8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 20, 2021

Petco Health and Wellness Company, Inc.

(Exact name of Registrant as Specified in Its Charter)

Delaware	001-39878	81-1005932
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)
	10850 Via Frontera San Diego, California 92127
	(Address of Principal Executive Offices)

(858) 453-7845

(Registrant’s Telephone Number, Including Area Code)

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.001 per share	WOOF	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Item 2.02. Results of Operations and Financial Condition.

On May 20, 2021, Petco Health and Wellness Company, Inc. (the “Company”) issued a press release disclosing its financial results for the quarter ended May 1, 2021. The full text of the press release is attached to this Current Report on Form 8-K as Exhibit 99.1.

Item 7.01. Regulation FD Disclosure.

The Company has scheduled a webcast call at approximately 8:30 a.m. Eastern Time on May 20, 2021 to discuss the Company’s financial results for the quarter ended May 1, 2021. An earnings presentation and financial supplement will be made available on the Company’s investor relations page at ir.petco.com/investor-relations. A replay of the webcast will also be made available on the Company’s investor relations page through June 3, 2021 at 5:00 PM Eastern Time.

The information being furnished pursuant to Item 2.02, including Exhibit 99.1, and Item 7.01 of this Current Report on Form 8-K shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise be subject to the liability of that section, and shall not be incorporated by reference into any other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit Number	Description
99.1	Press Release, dated May 20, 2021
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Petco Health and Wellness Company, Inc.
Date: May 20, 2021	By:	/s/ Ilene Eskenazi
	Name:	Ilene Eskenazi
	Title:	Chief Legal Officer and Corporate Secretary

EX-99.1

Exhibit 99.1

Contacts:
Investor Relations	Media Relations
Kristy Moser	Ventura Olvera
Kristine.moser@petco.com	Ventura.olvera@petco.com

FOR IMMEDIATE RELEASE: May 20, 2021

Petco Health + Wellness Company, Inc. Announces Record Results for First Quarter of Fiscal 2021; Raises Full Year Outlook

• Revenue of $1.4B, up 27%, driven by comp sales up 28%; Tenth consecutive quarter of growth

• Earnings per share of $0.03; Adjusted earnings per share of $0.17

• Acquired roughly 1.2M net new customers; Third consecutive quarter 1M or more

• Raised full year 2021 guidance following record first quarter

San Diego, May 20, 2021 – Petco Health and Wellness Company, Inc. (NASDAQ: WOOF), a complete partner in pet health and wellness, today released its financial results for its first quarter ended May 1, 2021.

In the first quarter of 2021, Petco delivered net revenue growth of 27 percent versus prior year with comparable sales growth of 28 percent and delivered 30 percent comparable sales growth on a two-year stack, marking the tenth consecutive quarter of growth for Petco. Net income improved $38.7 million or $0.18 per share to $7.6 million or $0.03 per share. Adjusted Net Income¹ increased $60.0 million from prior year to $44.4 million or $0.17 per share, while first quarter Adjusted EBITDA¹ increased 45 percent to $125.7 million from prior year.

“We entered 2021 with momentum, and delivered record quarterly sales in Q1 driven by our strong execution and unique model across digital and in our Pet Care Centers,” said Ron Coughlin, Chairman and Chief Executive Officer of Petco. “We’re attracting new customers and gaining market share in a growing category through our unique end to end health and wellness ecosystem. There are more pets in homes than ever and the 1.2 million net new customers we gained in the quarter is a multi-year high, that provides an annuity for years to come. The category acceleration combined with a strengthening of our customer base give us confidence to raise our full year guidance.”

Petco reduced total debt by 52 percent to $1.7 billion and Net Debt¹ by 53 percent to $1.5 billion using the proceeds from the company’s initial public offering, the recapitalization of a portion of debt outstanding at the time of the initial public offering and Free Cash Flow¹ generation.

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Fiscal Q1 2021 Highlights:

Comparisons are first quarter of 2021 ended May 1, 2021 versus first quarter of 2020 ended May 2, 2020 unless otherwise noted

• Net revenue increased 27 percent to $1.4 billion driven by comp sales growth of 28 percent

• Net income increased $38.7 million to $7.6 million or $0.03 per share, inclusive of $20.8 million of non-cash charges related to the refinancing of the company’s term loan and revolving credit facility

• Trailing twelve month net income of $12.2 million increased $101.8 million

• Adjusted Net Income¹ increased $60.0 million to $44.4 million or $0.17 per share

• Adjusted EBITDA¹ increased 45 percent to $125.7 million

• Trailing Twelve Month Adjusted EBITDA increased 26% to $523.3 million

• Net cash provided by operating activities increased $147.3 million to $115.0 million

• Free Cash Flow¹ increased $127.8 million to $67.7 million

• Total debt decreased $1.8 billion or 52% to $1.7 billion driven by the proceeds generated in the company’s initial public offering, related recapitalization, and Free Cash Flow¹ generation

• Net Debt¹ decreased $1.7 billion or 53% to $1.5 billion

• Net Debt¹ / Trailing Twelve Month Adjusted EBITDA¹ improved 62 percent to 2.9x

• Liquidity of $594.5 million inclusive of $174.0 million of cash and cash equivalents and $420.5 million of availability on revolving credit facility.

• Ended the quarter with 1,453 Pet Care Centers, 137 Full Service Vet Hospitals within Pet Care Centers, and 100 Pet Care Centers in Mexico

Fiscal 2021 Guidance:

The following guidance as of May 20, 2021 reflects the company’s expectations for fiscal year 2021 unless otherwise indicated.

Metric	Current Guidance	Previous Guidance
Revenue	$5.475 billion - $5.575 billion	$5.25 billion - $5.35 billion
Adjusted EBITDA2	$550 million - $560 million	$520 million - $530 million
Adjusted EPS2	$0.73 - $0.76	$0.63 - $0.66
Capital Expenditures	$185 million - $235 million	$185 million - $235 million3

Assumptions in the guidance include that economic conditions, currency rates and the tax and regulatory landscape remain generally consistent. The company continues to monitor those assumptions and any potential financial impacts. Adjusted EPS guidance assumes approximately $90 million of interest expense, a 26% tax rate and 266 million weighted average diluted share count.

(1) Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, Free Cash Flow, and Net Debt are non-GAAP financial measures. See “Non-GAAP Financial Measures” for additional information on non-GAAP financial measures and a reconciliation to the most comparable GAAP measures.

(2) We have not reconciled Adjusted EBITDA and Adjusted EPS outlook as non-GAAP measures to the most comparable GAAP measures because it is not possible to do so without unreasonable efforts due to the uncertainty and potential variability of reconciling items, which are dependent on future events and often outside of management’s control and which could be significant. Because such items cannot be reasonably predicted with the level of precision required, we are unable to provide outlooks for the comparable GAAP measures. Forward-looking estimates of Adjusted EBITDA and Adjusted EPS are estimated in a manner consistent with the relevant definitions and assumptions noted herein.

(3) Previous capital expenditure guidance was given in the 10-K.

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Earnings Conference Call Webcast Information:

The company will host an earnings conference call on May 20, 2021 at 8:30 AM Eastern Time to discuss Petco’s financial results. The conference call will be accessible through live webcast. Interested investors and other individuals can access the webcast, earnings press release, earnings presentation, and financial supplement via the company’s investor relations page (https://ir.petco.com/investor-relations). A replay of the webcast will be archived on the company’s website through June 3, 2021 at 5:00 PM Eastern Time.

About Petco:

Petco is a category-defining health and wellness company focused on improving the lives of pets, pet parents and our own Petco partners. Since our founding in 1965, we’ve been striving to set new standards in pet care, delivering comprehensive wellness solutions through our products and services, and creating communities that deepen the pet-pet parent bond. We operate more than 1,500 Petco locations across the U.S., Mexico and Puerto Rico, including a growing network of 137 in-store veterinary hospitals, and offer a complete online resource for pet health and wellness at petco.com and on the Petco app. In tandem with Petco Love (formerly the Petco Foundation), an independent nonprofit organization, we work with and support thousands of local animal welfare groups across the country and, through in-store adoption events, we’ve helped find homes for more than 6.5 million animals.

Forward-Looking Statements

This earnings release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, concerning expectations, beliefs plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not statements of historical fact, including statements regarding our environmental and other sustainability plans and goals. Although the company believes that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to be correct. There can be no assurance that any forward-looking results will occur or be realized, and nothing contained in this earnings release is, or should be relied upon as, a promise or representation or warranty as to any future matter, including any matter in respect of the operations or business or financial condition of Petco. Such forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “intends,” “will,” “shall,” “should,” “anticipates,” “opportunity,” “illustrative”, or the negative thereof or other variations thereon or comparable terminology. All forward-looking statements are based on assumptions or judgments about future events that may or may not be correct or necessarily take place and that are by their nature subject to significant uncertainties and contingencies, many of which are outside the control of Petco. Forward-looking statements are subject to a number of risks, uncertainties

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and other factors that could cause actual results to differ materially from the potential results discussed in the forward-looking statements, including, without limitation, those identified in this earnings release, the risk factors that the company identifies in its Securities and Exchange Commission filings, as well as the following: (i) increased competition (including from multi-channel retailers and e-Commerce providers); (ii) reduced consumer demand for our products and/or services; (iii) our reliance on key vendors; (iv) our ability to attract and retain qualified employees; (v) risks arising from statutory, regulatory and/or legal developments; (vi) macroeconomic pressures in the markets in which we operate; (vii) failure to effectively manage our costs; (viii) our reliance on our information technology systems; (ix) our ability to prevent or effectively respond to a privacy or security breach; (x) our ability to effectively manage strategic ventures, alliances or acquisitions; (xi) economic or regulatory developments that might affect our ability to provide attractive promotional financing; (xii) interruptions and other supply chain issues; (xiii) catastrophic events, health crises, and pandemics, including the potential effects that the ongoing COVID-19 pandemic and/or corresponding macroeconomic uncertainty could have on our financial position, results of operations and cash flows; (xiv) our ability to maintain positive brand perception and recognition; (xv) product safety and quality concerns; (xvi) changes to labor or employment laws or regulations; (xvii) our ability to effectively manage our real estate portfolio; (xviii) constraints in the capital markets or our vendor credit terms; and (xix) changes in our credit ratings. The occurrence of any such factors, events, or circumstances would significantly alter the results set forth in these statements.

Petco cautions that the foregoing list of important factors is not complete, and any forward-looking statements speak only as of the date they are made. Petco undertakes no duty to update publicly any forward-looking statement that it may make, whether as a result of new information, future events or otherwise, except as may be required by applicable law, regulation or other competent legal authority.

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PETCO HEALTH AND WELLNESS COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, except per share amounts)

(Unaudited and subject to reclassification)

	13 Weeks Ended
	May 1, 2021			May 2, 2020			Percent Change
Net sales	$	1,414,994		$	1,113,521			27	%
Cost of sales		818,009			647,239			26	%
Gross profit		596,985			466,282			28	%
Selling, general and administrative expenses		549,236			449,917			22	%
Operating income		47,749			16,365			192	%
Interest income		(21	)		(184	)		(89	%)
Interest expense		20,529			60,808			(66	%)
Loss on extinguishment and modification of debt		20,838			—			N/M
Income (loss) before income taxes and income from equity method investees		6,403			(44,259	)		N/M
Income tax expense (benefit)		2,679			(10,555	)		N/M
Income from equity method investees		(2,425	)		(332	)		630	%
Net income (loss)		6,149			(33,372	)		N/M
Net loss attributable to noncontrolling interest		(1,411	)		(2,204	)		(36	%)
Net income (loss) attributable to Class A and B-1 common stockholders	$	7,560		$	(31,168	)		N/M
Net income (loss) per Class A and B-1 common share:
Basic	$	0.03		$	(0.15	)		N/M
Diluted	$	0.03		$	(0.15	)		N/M
Weighted average shares used in computing net income (loss) per Class A
and B-1 common share:
Basic		264,215			209,015			26	%
Diluted		265,028			209,015			27	%

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PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, except per share amounts)

(Unaudited and subject to reclassification)

	May 1, 2021			January 30, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	174,034		$	111,402
Receivables, less allowance for credit losses1		38,079			41,827
Merchandise inventories, net		574,683			538,675
Prepaid expenses		46,724			40,032
Other current assets		42,355			45,613
Total current assets		875,875			777,549
Fixed assets		1,535,617			1,487,987
Less accumulated depreciation		(896,195	)		(860,440	)
Fixed assets, net		639,422			627,547
Operating lease right-of-use assets		1,330,816			1,328,108
Goodwill		2,179,310			2,179,310
Trade name		1,025,000			1,025,000
Other intangible assets		4,793			4,793
Less accumulated amortization		(4,164	)		(4,079	)
Other intangible assets, net		629			714
Other long-term assets		142,347			137,474
Total assets	$	6,193,399		$	6,075,702
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and book overdrafts	$	352,401		$	339,485
Accrued salaries and employee benefits		127,000			129,484
Accrued expenses and other liabilities		218,926			145,846
Current portion of operating lease liabilities		276,619			258,289
Current portion of long-term debt and other lease liabilities		20,234			2,203
Total current liabilities		995,180			875,307
Senior secured credit facilities, net, excluding current portion		1,649,509			1,646,281
Operating lease liabilities, excluding current portion		1,056,059			1,083,575
Deferred taxes, net		282,350			280,920
Other long-term liabilities		138,069			134,354
Total liabilities		4,121,167			4,020,437
Commitments and contingencies
Stockholders’ equity:
Class A common stock2		226			226
Class B-1 common stock3		38			38
Class B-2 common stock4		—			—
Preferred stock5		—			—
Additional paid-in-capital		2,103,714			2,092,110
Accumulated deficit		(14,691	)		(22,251	)
Accumulated other comprehensive loss		(2,061	)		(1,275	)
Total stockholders’ equity		2,087,226			2,068,848
Noncontrolling interest		(14,994	)		(13,583	)
Total equity		2,072,232			2,055,265
Total liabilities and equity	$	6,193,399		$	6,075,702

(1) Allowances for credit losses are $2,217 as of May 1, 2021 and $3,267 as of Jan 30, 2021

(2) Class A common stock, par value $0.001 per share (1.0 billion shares authorized and 226.5 million shares issued and outstanding as of May 1, 2021 and 226.4 million shares issued and outstanding as of January 30, 2021)

(3) Class B-1 common stock, par value $0.001 per share (75.0 million shares authorized and 37.8 million shares issued and outstanding)

(4) Class B-2 common stock, par value $0.000001 per share (75.0 million shares authorized and 37.8 million shares issued and outstanding)

(5) Preferred stock, par value $0.001 per share (25.0 million shares authorized and no shares issued or outstanding)

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PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited and subject to reclassification)

	13 Weeks Ended
	May 1, 2021			May 2, 2020
Cash flows from operating activities:
Net income (loss)	$	6,149		$	(33,372	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		41,607			43,567
Amortization of debt discounts and issuance costs		2,165			6,028
Provision for deferred taxes		1,708			(11,680	)
Equity-based compensation		11,604			2,305
Impairments, write-offs and losses on sale of fixed and other assets		947			3,409
Loss on extinguishment and modification of debt		20,838			—
Income from equity method investees		(2,425	)		(332	)
Amounts reclassified out of accumulated other comprehensive income		—			2,337
Change in contingent consideration obligation		—			(553	)
Non-cash operating lease costs		105,188			108,841
Changes in assets and liabilities:
Receivables		3,748			(3,767	)
Merchandise inventories		(36,008	)		(3,307	)
Prepaid expenses and other assets		(9,140	)		(6,302	)
Accounts payable and book overdrafts		20,119			(74,074	)
Accrued salaries and employee benefits		(2,483	)		(10,153	)
Accrued expenses and other liabilities		66,120			5,853
Operating lease liabilities		(116,994	)		(64,188	)
Other long-term liabilities		1,859			3,099
Net cash provided by (used in) operating activities		115,002			(32,289	)
Cash flows from investing activities:
Cash paid for fixed assets		(47,351	)		(27,895	)
Net cash used in investing activities		(47,351	)		(27,895	)
Cash flows from financing activities:
Borrowings under long-term debt agreements		1,700,000			397,000
Repayments of long-term debt		(1,678,111	)		(142,313	)
Debt refinancing costs and original issue discount		(24,665	)		—
Payments for finance lease liabilities		(593	)		(935	)
Payment of offering costs		(3,844	)		—
Net cash (used in) provided by financing activities		(7,213	)		253,752
Net increase in cash, cash equivalents and restricted cash		60,438			193,568
Cash, cash equivalents and restricted cash at beginning of period		119,540			154,718
Cash, cash equivalents and restricted cash at end of period	$	179,978		$	348,286

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NON-GAAP FINANCIAL MEASURES

The following information provides definitions and reconciliations of the non-GAAP financial measures presented in this earnings release to the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles (GAAP). The company has provided this non-GAAP financial information, which is not calculated or presented in accordance with GAAP, as information supplemental and in addition to the financial measures presented in the earnings release that are calculated and presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for or alternative to, and should be considered in conjunction with, the GAAP financial measures presented in the earnings release. The non-GAAP financial measures in the earnings release may differ from similarly titled measures used by other companies.

Adjusted EBITDA

Adjusted EBITDA is considered a non-GAAP financial measure under the SEC’s rules because it excludes certain charges included in net income (loss) calculated in accordance with GAAP. Management believes that Adjusted EBITDA is a meaningful measure to share with investors because it best allows comparison of the current period performance with that of the comparable period. In addition, Adjusted EBITDA affords investors a view of what management considers Petco’s operating performance to be as well as the ability to make a more informed assessment of such operating performance as compared with that of the prior period.

Please see the company’s 10-K filed on April 5, 2021 for additional information on the reconciliation of Net Income (Loss) Attributable to Class A and B-1 Common Stockholders to Adjusted EBITDA. The tables below reflect the calculation of Adjusted EBITDA for the thirteen weeks and trailing twelve months ended May 1, 2021 compared to the prior year quarter and twelve-month period ended May 2, 2020, respectively.

(In Thousands)	13 Weeks Ended
Reconciliation of Net Income (Loss) Attributable to Class A and B-1 Common Stockholders to Adjusted EBITDA	May 1, 2021			May 2, 2020
Net income (loss) attributable to Class A and B-1 common stockholders	$	7,560		$	(31,168	)
Add (deduct):
Interest expense, net		20,508			60,624
Income tax expense (benefit)		2,679			(10,555	)
Depreciation and amortization		41,607			43,567
Income from equity method investees		(2,425	)		(332	)
Loss on debt extinguishment and modification		20,838			—
Asset impairments and write offs		947			3,409
Equity-based compensation		11,604			2,305
Mexico joint venture EBITDA1		6,006			4,019
Store pre-opening expenses		4,029			1,908
Store closing expenses		1,103			1,027
Severance		818			3,084
Non-cash occupancy-related costs2		1,139			7,200
Non-recurring costs3		9,333			1,748
Adjusted EBITDA	$	125,746		$	86,836
Net sales	$	1,414,994		$	1,113,521
Net margin4		0.5	%		(2.8	%)
Adjusted EBITDA Margin		8.9	%		7.8	%

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(In Thousands)	Trailing Twelve Months
Reconciliation of Net Income (Loss) Attributable to Class A and B-1 Common Stockholders to Adjusted EBITDA	May 1, 2021			May 2, 2020
Net income (loss) attributable to Class A and B-1 common stockholders	$	12,245		$	(89,560	)
Add (deduct):
Interest expense, net		178,314			248,915
Income tax expense (benefit)		9,897			(33,699	)
Depreciation and amortization		172,876			171,593
Income from equity method investees		(8,575	)		(2,755	)
Loss on debt extinguishment and modification		38,387			—
Goodwill & indefinite-lived intangible impairment		—			19,000
Asset impairments and write offs		13,144			10,523
Equity-based compensation		22,214			10,067
Mexico joint venture EBITDA1		21,061			15,199
Store pre-opening expenses		11,349			9,648
Store closing expenses		7,858			4,914
Severance		3,017			10,567
Non-cash occupancy-related costs2		13,179			30,911
Non-recurring costs3		28,292			8,328
Adjusted EBITDA	$	523,258		$	413,651
Net sales	$	5,221,675		$	4,450,878
Net margin4		0.2	%		(2.0	%)
Adjusted EBITDA Margin		10.0	%		9.3	%

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Adjusted Net Income and Adjusted EPS

Adjusted Net Income and Adjusted diluted earnings per share attributable to Petco (Adjusted Net Income and Adjusted EPS respectively) are considered non-GAAP financial measures under the SEC’s rules because they exclude certain amounts included in the net income (loss) attributable to common stockholders and diluted earnings per share attributable to Petco calculated in accordance with GAAP (net income (loss) and EPS respectively), the most directly comparable financial measures calculated in accordance with GAAP. Management believes that Adjusted Net Income and Adjusted EPS are meaningful measures to share with investors because they best allow comparison of the current period performance with that of the comparable period. In addition, Adjusted Net Income and Adjusted EPS afford investors a view of what management considers Petco’s earnings performance to be as well as the ability to make a more informed assessment of such earnings performance with that of the prior period.

The tables below reflect the calculation of Adjusted Net Income (Loss) and Adjusted EPS for the thirteen weeks ended May 1, 2021 compared to the prior year quarter ended May 2, 2020.

(In Thousands, except per share amounts)	13 Weeks Ended
Reconciliation of Diluted Income (Loss) per Share to Adjusted EPS	May 1, 2021				May 2, 2020
	Amount		Per share		Amount			Per share
Net income (loss) attributable to common stockholders / diluted income (loss) per share	$	7,560	$	0.03	$	(31,168	)	$	(0.15	)
Add (deduct):
Income tax expense (benefit)		2,679		0.01		(10,555	)		(0.05	)
Loss on debt extinguishment and modification		20,838		0.08		—			—
Asset impairments and write offs		947		0.00		3,409			0.02
Equity-based compensation		11,604		0.04		2,305			0.01
Store pre-opening expenses		4,029		0.02		1,908			0.01
Store closing expenses		1,103		0.00		1,027			0.01
Severance		818		0.00		3,084			0.01
Non-cash occupancy-related costs2		1,139		0.01		7,200			0.03
Non-recurring costs3		9,333		0.04		1,748			0.01
Adjusted pre-tax income (loss) / diluted earnings (loss) per share	$	60,050	$	0.23	$	(21,042	)	$	(0.10	)
Income tax expense (benefit) at 26% normalized tax rate		15,613		0.06		(5,471	)		(0.03	)
Adjusted Net Income (Loss) / Adjusted EPS	$	44,437	$	0.17	$	(15,571	)	$	(0.07	)

Free Cash Flow

Free Cash Flow is a non-GAAP financial measure that is calculated as net cash generated by operations less cash paid for fixed assets. Management believes that Free Cash Flow, which measures the ability to generate additional cash from business operations, is an important financial measure for use in evaluating the company’s financial performance.

Although other companies report their Free Cash Flow, numerous methods exist for calculating a company’s Free Cash Flow. As a result, the method used by Petco’s management to calculate Free Cash Flow may differ from the methods used by other companies to calculate their Free Cash Flow.

The following table sets forth a reconciliation of Free Cash Flow to net cash provided by (used in) operating activities, which Petco believes to be the GAAP financial measure most directly comparable to Free Cash Flow. The table below reflects the calculation of Free Cash Flow for the thirteen weeks ended May 1, 2021 compared to the prior year quarter ended May 2, 2020.

(In Thousands)	13 Weeks Ended
	May 1, 2021			May 2, 2020
Net cash provided by (used in) operating activities	$	115,002		$	(32,289	)
Cash paid for fixed assets		(47,351	)		(27,895	)
Free Cash Flow	$	67,651		$	(60,184	)

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Net Debt

Net Debt is a non-GAAP financial measure that is calculated as the sum of current and non-current debt, less cash and cash equivalents. Management considers this adjustment useful because it reduces the volatility of total debt caused by fluctuations between cash paid against the company’s revolving credit facility and cash held on hand in cash and cash equivalents.

Although other companies report their Net Debt, numerous methods exist for calculating a company’s Net Debt. As a result, the method used by Petco’s management to calculate Net Debt may differ from the methods used by other companies to calculate their Net Debt.

The following table sets forth a reconciliation of Net Debt, to total debt, which Petco believes to be the GAAP financial measure most directly comparable to Net Debt. The table below reflects the calculation of Net Debt as of the period ended May 1, 2021 compared to the prior year quarter ended May 2, 2020.

(In Thousands)	May 1, 2021			May 2, 2020
Total debt:
Senior secured credit facilities, net, including current portion	$	1,666,509		$	2,647,461
Senior notes, net		—			866,952
Finance leases, including current portion		16,409			15,504
Total debt		1,682,918			3,529,917
Less: cash and cash equivalents		(174,034	)		(341,506	)
Net Debt	$	1,508,884		$	3,188,411
Trailing Twelve Month Adjusted EBITDA	$	523,258		$	413,651
Net Debt / Trailing Twelve Month Adjusted EBITDA ratio		2.9x			7.7x

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Adjusted EBITDA, Adjusted Net Income and Adjusted EPS Footnotes

(1) Mexico Joint Venture EBITDA represents 50% of the entity’s operating results for all periods, as adjusted to reflect the results on a basis comparable to Adjusted EBITDA. In the financial statements, this joint venture is accounted for as an equity method investment, and reported net of depreciation and income taxes. Because such a presentation would not reflect the adjustments made in the calculation of Adjusted EBITDA, we include the 50% interest in the company’s Mexico joint venture on an Adjusted EBITDA basis to ensure consistency. The table below presents a reconciliation of Mexico joint venture net income to Mexico joint venture EBITDA.

(In Thousands)	13 Weeks Ended
	May 1, 2021			May 2, 2020
Net income	$	4,849		$	728
Depreciation		3,400			3,154
Income tax expense		2,780			1,295
Foreign currency (gain) loss		(145	)		1,557
Interest expense, net		1,128			1,304
EBITDA	$	12,012		$	8,038
50% of EBITDA	$	6,006		$	4,019

(2) Non-cash occupancy-related costs include the difference between cash and straight-line rent for all periods. Beginning in fiscal 2019, in connection with our adoption of the lease accounting standard, favorable lease rights of $125.2 million and unfavorable lease rights of $30.8 million were reclassified from intangible assets and other long-term liabilities, respectively, to right-of-use lease assets and the related amortization is now included in non-cash occupancy costs. In addition to the reclassification, the amortization period of these lease right assets has decreased to align with the terms of the underlying right-of-use lease assets, thus resulting in an acceleration of expense compared to prior years. The overall adoption of the lease accounting standard did not have an impact on our Adjusted EBITDA, as this increase in addback was completely offset in other impacted lines such as lower depreciation and amortization, asset impairments and write-offs, and store closing expenses.

(3) Non-recurring costs include: unrealized fair market value adjustments on non-operating investments; class action settlements and related legal fees; one-time consulting and other costs associated with our strategic transformation initiatives; discontinuation and liquidation costs; and costs related to the initial public offering. While we have incurred significant costs associated with the COVID-19 pandemic during fiscal 2020, we have not classified any of these costs as non-recurring due to the uncertainty surrounding the pandemic’s length and long-term impact on the macroeconomic operating environment.

(4) We define net margin as net income (loss) attributable to Class A and B-1 common stockholders divided by net sales and Adjusted EBITDA margin as Adjusted EBITDA divided by net sales.

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XML

Document and Entity Information	May 20, 2021
Cover [Abstract]
Entity Registrant Name	Petco Health & Wellness Company, Inc.
Amendment Flag	false
Entity Central Index Key	0001826470
Document Type	8-K
Document Period End Date	May 20, 2021
Entity Incorporation State Country Code	DE
Entity File Number	001-39878
Entity Tax Identification Number	81-1005932
Entity Address, Address Line One	10850 Via Frontera
Entity Address, City or Town	San Diego
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	92127
City Area Code	(858)
Local Phone Number	453-7845
Written Communications	false
Soliciting Material	false
Pre Commencement Tender Offer	false
Pre Commencement Issuer Tender Offer	false
Security 12b Title	Class A common stock, par value $0.001 per share
Trading Symbol	WOOF
Security Exchange Name	NASDAQ
Entity Emerging Growth Company	false