the ABL Revolving Credit Facility is now based on, at the Company's option, either the base rate subject to a 1% floor, or Term SOFR subject to a floor of 0%, plus an applicable margin. All other key terms of the ABL Revolving Credit Facility remained unchanged.
In March 2024, the Company amended the ABL Revolving Credit Facility, which now consists of two tranches, to increase its total availability from $500.0 million to $581.0 million and extend the maturity on a portion of this availability. The first tranche has availability of up to $35.0 million, subject to a borrowing base, maturing on March 4, 2026.
The next scheduled principal payment is expected to occur in fiscal 2027. In March 2024, the Company amended the ABL Revolving Credit Facility, which now consists of two tranches, to increase its total availability from $500.0 million to $581.0 million and extend the maturity on a portion of this availability.
Capital expenditures by category during the periods set forth below are as follows: Fiscal years ended (dollars in thousands) February 3, 2024 January 28, 2023 January 29, 2022 New and existing pet care center locations $ 121,815 $ 146,432 $ 140,721 Digital and information technology 70,598 78,611 57,319 Supply chain and other 33,185 52,977 41,070 Total capital expenditures $ 225,598 $ 278,020 $ 239,110 Financing Activities Net cash used in financing activities was $85.4 million for fiscal 2023, compared with $33.8 million used in financing activities in fiscal 2022 and $18.8 million used in financing activities in fiscal 2021. 58 Financing cash flows in fiscal 2023 primarily consisted of $75.0 million in principal repayments on the term loan, borrowings and repayments under the ABL Revolving Credit Facility, and payments for tax withholdings on stock-based awards.
Capital expenditures by category during the periods set forth below are as follows: Fiscal years ended (dollars in thousands) February 1, 2025 February 3, 2024 January 28, 2023 New and existing pet care center locations $ 46,084 $ 121,815 $ 146,432 Digital and information technology 51,948 70,598 78,611 Supply chain and other 29,958 33,185 52,977 Total capital expenditures $ 127,990 $ 225,598 $ 278,020 Financing Activities Net cash used in financing activities was $8.8 million for fiscal 2024, compared with $85.4 million used in financing activities in fiscal 2023 and $33.8 million used in financing activities in fiscal 2022.
A 10% change in our self-insurance reserves at February 3, 2024 would have affected pre-tax loss by $8.9 million in fiscal 2023. 62 Recent Accounting Pronouncements Refer to Note 1, “ Summary of Significant Accounting Policies ,” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for information regarding recently issued accounting pronouncements.
Recent Accounting Pronouncements Refer to Note 1, “ Summary of Significant Accounting Policies ,” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for information regarding recently issued accounting pronouncements.
Investing Activities Net cash used in investing activities was $207.4 million, $320.3 million, and $237.1 million for fiscal 2023, fiscal 2022, and fiscal 2021, respectively, and consisted primarily of capital expenditures supporting our growth and initiatives.
Investing Activities Net cash used in investing activities was $123.9 million, $207.4 million, and $320.3 million for fiscal 2024, fiscal 2023, and fiscal 2022, respectively, and consisted primarily of capital expenditures supporting our growth and initiatives. The decrease in capital expenditures between fiscal 2024 and fiscal 2023 was primarily driven by reductions in new pet care centers and hospitals.
Income Tax Expense (Benefit) Income taxes consist of an estimate of federal and state income taxes based on enacted federal and state tax rates, as adjusted for allowable credits, deductions, and the valuation allowance against deferred tax assets, as applicable. 50 Income from Equity Method Investees Investments for which the Company exercises significant influence but does not have control are accounted for under the equity method.
Income Tax (Benefit) Expense Income taxes consist of an estimate of federal and state income taxes based on enacted federal and state tax rates, as adjusted for allowable credits, deductions, and the valuation allowance against deferred tax assets, as applicable.
For more information regarding these activities, refer to Note 7, “ Senior Secured Credit Facilities ,” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. 54 Other Non-Operating (Income) Loss Other non-operating income was $4.7 million and other non-operating loss was $12.7 million for fiscal 2023 and fiscal 2022, respectively.
For more information refer to Note 7, “ Senior Secured Credit Facilities ,” and Note 8, "Derivative Instruments," in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. Loss on Extinguishment and Modification of Debt In fiscal 2023, the Company recognized $0.9 million of losses on partial extinguishment of debt.
The decrease in operating cash flow was due to lower operating income, higher interest payments, higher cash paid for payroll and fringe as well as payouts of prior year accrued incentive bonuses. This was partially offset by lower cash paid for advertising and lower cash payments on operating leases due to the timing of rent payments.
The decrease in operating cash flow was driven by an increase in inventory purchases, higher payroll and fringe benefits as well as increases in cash paid for interest and operating leases. This was partially offset by an increase in sales, effective management of accounts payable, and lower payouts of prior year accrued incentive bonuses.
These investments include: expansion of our veterinary footprint, digital and e-commerce integration and expansion; enhanced supply chain capacity including additional distribution centers; data analytical capabilities; and marketing and advertising.
These investments have included: expansion of our veterinary footprint, digital and e-commerce integration and expansion; enhanced supply chain capacity including additional distribution centers; data analytical capabilities; and marketing and advertising. 47 Gross Margin and Expense Management Our operating results are impacted by our ability to convert revenue into healthy gross margin and operating margin.
Vital Care Premier memberships are at the top of our loyalty programs, followed by Vital Care Core and our perks programs that provide rewards for frequent purchasing. We strive to be a company that is improving millions of pet lives as well as the lives of pet parents and the partners who work for us.
We strive to be a company that is improving millions of pet lives as well as the lives of pet parents and the partners who work for us.
Our multicategory strategy integrates our digital assets with our nationwide physical footprint to meet the needs of pet parents who are looking for a single source for all their pet’s needs.
Our multicategory strategy integrates our digital assets with our nationwide physical footprint to meet the needs of pet parents who are looking for a single source for all their pets' needs. Our e-commerce site and mobile app serve as hubs for pet parents to manage their pets’ needs, while enabling them to shop wherever, whenever, and however they want.
(3) Other costs include, as incurred: restructuring costs and restructuring-related severance costs; legal reserves associated with significant, non-ordinary course legal or regulatory matters; and costs related to certain significant strategic transactions.
These include third-party professional and legal fees, losses on sales of divestitures, and other integration-related costs that would not have otherwise been incurred as part of the Company’s operations. (3) Other costs include, as incurred: restructuring costs and restructuring-related severance costs; legal reserves associated with significant, non-ordinary course legal or regulatory matters; and costs related to certain significant strategic transactions.
Equity method investment activity is primarily related to a 50% joint venture with Grupo Gigante, S.A.B. de C.V. (the “Mexico joint venture”) to establish Petco locations in Mexico. The Company’s share of the investee’s results is presented as either income or loss from equity method investees in the accompanying consolidated statements of operations.
Income from Equity Method Investees Investments for which the Company exercises significant influence but does not have control are accounted for under the equity method. Equity method investment activity is primarily related to a 50% joint venture with Grupo Gigante, S.A.B. de C.V. (the “Mexico joint venture”) to establish Petco locations in Mexico.
Loss on Extinguishment and Modification of Debt In fiscal 2023, the Company recognized $0.9 million of losses on partial extinguishment of debt. This loss was recognized in conjunction with the $35.0 million, $25.0 million and $15.0 million repayments on the First Lien Term Loan in March 2023, May 2023 and August 2023, respectively.
This loss was recognized in conjunction with voluntary principal repayments on the First Lien Term Loan during fiscal 2023. The Company did not recognize any losses on extinguishment or modification of debt in fiscal 2024.
Net cash provided by operating activities was $215.7 million in fiscal 2023 compared with net cash provided by operating activities of $346.0 million in fiscal 2022. The decrease in operating cash flow was driven by an increase in cash paid for inventory, higher payroll and fringe benefits as well as increases in cash paid for interest and operating leases.
This was partially offset by decreases in inventory purchases, advertising, freight, and cash paid for operating leases. Net cash provided by operating activities was $215.7 million in fiscal 2023 compared with $346.0 million in fiscal 2022.
We evaluate these assets for impairment annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
Goodwill and Indefinite-Lived Intangible Impairment In connection with the fiscal 2015 acquisition by our Sponsors, we recorded goodwill of approximately $3.0 billion and an indefinite-lived trade name asset of $1.1 billion. We evaluate these assets for impairment annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
The interest rate collars become effective on December 31, 2024 and expire on December 31, 2026. For more information regarding derivative instruments, refer to Note 8, “ Derivative Instruments ,” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
For more information regarding derivative instruments, refer to Note 8, “ Derivative Instruments ,” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. Segment We operate under one reportable segment and support and serve pets and their parents through our integrated ecosystem of pet care centers, services, and e-commerce.
Service-related sales, which include veterinary hospitals, increased 15.3%, reflecting expansion and maturity of our veterinary hospital footprint and growth in our veterinary and grooming business. We are unable to quantify certain factors impacting sales described above due to the fact that such factors are based on input measures or qualitative information that do not lend themselves to quantification.
This was offset by a decrease in supplies and companion animals sales, driven by softening in discretionary spend. 51 We are unable to quantify certain factors impacting sales described above due to the fact that such factors are based on input measures or qualitative information that do not lend themselves to quantification.
The ability to convert more of our customers to loyal, multi-channel shoppers will positively affect business performance. 48 Innovation and Transformation We have made significant investments to support our innovation and business transformation strategies.
Innovation and Transformation We have made significant investments to support our innovation and business transformation strategies.
The decline period-over-period was primarily driven by a goodwill impairment charge of $1,222.5 million, higher SG&A costs of $110.1 million, higher interest expense of $49.3 million, offset partially by a $17.4 million change in the remeasurement of our investment in Rover Group, Inc.
The change period-over-period was primarily driven by a goodwill impairment charge of $1,222.5 million in fiscal 2023.
On March 4, 2021, we borrowed $1,700.0 million under a new first lien term loan facility, repaid all outstanding principal and interest on the existing term loan facility, and replaced our existing revolving credit facility with a new revolving credit facility. Please read the discussion under “Liquidity and Capital Resources—Sources of Liquidity” for further information.
Refer to the discussion under “Liquidity and Capital Resources—Sources of Liquidity” for further information. Our interest expense in fiscal 2024 was primarily associated with a first lien term loan facility, a revolving credit facility, an interest rate swap, and interest rate caps and collars.
The increase was primarily driven by higher interest rates on the First Lien Term Loan. For more information refer to Note 7, “ Senior Secured Credit Facilities ,” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
For more information refer to Note 9, “Fair Value Measurements,” to the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. 52 Income Tax (Benefit) Expense Our effective tax rate was 6.8% for fiscal 2024, resulting in income tax benefit of $7.5 million, compared to an effective tax rate of 2.1% and income tax benefit of $27.6 million for fiscal 2023.
Refer to the discussion under “Liquidity and Capital Resources—Sources of Liquidity” for further information.
During fiscal 2024, we entered into an interest rate collar agreement and an interest rate swap agreement to limit the maximum interest and to fix the interest on a portion of our variable-rate debt and decrease our exposure to interest rate variability. Refer to the discussion under “Liquidity and Capital Resources—Sources of Liquidity” for further information.
We focus gross margin and expense management on achieving a balance between ensuring adequate resource spend to grow sales with attention to driving increased profitability. The business has successfully implemented cost optimization initiatives in the past and will continue to find opportunities to enhance profit margins and operate more efficiently in the future.
Along with managing gross margin, the other lever in delivering operating margin is expense management. The Company has implemented cost optimization initiatives in the past and expects to continue to find opportunities to operate more efficiently in the future. Talent and Culture We see our Petco partners as the core to building a purpose-driven performance culture.
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Our e-commerce site and mobile app serve as hubs for pet parents to manage their pets’ health, wellness, and merchandise needs, while enabling them to shop wherever, whenever, and however they want. The full value of our ecosystem can be realized through our Vital Care Premier membership program.
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There are many factors that impact gross margin results, including (but not limited to) customer shipping preferences, sales mix of product, and potential tariffs. We have shifted our sales mix by broadening our assortment to include more value-oriented national brand products, which can have lower margins.
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From the nutrition and supplies pets need each day, to the services that keep them at optimal health, Vital Care Premier makes it easier and more affordable for pet parents to care for their pet’s whole health all in one place.
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The Company’s share of the investee’s results is presented as either income or loss from equity method investees in the accompanying consolidated statements of operations.
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While these investments provide a key foundation and help drive increased sales, ongoing performance of the business will depend on our ability to leverage our existing distribution network and pet care center locations for product delivery and fulfillment, including BOPUS, curbside pick-up, and same day delivery, and build upon and enhance these efforts.
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In May 2022, the Company completed the purchase of the remaining 50% of the issued and outstanding membership interests of the joint venture, which is now a wholly owned subsidiary of the Company. 49 Executive Summary Comparing fiscal 2024 (52 weeks) and fiscal 2023 (53 weeks), our results included the following: • a decrease in net sales from $6.26 billion to $6.12 billion, representing a period-over-period decrease of 2.2% and comparable sales growth of 0.3%; • operating income of $7.1 million, compared to an operating loss of $1,180.3 million, resulting primarily from goodwill impairment of $1,222.5 million in the prior year period; • net loss attributable to Class A and B-1 common stockholders of $101.8 million, compared to net loss attributable to Class A and B-1 common stockholders of $1,280.2 million in the prior year, impacted by goodwill impairment in the prior year period, and; • A decrease in Adjusted EBITDA from $401.1 million to $336.5 million.
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Gross Margin and Expense Management Our operating results are impacted by our ability to convert revenue growth into higher gross margin and operating margin. The sales mix related to consumables, supplies, and services, with services typically having lower gross margins (though attractive operating margins), as well as customer shopping preferences, impacts our gross margin results.
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We continue to experience momentum in services, driven in part by our strategic investments in customer acquisition and retention, as well as a more mature veterinary hospital footprint.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeCredit Risk As of February 3, 2024, our cash and cash equivalents were maintained at major financial institutions in the United States, and our current deposits are likely in excess of insured limits. We believe these institutions have sufficient assets and liquidity to conduct their operations in the ordinary course of business.
Biggest changeConsequently, future results may differ materially from estimated results due to adverse changes in interest rates or debt availability. 60 Credit Risk As of February 1, 2025, our cash and cash equivalents were maintained at major financial institutions in the United States, and our current deposits are likely in excess of insured limits.
We do not currently hold any instruments for trading purposes. Interest Rate Risk We are subject to interest rate risk in connection with the First Lien Term Loan and the ABL Revolving Credit Facility. As of February 3, 2024, we had $1,595.3 million outstanding under the First Lien Term Loan and no amounts outstanding under the ABL Revolving Credit Facility.
We do not currently hold any instruments for trading purposes. Interest Rate Risk We are subject to interest rate risk in connection with the First Lien Term Loan and the ABL Revolving Credit Facility. As of February 1, 2025, we had $1,595.3 million outstanding under the First Lien Term Loan and no amounts outstanding under the ABL Revolving Credit Facility.
The First Lien Term Loan and the ABL Revolving Credit Facility each bear interest at variable rates. An increase of 100 basis points in the variable rates on the First Lien Term Loan and the ABL Revolving Credit Facility as of February 3, 2024 would have increased annual cash interest in the aggregate by approximately $16.2 million.
The First Lien Term Loan and the ABL Revolving Credit Facility each bear interest at variable rates. An increase of 100 basis points in the variable rates on the First Lien Term Loan and the ABL Revolving Credit Facility as of February 1, 2025 would have increased annual cash interest in the aggregate by approximately $16.2 million.
We cannot predict market fluctuations in interest rates and their impact on our debt, nor can there be any assurance that long-term fixed-rate debt will be available at favorable rates, if at all. Consequently, future results may differ materially from estimated results due to adverse changes in interest rates or debt availability.
We cannot predict market fluctuations in interest rates and their impact on our debt, nor can there be any assurance that long-term fixed-rate debt will be available at favorable rates, if at all.
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Foreign Currency Risk Substantially all of our business is currently conducted in U.S. dollars. We do not believe that an immediate 10% increase or decrease in the relative value of the U.S. dollar as compared to other currencies would have a material effect on our operating results. 63
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We believe these institutions have sufficient assets and liquidity to conduct their operations in the ordinary course of business. Foreign Currency Risk Substantially all of our business is currently conducted in U.S. dollars, with a small amount denominated in foreign currencies. Our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations.
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Our results of current and future operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. We do not enter into forward currency contracts to hedge our foreign currency exposure. A hypothetical 10% change in foreign currency exchange rates applicable to our business would not have a material effect on our operating results. 61

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