Earnings call transcript: PetValu Q4 2024 sees 4% revenue growth

PetValu, currently valued at $12.8 million with shares trading at $0.26, reported a 4% increase in full-year revenue to $1.1 billion for Q4 2024, alongside a 7% rise in adjusted EBITDA to $247 million. Despite flat same-store sales, the company generated significant free cash flow and repurchased shares. The market’s response was measured, with investors focusing on the company’s strategic expansions and product innovations. According to InvestingPro, the stock has shown resilience with a 7.85% year-to-date return, though additional analysis reveals 16 more key insights available to subscribers.

Key Takeaways

• Full-year revenue increased by 4% to $1.1 billion.
• Adjusted EBITDA rose by 7% to $247 million.
• Same-store sales remained flat, with a 2% decline in transactions.
• PetValu repurchased 1.1 million shares for $28 million in Q4.
• The company expanded its product catalog significantly.

Company Performance

PetValu demonstrated robust financial performance in Q4 2024, achieving a 4% increase in full-year revenue and a 7% growth in adjusted EBITDA. The company’s strategy to expand its product offerings and open new stores contributed to these results. Despite flat same-store sales, the company surpassed its $100 million free cash flow milestone, highlighting its operational efficiency.

Financial Highlights

• Revenue: $1.1 billion, up 4% year-over-year.
• Adjusted EBITDA: $247 million, up 7% year-over-year.
• Free cash flow: $103 million, exceeding the $100 million milestone.
• Share repurchase: 1.1 million shares for $28 million in Q4.

Outlook & Guidance

Looking ahead to 2025, PetValu projects revenue growth of 7-9%, targeting $1.170-$1.200 billion. The company expects same-store sales to grow by 1-4% and aims for an adjusted EBITDA of $254-$260 million. PetValu plans to open approximately 40 new stores and achieve over 40% free cash flow conversion. InvestingPro’s analysis indicates a WEAK overall financial health score, suggesting investors should closely monitor the company’s execution of these growth plans.

Executive Commentary

"Our devoted pet lovers continue to seek the highest quality products and solutions for their pets," said Richard Maltzberger, CEO. CFO Linda Drysdale emphasized the adaptability of the business model, stating, "We believe our business model and the flexibility of our teams enabled us to adapt to a wide range of environments." Greg Ramia, President and COO, expressed enthusiasm for the company’s culinary category growth, saying, "We are continuing to be very excited about how culinary is performing."

Risks and Challenges

• Supply Chain Uncertainties: Potential disruptions could impact product availability and costs.
• Market Saturation: Increasing competition in the pet retail sector may pressure margins.
• Tariff Impacts: Possible tariffs on U.S. sourced products could affect pricing strategies.
• Consumer Behavior Shifts: Changes in consumer spending patterns could influence sales.
• Inflation: Although currently normalized, inflationary pressures could re-emerge.

PetValu’s strategic initiatives and financial discipline position it well for continued growth, despite potential challenges in the market environment. For comprehensive analysis including Fair Value estimates and detailed financial metrics, access the full PetValu Research Report, available exclusively on InvestingPro, along with reports for 1,400+ other US stocks.

Full transcript - Wag! Group Co (PET) Q4 2024:

Marie, Call Coordinator: Good morning, everyone. Thank you for standing by. Welcome to PetValu’s Fourth Quarter twenty twenty four Earnings Conference Call.

My name is Marie, and I will be coordinating today’s call. All lines have been placed on mute to prevent any background noise. Please note that following the formal remarks, there will be a question and answer session. I would now like to turn over the call over to James Allison, Investor Relations at PetValu. Please go ahead, Mr.

Allison.

James Allison, Investor Relations, PetValu: Good morning, and thank you for joining PetValu’s call to discuss our fourth quarter twenty twenty four results, which were released earlier this morning and can be found on our website at investors.petvalue.com. With me on the call is Richard Maltzberger, Chief Executive Officer Linda Drysdale, Chief Financial Officer and Greg Ramia, President and Chief Operating Officer. Before we begin, I would like to remind you that management may make forward looking statements, which include guidance and underlying assumptions. Forward looking statements are based on expectations that involve risks and uncertainties, which could cause actual results to differ materially from those expressed today. For a broader description of risks related to our business, please see our Q4 twenty twenty four MD and A, 2024 annual information form and other filings available on SEDAR Plus.

Today’s remarks will also be accompanied by an earnings presentation, which can be viewed through our live webcast and is also available on our website. Now, I would like to turn the call over to Richard.

Richard Maltzberger, Chief Executive Officer, PetValu: Thank you, James, and good morning, everyone. I’ll begin today’s call with some high level remarks before handing over to Greg and Linda to walk through Q4 results and our 2025 plans. As I look back on our accomplishments in the fourth quarter and fiscal twenty twenty four, I continue to see the strong pillars of resilience, adaptability and compassion that have defined our actions and driven our successes over the long term. Our devoted pet lovers continue to seek the highest quality products and solutions for their pets. While in the current environment, these customers are also seeking value for their money.

I’m proud to say our teams executed programs to meet both sets of needs, quality and value. And the compassion of our people remains steadfast, helping to engender the strong loyalty we see in our customers, continually strong franchise inquiries and franchise retention and yet another year reduced turnover of our aces in our corporate stores and distribution centers. Our team’s efforts and execution resulted in an improved trajectory in our same store sales, while meeting or exceeding our revenue, adjusted EBITDA and adjusted EPS expectations. These outcomes, together with prudent management of our working capital, help further accelerate free cash flow, opening up opportunities to provide greater returns to shareholders, which Linda will cover shortly. Throughout the fourth quarter in ’20 ’20 ’4, we continued to advance key long term strategic initiatives, including our supply chain transformation, our upgraded website platform, our launch of Performatran culinary into the fastest growing food segment in Canadian pet and opening over 40 new stores.

All these steps show the ability of our teams to adapt to near term conditions while making the right investments to continue leading the Canadian pet industry and enable a return to same store sales and adjusted EPS growth as we progress through 2025. And with that, I’ll now turn it over to Greg to walk through our operational accomplishments and what’s in store for the year ahead. Greg?

Greg Ramia, President and Chief Operating Officer, PetValu: Thank you, Richard. We successfully executed our Q4 playbook driving better than expected profit outcomes. Let me unpack a few highlights. Starting with our first focus to be Canada’s local and everywhere pet specialty retailer. Our real estate team opened a record 19 new stores during Q4.

For the year, we opened 41 new sites across all market types, ending the year with a total of eight twenty four locations coast to coast. We surpassed 600 franchise locations in Q4, adding 43 more franchise sites in 2024 through a combination of new openings and corporate resales. And we continue to grow our network primarily through new franchise additions, which now account for 73% of our stores. We and our franchisees continued to reinvest in our existing network, completing major renovations, expansions or relocations on another 14 sites in the quarter and 39 for the year. Adding this together with our new openings and another handful of smaller store refreshes, our real estate team once again completed over a hundred projects in 2024, helping to maintain a consistent, engaging retail experience for millions of devoted pet lovers across Canada.

In our digital channel, we continue to be pleased with the consumer engagement trends. With our site now boasting a greater assortment and improved customer shopping experiences, Traffic, orders and average order value were all up, driving sales growth that is outpacing our consolidated results. We further enhanced our omni channel retail convenience in Q4 through a launch of Instacart (NASDAQ:CART) same day delivery across over 600 stores outside of Quebec, further increasing our market leading strength of allowing customers to shop how, when and where they want. We also took action on our second focus, to deliver the best pet customer experience. While remaining true to our holistic approach to value, we took decisive action in Q4 to lean into value seeking behaviors through a diverse set of initiatives, which ultimately enabled us to hold market share in the quarter and for the full year.

We lowered prices on our industry leading Fresh for Life proprietary cat litter in early November. This together with actions earlier last spring culminated in price investments across over 1,000 consumable products in 2024, ultimately driving our ability to maintain and strengthen market share in key food and other consumable categories. We also listed hundreds of new products supported by our extended aisle capacity in our new GTA in Vancouver distribution centers. Our product category now exceeds over 10,000 items compared to roughly 7,000 before the beginning of 2024. And we executed a strong commercial program through the fall and into the holidays, highlighted by three weekly flash sales centered around basket builders and supported with enhanced in store activations and a three sixty degree marketing.

And along with all these changes, we shared investments with our franchisees, improving overall competitiveness while supporting their long term success. Together, these actions supported a sequential improvement in our same store sales growth trajectory, particularly around key events such as Black Friday, Cyber Monday and the lead up to the holidays. We further enhanced our value proposition through our growing portfolio of proprietary brands, often priced 5% to 20% below national brand products of similar quality tiers. In 2024, we introduced roughly 400 net new proprietary branded products, including over two forty in hardline categories such as cat furniture, beds, leashes, toys and litter accessories. In consumables, a highlight was the resounding success of our midyear launch of Performance Run Culinary.

Our gently cooked lineup continues to be a particular standard where we added products like our limited time Truduckin ahead of the holidays, as well as beef bison bowl and fish Florentine just last month. We are pleased with the reception and demand for these products, which provide greater access to a compelling market segment with culinary customers visiting and spending twice as much as our network average, supported by continued double digit culinary category growth and driving frequency of visits to our stores. And we have continued expanding our selection of proprietary brands available to our Chico Franchisees. We now have access to over 1,200 Quebec packaging compliant products. Together, these actions have helped maintain our proprietary brand penetration at 25%, allowing them to grow alongside our industry leading national brand lineup.

We also see continuing success of our loyalty programs. Penetration from our over 3,000,000 active loyalty members reached 85% of system wide sales in 2024, another record high. As devoted pet lovers increasingly engage and earn benefits to fulfill their needs. This success was driven by the strengthening appeal of our free bag program as we work with suppliers to grow the list of eligible brands. One notable highlight was in November when we became the first Canadian retailer to offer Royal Canadian and frequent buyer program.

In 2024, our loyalty members redeemed over half a million free bags and dog washes representing over $28,000,000 in retail value. We are also increasingly leaning into personalized promotions leveraging AI and machine learning to better segment and customize both the content and timing of our offers. Turning to our third focus to fortify strong retail and wholesale fundamentals. Our implementation path on our supply chain transformation remains on time and on budget. With our new GTA in Vancouver facilities now at steady state, we are turning our focus to the third and final new DC in Calgary, Alberta.

We’ve just taken possession of this new 300,000 square foot facility and are convincing fit up work ahead of our planned startup in the third quarter.

James Allison, Investor Relations, PetValu: We are already starting to

Greg Ramia, President and Chief Operating Officer, PetValu: see benefits materialize from our results from these first two new DCs. First, our revenue growth is outpacing system wide sales as we extend our product availability to our franchisees and drive higher wholesale shipments. With a deeper catalog and greater capacity, our franchisees can order more of their needs from us, simplifying their fulfillment and labor scheduling and enabling them to maximize time with their customers. This is particularly evident with our Chico Franchisees whose wholesale penetration exceeded 30% at the end of twenty twenty four, putting us well on our way of achieving an interim target of at least 50% wholesale penetration by Q4 of twenty twenty five. The second benefit is the operating productivity and efficiencies unlocked by our new facilities.

Continuing a trend started in Q1, we once again leveraged our variable distribution costs in the fourth quarter. Most impressively, our supply chain teams were able to significantly improve service levels and on time deliveries while also leveraging inventory, providing a better experience to our corporate store staff and franchisees as we now provide over 900 storage deliveries nationwide every week while also improving our free cash flow. Before turning the call over to Linda, let me highlight key elements of our playbook as we embark in 2025. First, we plan to continue to invest in our channels with approximately 40 new store openings, continued focus on franchise growth and the further enrichment of our digital platform, having already launched significant usability and speed improvements to our website and our pet profile tools in January of this year. We will also look to enhance our merchandising excellence, leveraging new promotions and pricing planning systems, several new high quality and innovative food brand launches including snack and square pet, enhanced insert activations and signed packages, and the continued growth we are seeing in our expanded culinary offering.

Over the first six months of PetValu, I’ve been continually impressed with the collaboration and support provided by some of our strategic national brand suppliers, such as Champion, who continue to grow alongside us. We believe this showcases to all our suppliers the clear benefits and power of our unmatched Canadian retail platform, and we’ll be looking to lean into this more in 2025. This will also be the year we complete our $100,000,000 supply chain transformation by both opening our new Calgary distribution center and completing several key productivity enhancing system and process investments. As you can see, we have a full suite of initiatives underway this year designed to strengthen our position as Canada’s leading pet specialty retailer over the long term, while continuing to meet the near term evolving needs of devoted pet lovers coast to coast. Over to you Linda.

Linda Drysdale, Chief Financial Officer, PetValu: Thank you, Greg. I will start by reviewing our full year and fourth quarter financial performance before discussing our outlook for 2025. Consumer demand continued to bifurcate in 2024 as many devoted pet lovers sought value to offset rising cost of living, while others leaned even more into the highest quality foods and solutions such as culinary and super premium kibble brands. And we were able to compete effectively across both sets of customers. Full year revenue increased 4% to $1,100,000,000 Adjusted EBITDA grew 7% to $247,000,000 and adjusted net income per diluted share declined a modest $0.04 to $1.57 despite absorbing approximately $0.2 of incremental fixed costs related to new DCs.

Furthermore, prudent capital management enabled us to exceed $100,000,000 in free cash flow ahead of schedule and advance plans to enhance shareholder returns through share buybacks. All said, despite the year unfolding differently than expected, our flexibility and resilience delivered financial and strategic successes. Turning to the fourth quarter, system wide sales increased 2% to $388,000,000 driven by expansion in our store network with the addition of 41 sites over the last four quarters. On a same store basis, sales were essentially flat as 2% growth in average basket was offset by a 2% decline in transactions. At a category level, similar to recent quarters, consumables and services continued to grow while discretionary sales remained softer.

That said, comps improved sequentially across both consumables and hard lines, providing growing confidence in stabilizing demand trends from our devoted pet lovers. Q4 revenue grew 3% to $295,000,000 A system wide sales growth was supplemented by increasing wholesale penetration across our franchise network. Gross profit was $100,000,000 up 2% from last year. As a percentage of revenue, gross margin rate was 34%, down 30 basis points from last year. Excluding costs related to the supply chain transformation from Q4 and the comparable period last year, gross margin decreased two fifty basis points, primarily driven by higher fixed distribution and occupancy costs from new distribution centers and higher wholesale merchandise sales as we successfully increased our wholesale shipments to our Chico Franchisees and grew franchise shipments faster than sales in our pet value stores through expanded product availability in our GTA and Surrey DCs.

We were pleased with the effectiveness of our pricing and promotional programs, but especially pleased with how our ACES activated these promotions in store, which drove a measurable improvement in basket ads and helped support favorable margins versus our prior expectations. Selling, general and administrative expenses in the fourth quarter were $52,000,000 Excluding costs not indicative of business performance, our SG and A expenses were just shy of $49,000,000 and roughly in line with what we indicated on our Q3 call. While this represented a 9% year over year increase, recall that last year in Q4, we benefited from lower variable compensation expense. Our teams continued to closely monitor discretionary expenses and project spend, while investing in our long term strategic initiatives. Adjusted EBITDA was $68,000,000 down 4% from last year, but ahead of our implied guidance provided in Q3 due to stronger margins.

Net income was $29,000,000 similar to last year. Excluding items not indicative of our underlying performance, adjusted net income was $32,000,000 or $0.45 per diluted share compared to $39,000,000 or $0.54 per diluted share last year. Looking at our balance sheet, cash on hand was $35,000,000 at the end of the quarter and $210,000,000 in total liquidity when including our recently upsized revolver, which remained undrawn through the quarter. Total (EPA:TTEF) debt, net of deferred financing cost was $278,000,000 Taking into account net lease obligations, our leverage ratio is 2.1 times, well within our comfort zone. Our inventory balance at the end of twenty twenty four was $125,000,000 up a modest 2% from last year.

Our supply chain replenishment and merchandising teams continue to closely monitor and optimize our stock based on demand and velocity signals, which has allowed us to consistently leverage inventories as a percentage of revenues through the year. We were particularly pleased with the sell through of carryover and clearance stock in the quarter, leaving us with a strong quality and the right quantity of product as we begin 2025. Q4 net capital expenditures were $15,000,000 bringing us to $52,000,000 for 2024, which was within expectations. After three years of elevated capital investment, we are now nearing the end of our supply chain transformation and expect lower net capital expenditures starting in 2025. And finally, turning to free cash flow, which represents a key element of our focus to enhance returns to our shareholders over time.

For the quarter, we generated $41,000,000 in free cash flow, up from $34,000,000 last year. This brought us to $103,000,000 for the year, representing free cash flow conversion of 42% relative to adjusted EBITDA and exceeding the $100,000,000 milestone ahead of plan due to the keen cost management and favorable working capital leverage. Strong free cash flow generation has been a pivotal component in our decision to enhance returns to shareholders through share buybacks, which started in September under our normal course issuer bid. These actions continued throughout the fourth quarter as we repurchased 1,100,000 shares for total consideration of $28,000,000 bringing us to $30,000,000 of share repurchases for fiscal twenty twenty four. To note, we renewed our NCIB in late November, upsizing our repurchase limit to 5% of shares outstanding.

We remain active under the NCIB into the first quarter under our automatic purchase program and continue to see repurchases as an appealing return at current valuation levels. Now to our outlook for fiscal twenty twenty five. There are positive signs of normalizing inflation and falling interest rates, providing potential building blocks for a more stable and constructive environment. And we saw some early signals of this in our fourth quarter and into the sales performance we have seen in the first two months of twenty twenty five. At the same time, there is growing uncertainty around potential for inflationary pressures across Canadian supply chains, both from tariffs and the weakening Canadian dollar.

While the situation continues to evolve, we believe our domestically oriented supply network provides some insulation from potential impacts with approximately 23% of our 2024 merchandise purchases based in U. S. Dollars and approximately 15% directly imported from The United States. We will continue to monitor the situation and believe we have the right mechanisms in place to adapt our sourcing if necessary. Within these contexts, we believe our 2025 outlook centers on a gradual strengthening of same store sales growth supported by continued advancement of our strategic priorities, completion of our supply chain transformation mid year and a responsible focus on balancing near term promotional competitiveness with a long term profitable growth.

Please note that our 2025 outlook reflects a fifty three week calendar compared to fifty two weeks in fiscal twenty twenty four with the extra week falling in Q4. We expect full year revenue between $1,170,000,000 and $1,200,000,000 representing growth of between 79%. This is supported by approximately 40 new store openings, increased wholesale penetration with our franchisees and same store sales growth of between 14%. From a cadence perspective, we expect same store sales growth to accelerate from the low end of this range towards the higher end of this range through the year as demand continues to stabilize. For adjusted EBITDA, we expect to generate between $254,000,000 and $260,000,000 This incorporates strong revenue growth together with intentional reinvestment into our compelling value offering, wholesale revenues growing faster than overall sales through our expanded supply chain capability and normalization in our SG and A expenses as we continue investing in key capabilities for long term growth and navigate cost inflation pressures across Canada.

We expect adjusted net income per diluted share to land between $1.6 and $1.66 This outlook includes the absorption of approximately $12,000,000 pretax or $0.12 per diluted share of incremental depreciation and lease liability expense associated with our new distribution centers, primarily felt in the first three quarters of the year. I want to reiterate Greg’s comments on the financial and operational benefits of our supply chain transformation investments. These are substantial and long lasting and are already materializing. First, we have supported and will continue to support a continued strong cadence of store openings, outpacing our competition as we bring our brand and retail experiences to more pet households every day. Second, we’ve already begun expanding our available product catalog, both increasing our relevance for online shopping as well as tapping into new wholesale opportunities with our franchise network, driving incremental revenue and profit.

And third, since the ramp up of the GTADC in mid-twenty twenty three, we have continually enhanced our productivity and efficiency, driving down variable supply chain costs as a percentage of revenue with runway to go. And finally, with respect to our capital allocation priorities for 2025, we have a well constructed and articulated framework, which prioritizes our capital towards the highest return opportunities available. In that vein, net capital expenditures are expected to be approximately $35,000,000 consisting of new store growth set up of our new Calgary DC and maintenance CapEx. This marks a step down from investments made over the last three years as we conclude our supply chain transformation. Given our normalizing capital requirements, we aspire to convert more than 40% of adjusted EBITDA into free cash flow on an annual basis moving forward.

This, together with our well managed leverage, provides a growing capacity to return capital to shareholders over time. The first component of these returns is through our quarterly dividend, with our board approving a 9% increase to $0.12 per share starting in Q1, marking the fourth consecutive year of dividend growth. The second component is through our opportunistic share repurchases, which we commenced last year. Given current conditions, together with the compelling valuation of our shares today, we plan to allocate a significant portion of our free cash flow to share repurchases. In summary, we remain in a strong financial position, poised to accelerate both top and bottom line growth over the course of 2025 and beyond with a focus on increasing returns to our shareholders over time.

With that, I’ll turn it back to Richard.

Richard Maltzberger, Chief Executive Officer, PetValu: Thank you, Linda and Greg.

Greg Ramia, President and Chief Operating Officer, PetValu: As we close

Richard Maltzberger, Chief Executive Officer, PetValu: the books on 2024, I would like to take a moment to celebrate a few more successes that are core to what sets us apart in our industry. First, I’d like to celebrate our Companions for Change initiatives and in store product donation drives across Canada. We are incredibly grateful that together with the combined support of our customers, our franchisees and our company, our Companions for Change fundraising initiatives and our in store donations raised a record 4,100,000 last year, providing an opportunity to support rescue and pet support organizations across hundreds of local communities in Canada. Second, I’d like to celebrate our continuing commitment to serve devoted pet lovers and our people across all walks of Canadian life. From the actions we take to lower prices for everyday essentials such as pet food and cat litter to the innovative products including thousands of Canadian made products we bring to market to the hours we invest in ace and leader development to ensure compassion and expertise continue as hallmarks of our culture to the steps we take to help our franchisees continue to build success in their locally owned Canadian businesses To our national partnership with the Lions Foundation of Canada Dog Guides, where we are a sponsor of their new facility, have invested over $7,000,000 to help them train over 200 dog guides for differently abled Canadians and continue to provide free Performatrin Prime dog food to all dogs in training.

All these actions and more are central to our role as a Canadian locally owned and operated company. And all of these will continue as we maintain our focus on the long term. With that, we are now happy to take your questions.

Marie, Call Coordinator: You. Our first question comes from the line of Martin Landry of Stifel. Please go ahead.

Martin Landry, Analyst, Stifel: Hi, good morning, everyone. My first question is on your outlook for your same store sales. Linda, you did mention that you expect the pace to start at the low end of your 1% to 4% guidance and then accelerate throughout the year. Just wondering a little bit why do you expect same store sales to accelerate in the back end? Is it a function of easier comps?

Or just trying to understand a little bit what would be driving an acceleration towards the end of the year?

Linda Drysdale, Chief Financial Officer, PetValu: Hi, Martin. Good morning. It’s Linda speaking. Yes, I would say that easing comps is part of it as well as, as we the macro environment and normalized demand over the course of the year, would be why we would think about it that way.

Martin Landry, Analyst, Stifel: Okay. And could you, break down in your guidance, in your same store sales guidance, what do you expect in terms of transaction growth versus basket size?

Richard Maltzberger, Chief Executive Officer, PetValu: So Martin, this is Richard. I’ll just jump in there. No, we won’t actually break that down any further. We will continue to strike the balance that you saw similar in Q4 and our commercial plans for the year will be a similar approach as we adjust to the environment that we think.

Martin Landry, Analyst, Stifel: Okay. But just to ask differently, is there any change in traffic that or transaction that you would expect? Because it’s been down this year and I’m wondering if that could stabilize for 2025?

Richard Maltzberger, Chief Executive Officer, PetValu: So our expectation would be some form of stabilization, but the key thing really comes down to the environment that we face and that we are required to navigate as we go through the year.

Martin Landry, Analyst, Stifel: Okay. All right. Thank you and best of luck.

James Allison, Investor Relations, PetValu: Thanks Martin.

Marie, Call Coordinator: We have a question from Mark Petrie of CIDC. Please go ahead.

Mark Petrie, Analyst, CIDC: Yes, thanks. Good morning. Obviously, you’ve talked about the opportunity to be more active with promotional activity. It seems like this is both supported by your capabilities as well as opportunities you’ve seen in the market. So hoping you could just talk a bit more about this, how Q4 played out versus your expectations and how you’ve approached that sort of balance on sales and margin for 2025 and your plan and outlook?

Greg Ramia, President and Chief Operating Officer, PetValu: Hi, Mark. It’s Greg. I’ll jump in on that one. So looking at Q4 in total, I think everyone was expecting a bit more robust industry demand than materialized. Inflation and interest rates have normalized from a year ago.

But this has taken a bit of time to translate down to consumer confidence. Within that context, we were pleased with our performance. Our third party research shows we held share in the quarter and for the year primarily through the strength in consumables, but we also saw improved performance in litter, treats, hard lines, all driven through our Q4 go to market strategy. So we were pleased with the effectiveness of the promotional program in Q4. We did see same store sales growth accelerate around those key events, generated some nice excitement in traffic across our channel and favorable margins based on what we had planned.

As we saw, we did a better job of having pet lovers add items to their basket. So, we saw momentum in Q4. We have seen that momentum improve as we’ve moved into the first two months of Q1 with the same approach with strong commercial program. I think the you asked what we saw as far as what would translate into Q1. I think a couple of things.

So, I don’t want to tip our hand too much, but a couple of highlights from that were important for us. We did see the promotional focus and the targeted price investments we made drive needs based trips from our monthly customers and that’s important. We really like that. We also, as we leaned into strategies aimed at growing the basket, we saw those be successful And we saw our devoted pet lovers, look for an opportunity to spend a bit and, hamper their pet. And we saw Asus do a strong job of activating those in stores.

So, team did a solid job of executing those. Those are elements that within a stable environment stable trading environment over this year and this quarter, we’ll look to replicate.

Mark Petrie, Analyst, CIDC: Okay. Thanks for that, Greg. And if I could just follow-up, maybe could you go into a bit more detail about what you’re doing differently with regards to in store engagement? You called that out a couple of times. And I’m just curious if that’s kind of a continuation of the way you typically approach that or if there’s sort of a new thinking on how you want to activate in stores?

Michael Van Aelts, Analyst, TD Cowen: Mark, this is Richard. I’ll start and then

Richard Maltzberger, Chief Executive Officer, PetValu: Greg can provide a little more detail on the specific quarter. But from a long term perspective, you’ve talked about you’ve talked with us very specifically around the work we’ve been doing to increase our investments in leadership development, the work we’ve been doing to ensure that we have competitive wages, including the living wage we provide to any of our aces in stores that are expert level and have been with us for more than a year. And I think in general what you’re seeing is between our local franchisees and the work they do with their teams and our corporate stores and the investments we’ve made back into our workforce over the years, you’re just seeing a solid base of really stable, longer term retention, very well trained aces, being able to have a conversation with a customer when they come into the aisle, especially as they’re asking questions around where products are made, what ingredients go into them, what opportunities do they have in order to continue to improve the nutrition for their pet. And then I’ll give Greg a little more just what we saw specifically in Q4. Yes.

So in

Greg Ramia, President and Chief Operating Officer, PetValu: Q4, we designed a commercial plan that had a lot of focus on allowing ACEs in store to add to the discretionary basket as customers came in. And as you know, one of the real strengths of our business is the connections that our aces have with their devoted pet lovers. And we spent time on all of those promotions to make sure that our aces knew how to activate them and make sure that customers saw the value that we had and we took advantage of trying to add items to the basket.

Richard Maltzberger, Chief Executive Officer, PetValu: So I’ll just reiterate what Greg said earlier. In response, while the overall market did not deliver quite the same growth that we were expecting, we were quite happy with the ways in which the people who did come in were activated by our teams.

Mark Petrie, Analyst, CIDC: Okay. Understood. Appreciate all the comments and all the best. Thanks, Mark.

Marie, Call Coordinator: We have a question from Irene Nattel of RBC. Please go ahead.

Irene Nattel, Analyst, RBC: Good morning, everyone. Just wondering on the cost side of the equation. What types of conversations you’ve been having so far with your suppliers around from the expectations for costs in 2025? We’re hearing anecdotally that some of the national or international suppliers are still asking for big price increases. And then I guess the corollary or the follow on to that is how to think about the impact of tariffs and your ability to for the 15% that you do source directly from U.

S. To find perhaps supplies here, suppliers in Canada? Thank you.

Michael Van Aelts, Analyst, TD Cowen: Certainly, Irene. Thanks for the question. This is Richard. I’ll start in. This may be

Richard Maltzberger, Chief Executive Officer, PetValu: a bit of a tag team here across the island. And Greg, given the breadth of the question around not only inflation from cost first provided, but also you threw in the potentials on the tariff conversations that are occurring. So, let me go directly to the specific question around suppliers. We’re seeing a relatively normalizing environment to date. As noted on the call by Linda, that normalizing environment was a key factor going into our overall guidance for the year.

But, and there’s always that big but that you brought up is that normalized environment could be disrupted a bit through what may occur to the second part of your question around tariffs, etcetera. So, let me say first, as a proud Canadian company with deep roots here and locally owned businesses with over three fifty owners, this is a specific topic we’re paying a lot of attention to. Trade policy environment is something that we expect to have an impact. And quite frankly, as we went into building our plans for the year, there were some specific assumptions we made around consumer uncertainty and a weakening Canadian dollar that are taken into account. But then I’ll turn it over to Linda to talk specifically around how that could affect our direct suppliers.

Linda Drysdale, Chief Financial Officer, PetValu: Yes. Thanks, Richard, and good morning, Irene. As you heard me say in my prepared remarks, we have a domestically oriented supply network. Majority of our merchandise purchases coming from Canadian suppliers that provides us some insulation from direct tariff impacts. As I said, approximately 15% of our retail goods come from that.

Many of these products are national branded consumables common across pet specialty. So potential tariffs would be felt industry wide. For most of these products, we also believe, our selection provides, devoted pet lovers with similar Canadian source alternatives either through proprietary brands or Canadian based national brands. I’ll also add there is a potential for broader tariff impacts on inputs or ingredients imported by Canadian based suppliers. But again, any potential flow through effect of this would be felt industry wide.

In the meantime, as highlighted, we’re taking all precautionary actions you’d expect, reviewing our procurement options and identifying opportunities to work with more domestic vendors.

Greg Ramia, President and Chief Operating Officer, PetValu: And Irene, it’s Greg. Maybe I’ll just add one final point on this. So, both leveraging inventory and our work with our vendors has been a real strength of the business over the last number of years. So, we’ve successfully leveraged inventory over the last eight quarters using the tools and systems that we’ve built as part of the supply chain transformation. As I said, this is an area of strength and given the current environment, we will have even more focus on it.

Irene Nattel, Analyst, RBC: That’s really helpful. Thank

Greg Ramia, President and Chief Operating Officer, PetValu: you.

Marie, Call Coordinator: We have a question from Michael Van Aelts of TD Cowen. Please go ahead.

Michael Wu, Analyst, Barclays (LON:BARC): Hi, good morning. I’d just like to continue on that line of question actually around The U. S. Supply. And typically pet food is a little stickier.

Pet owners don’t like to change brands that much. But have you seen any like just any signs of a Buy Canadian movement in your stores like the grocers have, for example?

Greg Ramia, President and Chief Operating Officer, PetValu: Michael, it’s Greg. We have seen increased interest from devoted pet lovers for Canadian products. And we responded quickly to that both with marketing efforts and in store signage to highlight strengths. Maybe a couple of key points on this for us. We’ve got deep roots in the Canadian marketplace, devoted pet lovers for almost fifty years.

Strong national presence, three fifty franchisees operating source coast to coast. So, that’s an important point for us that we’re making known. We also have a strong legacy of sourcing local emerging innovative brands, many of which after we’ve started to sell them have grown into prominent brands across the country. And we have a really strong portfolio of Canadian products, both national brands and our pro form a churn offering and Fresh for Life. So, short answer is yes, we’ve definitely seen an increase and we’re excellently positioned to capitalize on it.

Michael Wu, Analyst, Barclays: Okay. Thank you. And you said that you’ve built in some consumer uncertainty and a weaker Canadian dollar into your forecast for 2025. What is the Canadian dollar that you’re forecast that you’re using?

Linda Drysdale, Chief Financial Officer, PetValu: Yes. We use economist projections for the Canadian dollar assumptions, Mike.

Michael Wu, Analyst, Barclays: Okay. So whatever I see as consensus guidance right now is what you would be or consensus expectations for the exchange rate, that’s a

Martin Landry, Analyst, Stifel: good one, good to use?

Linda Drysdale, Chief Financial Officer, PetValu: Correct. And remember, there’s a ninety day lag on that.

Michael Wu, Analyst, Barclays: Right. Okay. And from a tariff standpoint, how much have you built in? Like when you talk about building in some consumer uncertainty, obviously, there’s you’re going to have some increase in your costs from U. S.

In terms of U. S. Products, but also a weaker consumer environment. And I’m wondering how much that’s built into your same store sales forecast when you’re when you see an accelerating growth rate throughout the year?

Richard Maltzberger, Chief Executive Officer, PetValu: Certainly, Mike. I think let’s I’m going to take it up just a bit of a notch even above tariffs and really talk about what we’re really seeing and considering in the overall consumer environment because it’s not just uncertainty, there’s also some points of strength. So I’d like to talk to both of those. And then Linda can talk a little bit about specifically how that impacts range of our guidance. So first, generally consumer trends we’ve seen through much of 2024, we continue to see in the Q4 and into the beginning, first couple of months.

As Greg noted, we’ve seen some good momentum in the first couple of months of this year. Yes, devoted pet lovers are prioritizing needs based purchases like food, litter and services. But there are specific areas, especially in food and litter, where we’ve really leaned into value and we saw some really great success in Q4. Within consumables, we also continue to see the bifurcation in demand that Linda highlighted on the call that we’ve talked about for several quarters. So on one hand, we have consumers continuing to trade up to higher quality foods, really driving faster growth in culinary, still well up over 20% growth in that category.

For frozen raw, gently cooked, of course, led with the introduction of our own proprietary ProForma Trend culinary line. But at the same time, we’ve seen a cohort of customers looking for great value. And that’s where, as Greg noted, our loyalty program benefits, additional brands coming into our loyalty program as well as the price adjustments we made on some of our own proprietary brand products is having success. We do continue to see some value seeking behavior in discretionary business, so toys, treats, apparel, other hard lines. You’ll see a bit more promotional intensity here, as well as you saw us fighting a little harder in that space through some of our promotions around the key holiday events.

So through all that, we saw sequential improvement in our same store sales growth. We continue to see some momentum into the beginning of this year. But all of that comes with just a certain level of uncertainty. And so I’ll let Linda talk a little bit about how that played into the second part of your question and our guidance.

Linda Drysdale, Chief Financial Officer, PetValu: Yes. I’ll pick that up. So similar to prior years, we look at multiple inputs obviously when we build our outlook both internal and external factors. External as you mentioned, includes economist projections on macro indicators, things like spending, GDP, FX and interest rates. And then equally important are the many internal initiatives we’ve planned to maximize the growth and efficiencies.

These include actions like our store openings, our go to market, selling to consumers and our franchisees and the productivity initiatives, we pursue across the organization. All to say lots of paths to getting to the high or low end of our outlook. I will add a gradual return toward normalized demand for our discretionary products will help us reach the top end of our outlook. Conversely, if discretionary demand deteriorates, it would make that outcome a bit more challenging, to achieve. But let me reiterate, we believe the business model that we have and the flexibility of our teams enabled us to adapt to a wide range of environments.

And I think that our performance last year really showcased it.

James Allison, Investor Relations, PetValu: Yes.

Richard Maltzberger, Chief Executive Officer, PetValu: And I just to wrap that up, Mike, I’d just reiterate that again what Linda just said, right, the performance over not just last year but the year before and our ability to adapt, in the environment. We think we’ve got a commercial plan that really balances this holistic approach to value with the recognition that we continue to see loyalties from some really strong devoted pet lovers and monthly shoppers who continue to trade up. And we think the balance we saw in Q4 is a good way to approach the year.

Michael Wu, Analyst, Barclays: Yes. That’s helpful. And then I just wanted to touch on your Q4 margins because they did seem to strengthen. I think you had the best gross margins that you’ve reported in the last two years, so or at least the first time you’ve actually seen an increase year over year or close to any or sorry, I guess that’s not it wasn’t actually an increase, maybe let’s call it the smallest decrease year over year in the last two years by a wide margin. So, what allowed you to do that?

Is that the efficiencies from the DC or is that something or is there something else that’s also helping?

Richard Maltzberger, Chief Executive Officer, PetValu: So, what I would say, Mike, is you’ve absolutely hit a key part of there. As Linda said on her call and Greg also reiterated, we are beginning to see strong efficiencies coming out, especially out of our GTA facility that’s now been in operation for eighteen months. But even out of our Vancouver facility that just went live last year. That’s one of the benefits we’ve already began to see out of our supply chain. We noted on second quarter that we continue to leverage the variable cost within our DCs.

That’s despite all of the transition that we were going through in Q3 and Q4. So while we have the step up in fixed costs that we both had in 2024 that Linda noted, but also the step up in fixed costs we’ll have in 2025 across the first three quarters on the variable cost side. We’re seeing real strength there. And then incremental to that, we did a great job of increasing our revenues beyond our sales and really strong job of finding the right value proposition on the incremental 3,000 SKUs we brought into our warehouses over the past year to be able to pick up incremental wholesale sales on some higher value product to our franchisees. So overall, we were also quite pleased, and that played into some of the aspects for how we plan the year.

Michael Wu, Analyst, Barclays: Great. Thank you.

Marie, Call Coordinator: We have a question from Vishal Shreedhar of National Bank. Please go ahead.

James Allison, Investor Relations, PetValu0: Hi. Thanks for taking my questions. With respect to the pricing tools that you’ve implemented or starting to implement and promotional effectiveness, can you just help us understand where you are? Did that yield benefits in the quarter? And at what point should we anticipate seeing benefits in your results?

Greg Ramia, President and Chief Operating Officer, PetValu: Vishal, it’s Greg. The implementation of the promotional system happened in late January. So I expect, you should expect, I expect to see improvements through that through this year. But it was not in place in Q4. And the pricing system, so the what I’ll call the shelf pricing system is about to go live.

Richard Maltzberger, Chief Executive Officer, PetValu: And to the benefits expected with SHOP that really does play into some of our expectations for improvement. As Linda just said, part of the range in our guidance includes some of our own internal initiatives and some of what we saw on the promo pricing tools as we were going through the testing and the planning and the use of those is something we plan to leverage and driving our commercial plan to continue to pick up sales in the New Year.

James Allison, Investor Relations, PetValu0: Okay. So should we see that in Q1 or does it take a bit of time to kick in and you gradually implement?

Greg Ramia, President and Chief Operating Officer, PetValu: The, it’s Greg again. Our promotional planning cycle would mean that it won’t kick in if you want because we would have planned those promotions as we started to exit the year. So we are think of it as middle of the year timing as far as when we’d expect to see any material difference in how we’re going to market.

Richard Maltzberger, Chief Executive Officer, PetValu: But what I would say though, Vishal, though to Q1 and the momentum that Greg noted is that, like any time from a seasonal standpoint, you see a bit of a step down in promotional activity in Q1, from the heightened levels that you see during Q4. That is sort of what we’ve anticipated and seen at the beginning of twenty twenty five. But as always, we’re ready to compete. It is an environment that will require us to compete, and that’s been baked into our commercial strategy for the full year.

James Allison, Investor Relations, PetValu0: Okay. And you invested in price in Q4 more so in certain categories. Wondering if you were satisfied with that investment? Did it yield the customer response that you were hoping for?

Richard Maltzberger, Chief Executive Officer, PetValu: I would say, let me start that first. Yes, Vishal. But note the most significant price investments we made were actually back in April and May and were very well articulated to this group before we made them across both consumables and, meaning food and litter. And those really helped in our ability to maintain share throughout all of the full year of 2024. But we did take some incremental action that Greg led in Q4 and I’ll let him talk specifically in litter.

Yes. And Vishal, so

Greg Ramia, President and Chief Operating Officer, PetValu: the investment we made in Fresh for Life litter in Q4, we saw nice returns from that. We also made investments in the promotional program as you know, and we saw that help deliver the growth in discretionary items in the basket like hard lines, treats, etcetera.

James Allison, Investor Relations, PetValu0: Okay. And do you have a sense of just amidst the slowing population growth in Canada, do you have a sense of competitive square footage growth or industry square footage growth currently maybe LTM and looking forward?

Richard Maltzberger, Chief Executive Officer, PetValu: Yes, Michelle, we do. It’s very much a normalizing environment. It’s an environment in which we, through our continued strength of our balance sheet and our pipeline for real estate, have been able to maintain our target roughly 40 store opening pace, which we’ve not seen matched in terms of maintenance of other square footage growth by other players, allowing us to both what we believe build an opportunity per share in 2025 and in the next few years.

Marie, Call Coordinator: Thank you.

Richard Maltzberger, Chief Executive Officer, PetValu: Thanks, Vishal.

Marie, Call Coordinator: We have a question from Chris Murray of ATB Capital Markets. Please go ahead.

Mark Petrie, Analyst, CIDC: Yes, thanks, folks. Maybe thinking about some of the levers you can pull around consumer loyalty. As we go into 2025, can you talk a little bit about plans that you may have for proprietary products? And maybe any thoughts around being able to leverage the loyalty program a little bit more? We’ve seen some of your competitors maybe lean into the loyalty programs a little bit harder now with some of the consumer behavior.

So just thoughts on how that we may see that evolve as we go into next year?

Richard Maltzberger, Chief Executive Officer, PetValu: Yes, certainly. I think Greg and I will probably tag team that, Chris. I’ll talk a little bit about what we’re doing in terms of our loyalty and then I’ll give it to Greg to talk a little bit about the product and some of the focus there. So from the loyalty program, absolutely. We already expanded the program.

In November, we became the first and currently still the only national pet specialty player with a bag program, a loyalty bag program by 12 get to 13 free with Royal Canadian, which is positioning us well. And we backed that up with incremental promotions on Royal Canadian in the first quarter. We have also added other programs that Greg talked to some of the products that are coming into that, but we’re adding incremental products into our program. We’re also leaning in. We have begun to leverage some more advanced AI segmentation for our approach to actually recapture customers that may have experimented with other providers, in the past year.

So we’re leaning into winning some of those customers back. And then some of the promotions that we specifically ran in Q4 that we’re quite happy with were not mass promotions, but they were very specific basket add promotions that our loyalty team was able to execute for very targeted and pointed players in the market. So with that, I’ll let Barry talk a little bit about what we’re doing with product.

Greg Ramia, President and Chief Operating Officer, PetValu: And then on especially on loyalty. So as Richard said, we’re very happy with loyalty in Q4 and through so far in Q1. We are in the midst of adding a number of vendors to the frequent buyer program to help support loyalty. So, First Mate and Square Pet and Snack would be sort of big products that our stores and our customers have wanted that are being added. So we expect that to help grow the 3,000,000 active users that we have in loyalty program and to allow the things that Richard just said around making sure that we’re stimulating monthly demand and manage our pushing to get win backs from many customers who have tried other competitors through the rest of the year.

We asked a question on proprietary brands. I think you’ll see a couple of focuses from us. We are continuing to be very excited about how culinary is performing, so we will accelerate that work. We are also quite excited about how brands or sub brands like Ultra Treats are performing, so you’ll see us do more with that in the marketplace. And especially with our Performatrin and Fresh for Life brands being being great brands that are primarily navy and you will see us really focus on those this quarter and through the rest of the year.

James Allison, Investor Relations, PetValu: Okay. That’s helpful.

Mark Petrie, Analyst, CIDC: The other question is really around Quebec as we think about next year. Now that you’ve got the GTA DC in place, I think there’s a little more, call it, seasoning of the acquisition and maybe some additional opportunities there. But you’ve also seen some competitors, especially in the digital channels, pull away from Quebec, shutting down DCs and things like that.

Marie, Call Coordinator: So I’m just wondering, as

Mark Petrie, Analyst, CIDC: we go into next year, how should we be thinking about the evolution of Chico and the growth in Chico from a lot of the different facets, be that digital or loyalty, or even just as you drive more of the proprietary products into that network, or even bring suppliers under Quebec into the rest of the network?

Richard Maltzberger, Chief Executive Officer, PetValu: Certainly, Chris. It’s absolutely an opportunity for us. I do believe it will pan out to be one of the best moves that we made strategically within the company to be able to enter specifically with Chico and the strength of that opportunity. Even post

Greg Ramia, President and Chief Operating Officer, PetValu: the

Richard Maltzberger, Chief Executive Officer, PetValu: end of the quarter, I’ll just give a brief update because including the openings in Q1, Chico is now up over 100 stores within Quebec and now has the leadership position in total number of stores operating in that market. From a proprietary brand perspective, they now have access to more than 1,200 Quebec language compliant proprietary brand offerings across all categories, food, consumables, litter, hard lines, toys, apparel, etcetera, that we’ve been able to bring to them at quite frankly substantially improved margins. Again, our proprietary brand products generally average at 1,200 basis point or higher total margin, some of which we eat, some of which we share directly with the franchisees. The wholesale opportunity continues to go well. As noted, our wholesale goal for this year is to be at more than 50% run rate by Q4.

We were at more than 30% at the end of Q4 twenty twenty four, so well on track there. And now the fourth and final stage of our integration would be technology. We have begun to bring our Chico Franchisees onto some of our technology platforms including their web order process, which is now similar to what our franchisees do, some automation within the system. In fact, I get the opportunity on Tuesday of next week to be on stage and talk specifically with our Chico franchisees about the success we’ve been able to build together. We do still see more than 100 plus store opportunities beyond the 100 stores we already have in Quebec.

Continued opportunity to grow our proprietary brand penetration there. So while they have access, they’re still growing their way towards that 25 plus percent rate that we have within our set value stores. And yes, we do see an opportunity over the long term for digital growth within Chico. But right now quite frankly with the store growth, the product growth, the wholesale growth, our franchisees are taking huge steps forward already.

James Allison, Investor Relations, PetValu: All right. Thanks very much. That’s helpful. Thanks, Chris. And we got time for a couple more questions.

Marie, Call Coordinator: Our final question comes from the line of Michael Wu of Barclays. Please go ahead.

Michael Van Aelts, Analyst, TD Cowen: Good morning, everyone. This is Mike Vu on for Aizring Yee and thanks for taking our questions. So related to customer acquisition, is there any color you can provide on what you’re seeing in the overall pet ownership trends quarter to date and expectations for the rest of the year and how we should think about that relative contribution to customer growth compared to some of your idiosyncratic initiatives that you’ve been working on?

Richard Maltzberger, Chief Executive Officer, PetValu: Certainly, Michael. I would say in general, we’ve now completely cycled the positive abnormality that we saw during the pandemic and in any post pandemic environment. So really we would expect pet population growth to grow a little bit along with Canadian population growth, which unfortunately over the next year or two will be a bit constrained. And so that is a factor we’ve already considered within our plan and another reason why Linda noted we’ve leaned into our own internal initiatives and to really more put the focus on controlling what we can control. And one of the key things that we can control is the continued introduction of products, as Greg mentioned with the lean into culinary etcetera, that tap into the humanization trend that hasn’t slowed down at all within the pet industry.

Michael Van Aelts, Analyst, TD Cowen: Great. And then, so just a second question on the increased marketing and advertising spend during the quarter. I know you called that out during the last earnings call, but is there any color, response from your customers on the additional initiatives to capture, share, voice, generate time and traffic? And then is there any marketing channels that

Richard Maltzberger, Chief Executive Officer, PetValu: are working really well for you? So, yes and yes. Good response, most especially as Greg already noted earlier in the call from our monthly customers. Again, that is our primary focus in our marketing and advertising spend. It was in line with the expectation we provided last quarter that we would be leaning into that, as part of our Q4 plan.

And we continue to see really good performance really across all three sixty degrees of the marketing, really good brand and Think scores as we measure our overall awareness of our brand. It continues to grow across Canada, both through a combination of our square footage growth introducing us into new markets, but also our top of funnel marketing advertisement with some pretty funny and well received, ads that we run digitally as well as on television, all the way down to some really strong success, on the lower funnel, whether that’s invest in specific search terms that align up with the key brands that we’re supporting, especially with our Canadian made and proprietary brands, but also, new things like weather triggers. So, fortunately for you, Michael, you’ve not been

Michael Van Aelts, Analyst, TD Cowen: in the Greater Toronto Area for the past

Richard Maltzberger, Chief Executive Officer, PetValu: month or so or across Canada, but we’ve had just a wee bit of snow, this year. And the good news is the team introduced some very weather specific triggering marketing that’s had a really strong click through response and great response to the peril has been a positive sign for us as we’ve gone into the first part of the year because, well, we had some pretty nice winter coats, that we’re now seeing dogs across Canada walk around in their booties wearing because, well, there’s still a lot of snow on the ground. So, Michael, thank you for that question. And I’ll go ahead and just wrap us up here because we’re at time. So, thank you to everybody for the time that you have invested into the company.

And we look forward to another great year as we continue to lean into our Canadian roots and serve devoted pet lovers all across the country. Thank you all so much and we’ll talk to you on the Q1 call.

Marie, Call Coordinator: This concludes today’s call. Thank you for joining. You may now disconnect your lines.

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