Earnings call transcript: Petz Group reports mixed Q3 2025 results

Petz Group (PETZ3) reported its third-quarter 2025 earnings on November 5. The company posted earnings per share (EPS) of 0.033, slightly below the forecasted 0.0353, resulting in a 6.52% earnings surprise. However, Petz exceeded revenue expectations with 1.09 billion BRL, surpassing the forecast of 914.41 million BRL by 19.2%. Following the announcement, Petz’s stock rose by 3.97%, closing at 3.78 BRL.

Key Takeaways

• Petz’s revenue exceeded expectations by 19.2%.
• EPS fell short of forecasts, with a 6.52% negative surprise.
• Stock price increased by 3.97% post-earnings release.
• Strong growth in services and private label sales.
• Ongoing competitive pressure from digital platforms.

Company Performance

Petz Group demonstrated robust performance in Q3 2025, with significant growth in various segments. The company reported total gross revenue of 1 billion BRL, driven by a 6.9% increase in B2C sales and an 8.1% rise in brick-and-mortar store sales. Digital channels grew by 6.7%, while services saw a notable 13.4% increase. The company also expanded its market share with new store openings and a focus on operational efficiency.

Financial Highlights

• Revenue: 1.09 billion BRL, up from the forecasted 914.41 million BRL.
• Earnings per share: 0.033 BRL, below the forecast of 0.0353 BRL.
• Gross margin expanded by 70 basis points.
• EBITDA margin increased by 40 basis points.
• Net cash generation: 140 million BRL.

Earnings vs. Forecast

Petz reported an EPS of 0.033 BRL, missing the forecast of 0.0353 BRL by 6.52%. Despite this, the company’s revenue of 1.09 billion BRL significantly exceeded the expected 914.41 million BRL, marking a 19.2% surprise. This mixed result reflects strong revenue growth but highlights challenges in maintaining expected profit margins.

Market Reaction

Following the earnings announcement, Petz’s stock price increased by 3.97%, closing at 3.78 BRL. This positive market reaction suggests investor confidence in the company’s revenue growth and strategic initiatives, despite the EPS miss. The stock’s performance contrasts with broader market trends, indicating specific investor interest in Petz’s growth potential.

Outlook & Guidance

Looking ahead, Petz anticipates positive macroeconomic demand in 2026, partly due to expected income tax changes. The company plans to continue expanding its private label offerings and services segment. Petz is also awaiting final approval for its merger with Cobasi, which is expected to enhance its market position.

Executive Commentary

CEO Sergio Zimmerman emphasized the importance of maintaining margins, stating, "We cannot grow at any cost. Meaning we cannot kill our margins." He also highlighted the strategic importance of the Cobasi merger, noting, "The CADE is a regulatory authority that exists to protect competition and not competitors."

Risks and Challenges

• Increased competition from digital platforms could pressure market share.
• Pet inflation, currently at 4% year-to-date, may impact cost structures.
• Regulatory hurdles related to the Cobasi merger may delay strategic plans.
• Economic uncertainties could affect consumer spending in the pet sector.
• Operational challenges in scaling new store openings and digital channels.

Q&A

During the earnings call, analysts inquired about Petz’s strategy to combat digital competition and the potential of its private label products. The management discussed the growth of their loyalty program and detailed the expectations surrounding the Cobasi merger process, emphasizing its strategic importance for future expansion.

Full transcript - Pet Center Comercio e Partcipacoes (PETZ3) Q3 2025:

Conference Moderator, Petz Group: Good morning, everyone, and welcome to the Petz Group video conference call for the third quarter of 2025 results. This call is being recorded, and you can watch it on our company’s investor relations website. This presentation can also be downloaded. After the presentation of the results, we’ll start a Q&A session. If you wish to submit a question, just select the Q&A icon on the bottom of your screen and include your name and company. When your name is called, you will receive a request to open your mic. Open your mic and ask questions. In order to send a written question, you can also use the Q&A icon with your name and company. We also have simultaneous translation. All you have to do is select the icon interpretation. For those following this conference in English, you can mute original audio.

This presentation will be presented in Portuguese, but the English version can be downloaded on the company’s website. Now I’ll hand the floor to Ms. Aline Pena, CFO and Director of Investor Relations. Good morning, everyone. I’ll share some of our results. And talk about our operational and financial performance. After that, Sergio will bring an update on the Cobasi deal, updates on the CADE. News, and the Q&A session. The main messages from this quarter include an expressive growth of our private labels, and I have a separate slide for each of them. Another focus is in cash generation. We had a very good cash generation for the period, not only total but also operational cash flow. Our omni-channel approach and its strategic pillar for the group, and clubs, which is our loyalty program that continues on a very important growth strategy for the company.

Now, on private labels, we always mention how much we have advanced in that front. In this quarter, we were able to achieve 12.8% of our sales, which represents a 36% growth versus last year. As I am sure you are aware, since the beginning of the year, we also launched a product in the food category. We have the Selections brand that is performing quite well. This is one element of our strategy to help differentiate our company. Especially when it comes to marketplaces, these products can only be found at Petz. We have been investing a lot in this strategy. These are high-quality products. Usually, when we think about private labels, we think about perhaps products with not the same level of quality. This is not the case for us. They are priced mid or higher level. We have different price points.

At the same time, we also have brands that we acquired. So besides the brand we developed internally, we also have the brands we acquired, such as Z-Dog, Petits, and we are also developing new brands such as Fuzz, which is a mid-price brand that we developed focusing on cats to respond to the continuous growth of the cat category in our sales results. This is the big highlight. On the financial perspective, our net cash generation. Much of this comes from the operational efficiency that we have experienced, not just in terms of DRE. We have an expansion of about 30 basis points in our EBITDA margin, but also related to investments that we made this year. We reduced our CAPEX this year. We continue to improve our working capital. We saw a significant improvement in suppliers this semester.

This is a little bit of that summary: BRL 140 million of total cash generation in this quarter alone. This is Clubs, as I mentioned before. This is our benefit and loyalty club. We have different tiers available. We have the bronze version, which is free for subscribers, but we also have silver, gold, and diamond categories. Focusing on the diamond category, which is obviously where we promote the most benefits, this is a 24.90 subscription that you pay monthly. Very quickly, this is paid out when you consider everything you get, all the benefits. You can access exclusive discounts on our services. You also receive cashbacks. We call it cashbacks here. You can use that for a future purchase. In the end, this is a share of wallet too. Since I am paying from 6.90 to 24.90.

I tend to use the benefit more and more. The idea is that these customers, they purchase more frequently with us and not as much as in other places, such as small pet shops, marketplaces, and supermarkets. Because of the cashback tools, they tend to come back more frequently to our stores, which is something that for us was important to improve. It is a little bit on clubs. We were able to double from one quarter to the other. We doubled the number of subscribers, which is a record performance that certainly made us very excited. Now, speaking on our store’s performance. Our same store sales were 5.6% in this period. When we compare this to the same period from the previous year, we had growth zero in our LTM. We continue on this recovery trend. Still below what we would like to see.

We would love to see a double digit here. On the right-hand side, we see the different store opening periods. Perhaps jumping ahead a little bit, we usually say that the maturation of the stores happens in four years. As stores mature, we tend to see margins that are higher. Just to explain why we have this 2023 stores, which is less mature with a better margin than in 2022, this has to do with the regional mix of stores. The year with the lowest margin is the year where we concentrated more stores in the Northeast, where the digital share is greater. When we look at stores individually, the maturation curve is happening as expected and as we usually present to you. Now, on total revenue, our gross total revenue was BRL 1 billion for the group.

We grew 6.9% when we look at B2C or sales that I perform through Petz stores and channels that sell directly to end consumers, such as the Z-Dog website. We had a 7.3% growth. In terms of channel, our bricks and mortar stores and digital channel stores grew 8.1%, so more, and our digital channel grew 6.7%. I am going to give you more details later on, but this result leads to a certain improvement in our gross margin. Every time our stores grow more than the digital channels, automatically we have that carryover. Another highlight here is for our services. We grew 13.4% in the third quarter, something that we have been observing for a couple of quarters now. The revamping of this operation and the fact that it is once again growing, even growing at higher levels than our retail operation.

Looking at our gross margin now, I would say that we have two big elements here: our private labels, which I mentioned on my first slide. Every time we have a significant growth in private label, 30% in this year, we have this carryover. On average, I often say that we are talking about a greater range for private label that varies between 5-10 percentage points. The more we grow on private label, the more impact we see in the gross margin. Also, the fact that our stores are growing at a higher pace. Even with this fast growth in our stores, when we look at the digital channel, we also see an improvement when compared to the previous year.

Not necessarily this is happening on the gross margin, but also because we are being very efficient in terms of expenses in our digital channel. When we think about competitiveness in the digital, this continues to be a difficult channel. We have the presence of many players with a very immediate price comparison. Our focus on improving digital is on expenses. We are talking about performance marketing here. We are talking about logistic expenses and delivery to end consumers. Those are our areas of focus. Of course, whatever we can do in terms of competitiveness is also being done. We saw a growth of 70 basis points in our gross margin in the period. Now talking about operational expenses, we consume a little bit of that gross margin I presented before. We expanded our EBITDA margin in 40 basis points in this period.

30 basis points were consumed in our operational expenses. Especially sales expenses, which was our biggest cause here. Here we have to remember that we are opening fewer stores, but nevertheless still opening stores. We opened nine stores. We have nine more stores than the previous years. Of course, that has a consequence in rental and labor with a lower operational leverage because these stores are not making their full potential because they’re not mature. That is why we see this pressure on the margin. We also invested a little bit more on online traffic. For this slide, I would like to highlight our G&A, which is under our control. Since the beginning of the year, I’m sure you know this, we have a number of action plans to control our expenses. Our G&A, we grew less than the B2C revenue.

The B2C revenue, B2B, or the consolidated results were 6% or 7%. In the G&A, we grew. Pre-operational expenses, of course, we reduced that because we are not opening as many stores. The fewer stores are open, the lower my pre-operational expenses. That is also another gain that we saw. Finally, our adjusted EBITDA, as a consequence of everything I just presented, we were able to expand 40 basis points. Here in the chart, we see EBITDA divided by the net revenue and the gross revenue. Different analysts prefer to see these results differently. When it comes to the gross revenue, we have 7.7% in the quarter, which is a very similar level that we saw in the second quarter. We went from 7.8 in the second quarter to 7.7 in the third quarter.

An important reversion when we consider what happened in the first quarter. I’m sure you remember that we had problems in our DC, and many other problems that happened as a consequence of the issues in the DC. We went from 5.6, resuming that high 7 level that we had before. Net profit, no major highlights here. The size of the adjustment from the accounting profit for the adjusted one is not as high. We have a lower rate this semester, which of course gave us a positive effect. Since in the first half of the year, we had a profit base that was quite low, we could not use the late domain. Now we have resumed a slightly higher profit base. We can get that benefit because we make a lot of technology investments. My final slide, just reinforcing our strong cash generation.

Here we are looking just at operational cash. Total was BRL 140 million. Operational BRL 176 million. This is a combination of a better EBITDA, but also lower CAPEX and lower working capitals. When it comes to investments, we have reduced 10% this year, actually in this quarter when compared to the previous quarter. If we look at the year-to-date of this year versus the year-to-date from last year, we dropped pretty much 20% in our CAPEX level. We are being very diligent in this environment of very high interest rates. Our idea again is to fund this growth and fund our operations with our own cash generation without raising any more debt in this scenario. One more comment, we had a line of renovations that went up a little bit more than usual.

This was a big renovation in a store that had an operational issue with the roofing that required a renovation. It was pretty much the cost of a new store, but it’s a store that’s very important for us. Also, some initiatives that we did for energy, air conditioning, and etc. In order to reduce our OpEx, we did a slightly higher CapEx investment with a very fast payback. We optimized our air conditioning infrastructure to optimize our energy costs. Finally, on the right-hand side, we see our leverage. After three quarters, and again, in the last quarter of last year, we paid dividends. In this context of the merge already. In the following semesters, we had a net debt position. Now we resume our net cash position because we are generating a lot of cash because of the decisions of lowering our investments.

That’s it on my side. Now I will hand the floor to Sergio, who will give us an update on the status of the deal with Cobasi and the discussions that are happening at the CADE. After that, we’ll start our Q&A. Thank you, Aline, and good morning, everyone who is with us for our results call. Before talking about the CADE, I just want to reinforce one message to you all, which is exactly what Aline was mentioning about our focus on cash generation, something that we have been adopting as a company’s policy since the beginning of 2023. We believe we are extremely assertive in this policy for some reasons. We have BRL 430 million in gross debt. We have a cash level that varies between BRL 450 million and BRL 500 million.

We are sitting on a lot of very high cash level, but with a huge amount of discipline of not spending this money and not focusing on expansion with this more expensive cash. Of course, there is a reason that I am sure you have been following. Yesterday, we saw the coupon decision to keep the Brazilian interest rate at 15%. We have the highest real interest rates in the world. For that reason, we refuse to make investments other than using our own resources in such a scenario. Considering this reality, we understand that this is the best way for us to protect the investors’ money. We have stores that are very diversified, more than 260 stores spread in 24 different states in the union.

This is a policy that is here to stay while the interest rate is capped at such high levels, which certainly punishes the retail segment. Because we do not have a net debt scenario, quite the opposite, currently we have a net cash situation, we are not so directly impacted by the high interest rates. Of course, as they impact the whole population of consumers, we are also indirectly affected by that. After this quick message on the importance of our cash flow management. Again, Aline just mentioned, and I will repeat that, because this is truly a big focus for us. In the end of last year, we distributed BRL 130 million in dividends because of the clause in the Cobasi deal. At that time, we had a net debt because that was not a programmed event.

We focused on bringing that down to zero, and we are once again in a net cash scenario. Having said that, let’s talk about the deal and the merger. We are at the final steps of the process. My goal here, and please, that’s why I asked Aline to do the presentation so I could focus on the CADE presentation. Usually, I come and give you some updates in the beginning, but I decided to focus on this part because this is the last call before the final ruling from the CADE. It is an opportunity for us to revisit the track record and the history that we had with the Administrative Council for Economic Defense. We have analysts and investors who are following this conversation.

We thought it would be appropriate to focus part of the call on the scenario of the deal and the approval. First, let’s talk a little bit about the history of this process. It’s important to remember that in April 2024, we announced our MOU, our Memorandum of Understanding, with this intent of merging with Cobasi. In August 2024, and again, just a reminder, April 2024. We are talking about now we are at the end of 2025, so more than one year and a half since we announced our intentions to merge. The signing happened in August 2024. Now, what happens? In the CADE, we registered the deal in September 2024. That was quite fast, one month after the signing. What happened the moment we did that? Somehow, the market suffered with information.

The CADE superintendents needed to do an analysis with a lack of external information from the market. The CADE started, of course, requesting more information, and rightfully so, so we could share with them different sources of information about the market. Because different from the food market or the pharmaceutical market, which is filled with external information, the reality is not the same for the pet segment. This whole process only led the acceptance of our registration for the 320 days in February 2025. It took a long time before that process happened. There is a delay before the pre-registration and the registration. Again, not because of lack of information being provided about the companies, but mostly about lack of information about the market. This is a highly fragmented market.

50% of this market is comprised by independent and small mom and pop stores. This scenario led to a delay in the process of market analysis. We could get the registration of the deal, which took place in February 25. Once that was done in February 2025, the CADE, in a very diligent way, started doing their analysis. That third interest party appeared. The third interest party started questioning the merger, especially with talking about eventual jeopardies or losses for consumers. This is part of the game. It’s normal for a third party to appear. They can raise questions, certainly. The CADE directors welcomed those considerations and started to take into account the issues that were raised at the time. As a natural result, we needed to provide them with more elements and more information.

For those analyzing the case. In June 2025, from February until June in 2025, the CADE intensified the analysis process with all the information we provide. In June 2025, they published a decision. Basically, they mentioned that despite the fact that in some markets there will be a concentration, the high competitiveness, the high price competitiveness with marketplaces and other pet shops, and the arrival of new players in all markets mitigate any concerns that they might have when it comes to the mergers. Because of that, the results were that, or the ruling was that, the merger was approved with no remedies required. After this decision, we had a 15-day period for anyone to raise any issues. Pet Love, at the last minute, filed claims against this ruling, which escalated the decision in the CADE.

What is the central thesis that Pet Love has? You are all aware. What is Pet Love claiming as the third party, and what are the resources that they are presenting against the approval? Pet Love states that we are creating a duopoly in the market, meaning the only competitor that Petz has is Cobasi and vice versa. For that reason, this duopoly, once merged, will turn into a monopoly. That is the key thesis. No one can compete against us. We can price products as we want because no one could compete against us. In the studies that they mentioned that they conducted, without knowing the source of that information, this monopoly would lead to a 5% price increase.

The result of this price increase would leave for pets to be abandoned on the street at rates never seen before in Brazil, leading to a social tragedy in the pet segment because consumers would no longer be able to afford taking care of their pets. This is the main thesis that Pet Love presented against the merger. Pet Love used a specific NGO, and one of the board members of this NGO is a Pet Love employee. The NGO receives funding from Pet Love, and they are the ones defending this hypothesis of a tragedy being caused by the merger. We also saw some Congress people asking the CADE for a public hearing. The rapporteur, for the first time in the history of CADE, granted this public hearing for the discussion of the case. We were quite surprised to hear that decision because.

That was the first time it happened in history. At the same time, we welcomed this decision because a public hearing gave us the opportunity to listen to the different stakeholders involved in the merger so we could become clear who is speaking against the merger and who is not opposing to it. That was a very productive day, the day of the public consultation. When it comes to animal protection issues, we basically heard from one or perhaps two NGOs, but I only remember one, which is exactly the same NGO that is funded by Pet Love. One of the board members of the NGO is the Pet Love founder, and they basically reinforced the thesis I have mentioned before. On our side, we had more than 20 NGOs coming to this public.

Consultation, whether to talk about the Cobasi programs or to talk about the Petz programs. Saying that pretty much both companies have the biggest programs in animal protection and the donation programs that we do. Something that takes place in most of our stores, not to mention the financial support to the NGOs that are part of the programs. We were able to show that companies that are truly supporting the third sector in Brazil are basically Cobasi and Petz. Another important issue was that despite the efforts being made by the third party to bring suppliers for the public hearing, not a single supplier attended this event claiming any type of concern.

Like mentioned before, more than 90% of the suppliers who answered the CADE questionnaire did not raise any concerns about the deal, which is certainly important because if there is one stakeholder that could be worried about the merger, that stakeholder would be our suppliers, of course. This was a very important moment for us to present studies that provokers conducted for us on consumer behavior, even in the markets where we have a higher concentration of Petz and Cobasi stores. That gave us the opportunity to show how much these consumers fluctuate between digital and physical channels and between operations, and also including marketplaces, local pet shops, and supermarkets. It is a very fluid market when it comes to the consumer’s purchasing decision. At the end of the public consultation, our assessment was that this was a very positive process.

Once again, we praised CADE for this initiative because it gave us the opportunity to show that neither competitors, neither suppliers, neither consumer protection authorities were opposing the deal. The only opposition, in a very focused way, was coming from that third party, which by chance is a direct competitor for both companies. Now I have to tell you about the core thesis for the merger, and that’s the increase of the competitive pressure. In a very diversified market, marketplaces promoted a digital inclusion for small retailers. Small retailers who were limited in the competition against us in the physical world are now our competitors in the digital world as well. Platforms such as Mercado Livre have more than 30,000 sellers who are pet shops. I don’t know if it’s 30 or 20, but it’s certainly a very high number of sellers who are pet shops.

Maybe 30,000 is the total number between all marketplace platforms because I’m just getting this data from the top of my head. Nevertheless, we see a very significant number of small retailers now selling on these marketplaces. When we are talking about competing against marketplaces, we are talking about competing against small retailers that are now going digital using these platforms. Many times, these small retailers work pretty much at zero margin on the digital channel with a focus on volume. By doing that, they create a huge competitive pressure in our own operations. There is this issue saying, "Oh, but it’s weird. How can small retailers pressure the big ones?" It’s not very traditional or expected for this to happen, but all you have to do is go on your smartphone and search for whatever product you wish and see the reality of this information.

Small retailers today, through the marketplace platforms, are having this tremendous competitive pressure against us. The other thing that we also verified is that because of that, our margins are being pressured, and because of that, our results are under pressure. How can you become a better competitor? By lowering the price. If you do not lower the price in order to compete, you are sort of eliminated from the game. What happened in 2024? We had about 8% growth, and in this year, we are going to grow about 7%. If you look at these growth rates, these growth rates are much below the market rates. Even though.

These are good numbers that we are presenting, even though we have focus on our cash flow, we are trying to do the best we can in the current scenario. It is certainly certain that we are concerned about this scenario. We have a history of 23 years, and for 22 years, we always grew at the same rate of the market or at a higher level. That is why we became leaders. Starting in 2024, we are growing below the market level, and perhaps in 2025, we are going to see the same results. Of course, that requires us to adjust our route. Retailers work based on trend. We do not like this trend. Because of that, the merger makes the whole a lot of sense because it brings us a major opportunity to eliminate costs.

Variable costs, some fixed costs, but essentially costs that will give us the ability to better compete against the marketplace platforms. That is the key thesis. There is nothing more important than this in this deal. We are absolutely certain because of all the synergies that we have with Cobasi that by doing the merger, we will have real cost cutting in order to improve our ability to compete. After having explained our core thesis, and again, what I am saying here is nothing new for market analysts. All we have to do is look at what the banks that cover this market have been saying about the increase in the competition. Petz in 2021 that achieved pretty much BRL 12 billion in market cap is being traded at about BRL 1.8 billion, and with a much greater revenue than we had in 2021. What happened?

It’s basically the perspectives that have changed. They were not changed by accident. We really saw an increase in the competitive pressure. I’ll give some structured data about the market. When it comes to the so-called duopoly or monopoly in the market, let’s see that both companies together, we have under 11% of market share, actually 10.2% of market share of the combined Petz and Cobasi share. If that’s a monopoly, that would be the first monopoly in the world to only control 10% of the market. It’s truly scary when we see these two companies with 10% of market share being called a monopoly. Still on the structural data analysis, I just wanted to reinforce that suppliers and competitors do not oppose the deal. In reality, we actually see some competitors opposing, but this was a very interesting moment in the public consultation.

They oppose because they believe we will lower price. And that’s a legitimate concern. Competitors, they need to be worried about the merger because we will lower our prices. This is natural. When it comes to the price issue that we are only competitors to each other, I just wanted to say one thing about that. We have stores in about 140 markets in Brazil. Of course, I’m rounding up numbers here, but out of these 140, in 70 of these markets, we have both Petz and Cobasi stores. In the remaining 70 cities or markets, we either have only Petz stores or Cobasi stores. Here we see an interesting piece of data that we gathered. The prices that Cobasi offers or the prices that Petz offers are exactly the same if the competition is present or not.

Prices we have in a city without a Cobasi store are exactly the same as the prices we have in a city where a Cobasi store is present, and vice versa. If that thesis that we are only competing against each other, why would we have the same prices? Why would we not use this as an opportunity to improve our margins? For one reason and one reason only. Our true competitors, the true competitors for Petz and Cobasi, are small retailers, whether through their physical stores, but especially about their digital, from their digital presence that happens again through the marketplaces. That is the real source of pressure that we have in the market. Another way to see this is saying that the first Cobasi supplier and the first Petz supplier represent about 20% of our numbers. And both of us together.

Represent for this supplier between 20% and 25%, meaning. Where do this power that we supposedly have come from? Because we’re saying that 75% or 80% of sales from our main supplier for both companies is actually selling in other places. This is a supplier that doesn’t supply to supermarkets. The remaining 75% are being sold at small pet shops, in veterinarian clinics, which only reinforces this idea of how fluid and varied this market is. Another aspect that I would like to highlight is the relationship that we have with the CADE. Just so you get that into the context when you hear the issues of the claims of the third party. There are seven board members in that court. One is still to be appointed, so we’re going to be judged by six.

The current president has two votes currently because of this empty seat. We were pleasantly surprised to see how each of these board members presented legitimate concerns about the merger. In our opinion, this is a very interesting element to see how interested they truly are in protecting competition. They are really analyzing the claim that Pet Love presented that this merger will hinder consumers and lead to price increases. We had similar conversations with all the different board members, and we were really welcomed by them. At the same time, they were very technical in their conversations with us. They said, "We are not convinced yet. We need more reports. We need more data. We need more arguments." We are very comfortable with this whole process because this is all we have. We have the data, the evidence, we have past data.

Data that cannot escape logic. On the other side, what we have is a story, a story that is not based on any real evidence. That is based in a fantasy created by an NGO that, once again, is funded by the company. One of the board members of this NGO is the Pet Love founder, and it’s pretty much an empty argument. Perhaps not completely empty, because, of course, it’s important to value the contributions from the third party, because it leads the CADE staff to reflect and think the process through and do deeper analysis. This is great because it gives us the ability to show the whole technical team and the different representatives what is really happening and what’s really behind this deal. Of course, it is a lot of work.

We get very anxious with the deadlines and the dates, but at the same time, we are very happy, very satisfied because we are being heard. This is all we need. We need to be heard. We need to be able to demonstrate the material that we have and the proof we have. Regarding deadlines, so you are aware, the deadline is January 2, 2026. This is the theoretical date because they start their leave on December 20. There will be a final session on December 10. Sometimes there is an extra session on December 17. In practice, we are saying that by December 17, we will have the final ruling for this deal. We can no longer ask for a postponement. The ruling.

If there’s no ruling, the merger is approved, and that’s never happened in the history of CADE, and there’s no reason it would happen right now. There will be a ruling by December 17th. What is our expectation for the final ruling? We are very positive about this ruling, and we’re very positive for a reason. Because we looked in the eye of every CADE board member. We really addressed their legitimate concerns, and we are absolutely comfortable in knowing that every issue or concern that was raised by the CADE board members or technical team were addressed by us with the data. Our best expectation today is that the final ruling will grant us full approval with no remedies by December 17th. Like I said in the beginning, this is the last results call that we will do without having that final ruling.

Before we go to a Q&A, I have one final message. It’s an invitation for everyone who is watching these results calls to think this through with me. If you were one of our competitors, and if you suspected that this deal is being done so we can increase our prices, would you be happy or sad with that? If I were a competitor, I would be very happy because that would be a great opportunity for me as a competitor to gain more market share. A third party claiming with interests that have not been stated, because again, we cannot really imagine that their concern is about a price increase because they would benefit from that.

In the end, what might concern them, which is a legitimate concern, they are concerned that the merger will represent an increase in our power to compete, that we will lower the prices and benefit consumers all over Brazil, raising the bar of the market. That is what is behind the claims presented by the third party. Thank you very much for the opportunity of bringing you these updates. Now we are going to our Q&A session. We will start our Q&A session. If you wish to ask a question, just click on the Q&A icon at the bottom of the screen. Write your name, company, and language to enter the queue. When your name is called, you will receive a request to activate your microphone. To send a written question, you can also use the Q&A icon, and please say your name and company.

Our first question comes from Danny Ager from XP. Hi, everyone. Good morning. Thank you for taking my question, and congratulations on the results. I have a couple of questions. The first one being, perhaps Sergio already talked about what you could do in terms of the greater competition that you’re being observing in marketplaces. Perhaps you could talk more about other initiatives that are already implemented that do not depend so much on the approval. Perhaps negotiations with the industries. For example, we see in other segments that because prices are more aggressive or lower online, this is also driving them to change negotiations with the industry. If you could give us some updates and information about the initiatives that are being done besides the merger. The second question is about the private label potential.

This was certainly a positive highlight for the quarter, but it still seems that you have a lot of room to grow. I just wanted to understand how you see this future. I think it was. In a past results call, we asked about performance between categories, if perhaps one category is gaining more share or fulfilling more of the potential, maybe the dry pet food. I think we would like an update on that. A third question about capital structure. There is a big discussion about anticipating dividends because of the possible tax. I do not know if you have that possibility because of the deal, but I just wanted to understand if this is a strategy that you are considering. Danny, thank you. Thank you for your questions. If I may. Before I answer you.

Just one more piece of data that I would like to share with you. I forgot to mention that. Just wanted to remind you all that when the merge is confirmed, we are going to have two-three weeks maximum to truly conclude the deal after the final ruling. Every holder of one Petz share will receive one share from the new company, which will be traded at the same price from the last Petz price, plus approximately BRL 0.70 for each share owned. For example, if you’re paying today BRL 3.8 in one share, if it’s BRL 3.8 in January 1st, which is when this change is supposed to happen, you will receive one share quoted at the same price, BRL 3.8, plus BRL 0.70 in cash because of the deal. Okay? Now, answering the three questions that you raised, Danny. First, on the competition.

You talked about, you asked about other initiatives that are not deal dependent. In reality, this is what we have been doing all the time. I mean, actually, yesterday, I had a meeting with the suppliers, and we are constantly monitoring this market. Because when we talk about competitions from marketplace, there are different layers of this competition. We have the legal part of the competition, which is actually the illegal part, which is the competition against fake products, stolen products, products that are sold without an invoice. This is, of course, unfair competition. This is one of our biggest focuses because it’s unimaginable, unimaginable that we are still living in this scenario and our marketplaces are not being penalized for selling these types of products. That’s one part of the thing. The other part is the competition that is playing by the rules.

Of course, there’s nothing legally wrong with that. This competition plays by the rules. That’s when we need to cut costs, improve our efficiency, and ask support from our suppliers so they understand that when they launch a product, they won’t be able to launch it in a digital platform because you need a human in the loop for that. It’s important to value the work of veterinarians, the work of the stores and the store employees because they help build brand. If you think about it, these platforms sell and compete very aggressively, but using what we build in terms of brand in the physical world. If the brands simply go to the marketplaces without doing this branding process, whenever industries launch new products, they will face big challenges.

That is one of our main arguments that we use and one of our main initiatives to try to mitigate this increase in the competitiveness pressure that is not dependent on the deal. Of course, the deal will lead to a more significant cost reduction, which will give us a lot of breadth to better compete against the platforms. On the question about private label, the results are great and pretty much in all categories that we sell. Speaking of the potential for private label products, currently, we have about 12.5% or 13% of share. Our better estimate is that we can get to 20% of share of private labels. Of course, eventually, there will be a cap, especially because super premium dog foods, those products that are prescribed by veterinarians, they have a very high reputation in the market.

Traditionally, consumers who buy these products are extremely loyal to the brands, and we totally understand that scenario. Hardly ever will we be able to tackle that market more directly. We will focus more on accessories and on hygiene and cleaning products and on pet food products that are not so dependent on brand. Now, on your third question, which is about the dividends. You’re absolutely right. We have been following, especially with the approval in the Senate this week on the income tax project. This is not really a relevant discussion for us right now because we still are awaiting the final ruling from the CADE. Because the result will be announced still this year, we will have plenty of time to make the decision.

We do not know if the decision will be made only by ourselves or in combination with Cobasi, but of course, a decision will be made. Again, regardless of the deal, the distribution of 25% of minimum dividends is guaranteed. The next question is from Luca Biazi from UBS. Good morning, Sergio. Good morning, Aline. Thank you for taking my question. I have two on my side. First, just a follow-up about the competition, but focusing on pharmacy. I think it will be great for you to comment when this competition or the stronger competition started in medication and the evolution of this process. We want to understand if this could be an additional source of pressure on the fourth quarter. Still on the same category, how do you plan on facing this competition? Do you plan on lowering prices or any other strategy?

My second question is about the pet inflation rate. If you could share with us the pet inflation rate for the third quarter. Also, perhaps if you could comment on this trade-off of growing volume versus margin gains. Thank you. Luca, thank you for all three questions. Regarding the competition on the medication category, you are absolutely right. This was the chosen focus by some of the platforms to enter the pet market, and we know exactly the reason for that. These products have a high added value, and this is an opportunity for the platforms to become more competitive. It is only natural for this movement to take place. As we started to notice that we were losing market, and one of the sources of this loss was actually on the medication, that led to our reaction, of course.

This is what explains some changes in the margins that are expected in the fourth quarter. That is why I say that the results in the third quarter were appropriate in terms of margin, but we cannot imagine that there will be a margin gain. Quite the opposite. There will be a pressure on the margins in the fourth quarter. We still see this pressure happening because the competition only keeps on coming. We need, of course, to react accordingly. Sometimes you need to react even before you can cut all costs possible for a very simple reason. You cannot be out of the growth game. That leads me to your third question, actually, which is about this trade-off between volume and margin. We cannot grow at any cost. Meaning we cannot kill our margins.

On the other hand, we cannot keep margins at any cost, which would be losing our relevance in the market, which is what we saw in 2024-2025. This would be a mistake because margins without sales come from irrelevant retailers. A retailer with 260 stores and not growing because every year we have increased rental costs, energy costs, wage costs. If we do not grow at a minimally acceptable level or at least above this inflation, we are put in a very difficult position. This trade-off is more of a balance for us between the minimum growth that we need to achieve. This minimum growth is varying between a high single digit or low double digit. That is the minimum level of growth that we need to have. From that point on, we can see how we can improve our profitability.

What determines this balance is the level of competition, which, like I’ve said before, has only increased in the past two years. We do not see any cooling down in the competition landscape in 2026. This competition is not coming from traditional retailers. It comes mostly from the growth in the digital platforms and marketplaces. In any possible scenarios, these platforms will not lose relevance in 2026. Quite the opposite. That is why we are extremely aware and focused on the deal and having that as soon as possible so we can start selling at better prices with the consumers without making our margins suffer because at net margins, they are already quite low. I’ll ask Aline to answer you on the pet inflation rate because I do not have the updated information with you. When we always look.

At the LTM perspective, so it’s around 4%, the pet inflation this year, year to date. You remember that. This last year, at the same time, we started to see some type of inflation, but right now we are at 4%. Just to add on Sergio’s comment on margin. One important thing is to remember that we started this initiative of being more aggressive in the medication pricing about mid-August. Obviously, in the fourth quarter, if the conditions still apply, we are going to see a whole quarter of that versus a previous quarter with a month and a half of this change. Just to give you more context on that. Super clear. Thank you. Thank you for your answers. That question comes from Ruben Couto from Santander. Good morning, Sergio. Good morning, Aline. Thank you. I have two questions, very quick questions on my side.

First, a quick question on the B2B Z-Dog channel. Internationally, it’s still quite impacted. Do you have any expectation of normalization in the short term? It doesn’t make sense to continue with this international effort. There are limited resources to implement it because it’s distribution. If you could give us more color on that. Sergio, considering everything that you said, and thank you for the very thorough explanation. On the changes in the market with small retailers going to marketplace, we also have the high interest rates, as you mentioned. The fact that they are competing on price, but to ensure a digital presence. Are you noticing any type of weaknesses from smaller players because of that? Maybe some closing or giving up on this strategy, perhaps a higher rate of closing because of this competition. For a company like you, this is hard.

Imagine for smaller players, perhaps in the first year, this is something that is sustainable, but in the second, third year, the scenario changes. Am I mistaken in believing that? How do you see that in the future? Thank you, Ruben. Thank you for the questions. All right, for your first question about the B2B in Z-Dog. We did a movement after acquiring Z-Dog, which in our opinion was quite assertive. We eliminated all the fixed costs. Because of that, all the revenue is quite profitable. So we cannot really mistake the fact that we might be selling less with that being something bad necessarily. Because we only have variable costs, regardless of the sales we have in global, it is okay. It still makes a lot of sense. Global is an important issue for creating brand awareness. We did this launch in partnership with Farm recently.

Also in partnership with Reebok. In the Reebok stores, we had the Z-Dog products in the Farm stores. Now we are expected to see the Z-Dog products in the Reebok stores as well, even in Japan. The Japan Reebok wants the Z-Dog products there. It is a strategic approach as well, keeping that partnership with big global players, which is a branding, a brand awareness thing. This is a desired brand, not only in Brazil. This is also a desired brand in other international markets as well. Obviously, that comes with challenges of operating in these other markets. Even without marketing investments, no fixed cost structure, the brand keeps its power. We are very comfortable with that first point, regardless of the budget issue. Talking about the competition question, I am going to say two things. You are both right and wrong. Because.

The individual perception is probably correct. If you’re going to compete without the right structure, just dropping the price without doing any type of calculation, all of a sudden they will discover this is not sustainable and they will leave the game because that will no longer make sense. That perception is absolutely correct. I would like to invite you to think about this in a different way. In the big picture, you have many more people entering the market than leaving it. That is why the pressure only increases. One person leaves, another one comes. It is an exchange. It is a constant exchange. More people are joining this market than leaving it. The competitive pressure in that sense is quite large. Part of this competition is unfair. It is important to highlight that. We need to.

Fight that with the support of the government and the legal system. Not only for the pet segment, for all different market segments that are suffering from that, and the legal part of this process. The pressure will continue from those individuals who are competitive here because they use this as a strategy, for example, to create volume. They improve their costs in the physical world because they are selling volume without making a dime in the digital world. This is happening and will continue to happen. In order to fight that, we need to become more competitive. The only way to be more competitive is by cutting costs. Sergio, if I may add on the B2B thing, we grew our international B2B for Z-Dog in 23%, way above the budget.

We started the year with a more focused channel because it’s a sell-in, sell-out dynamic. They buy it, they form stock, and if the year is more difficult, the speed of sale is slowed down. When we look at the percentage margin, what is left for us is a margin that is multiple times greater than the company’s margin because we can position Z-Dog at a much greater gross margin. It is definitely worth it. We have an excellent incremental EBITDA coming from our international operations. Of course, we’re very aware of the market movements because despite everything that Sergio mentioned, the collabs and the partnerships, retail as a whole in the world is investing more on private labels. We are not the only ones doing that.

We have our private labels that are quite strong here, and we observe that in some international partners as well. We used to be big clients and now are also trying to invest in their own private labels. We are always monitoring that, but it remains quite a profitable channel for us still. Thank you, Sergio. Thank you, Aline. Next question comes from Gustavo Fratini from Bank of America. Hi, everyone. Thank you. Thank you, Sergio. Thank you, Aline. Just a quick question. You mentioned that one of the biggest drivers for the expansion in gross margin was a bigger share of private label products. Can we imagine that pretty much the whole expansion came from this growth of private label products? What are the different categories’ performance? I just wanted to see how much this can contribute in the future. Gustavo, what we can say.

Would you like to go, Sergio? No, please, Aline. That is 70 basis points. Roughly speaking, we do not give you the details, but roughly speaking, we are talking about half. There is the physical and digital effect, like I mentioned before, the tax efficiencies, and a number of other minor elements. But roughly speaking, we are talking about 30-40 basis points from private label. Again, some categories that we received a lot of investment, for example, toys, 200 US KUs were launched. The Selections brand, pet food, we brought that to stores in the end of December last year. The categories that stood out the most were toys, the pet food. Like I have said, we are investing a lot on cat products. Cat foods that cats love. These are the big categories, but of course, without forgetting categories that have always been strong, like hygiene pets.

We acquired Petix in 2021, and today, 90% of the whole hygiene pet products that we sell, including diapers and other disposables, 90% of share comes from our Petix brands. We keep the consistency of the investments that we made in the past, about four years ago, but we also have new categories joining this market with this margin expansion that I mentioned. Super clear. Thank you. Next question comes from Emers Gars from Goldman Sachs. Good morning. Thank you for taking your question. Most of my questions have already been answered, but I have two more. I would like to understand how you see the macro demand moment, especially in the categories that are more sensitive to this issue. And perhaps whatever you can share to differentiate the store positions.

We have some stores that are slightly more premium in some regions where perhaps this is more sensitive. My second question is about, perhaps just a follow-up on this balance between channels and the competition coming from marketplaces on digital. We do not have a lot of data on market share to follow, so I’d like to hear your take and the researches that you do. How was the Petz market share development this year? Thank you. Thank you, Irma, for your questions. Okay. First, your question about demand. I’m going to answer this in two ways. The first one is with a focus on the sector. We continue to see the growth in population and information basically being shared about the advantages of feeding your pets with more quality products and applying anti-flea medication more often a year.

This is a process that is ongoing, and this is certainly what drives the growth, the sustainable growth of this market. Both in the past and in the future. In that sense, this is the sector’s own growth dynamic. I’ll talk about the retail segment as a whole. That benefits not only the pet segment, but all the different segments in retail, which is the approval that actually happened this week about the income tax bill. This money was removed little by little because governments did not correct the income tax rates, which certainly impacted purchasing power. Of course, not everything is being returned, but at least part of what was removed is being returned. It’s going to start January 1. Every formal employee that pays income tax will now have a different rate, and this mass of resources coming mostly from the middle class.

Is most likely going to return to consumption. Now, we’re going to see a reversal of the process that happened in the past. I see the year of 2026 in a very positive way when it comes to this increase in demand, especially because of the correction on the income tax rate. Again, the Congresswoman mentioned that the government has up to one year to correct this amount. This is very important. It’s very important for society to be aware of that because otherwise, in five years’ time, we will be once again discussing the same issue. It is needed for this tax exemptions or income tax exemptions to be corrected by the inflation since the revenue or the budget for the government is also automatically corrected by inflation. About your second question, about the digital growth, you’re absolutely right.

We do not have reliable data in the market about that. We find data just here and there. What I could say to you is that in general, in the years of 2024 and also this year in 2025, we lost share, especially in the digital channel. Our growth in digital certainly does not correspond to the digital growth that was observed for the whole pet segment. Precisely for that reason, and again, for the second time in a row, we are presenting a better quality result. In the second or third quarter, we had better results, but we are still not happy with these results. We are far from that, far from happy, because a retailer knows that changes in retail do not happen overnight, neither for the good or for the bad. If we are growing below the market rate, if you are growing below the online rate.

The future is concerning. We cannot ignore that information. What we are doing is exactly that. We are proposing this deal. We are waiting with a lot of patience for the whole process to go through, but at the same time, with a great deal of confidence that the answer will be full approval with no remedies. Again, all the questions that you are asking as analysts only corroborate what we said in the public consultation process and what the information that we share with the technical teams and what we are constantly discussing. There is a big competitive pressure coming from marketplaces, which is the digitalization of small retailers. We need to know how to address that because starting in 2026, we want to resume our growth to bring it back to healthy levels. Quite clear. Thank you, Sergio. Thank you.

Next question comes from Alexandre Namioca from Morgan Stanley. Boa tarde, pessoal. Good afternoon. Thank you for taking my question. I just wanted to go back to the performance between categories. Da sessãozinha do release sobre lucros. In your release, looking at the information on gross profit. You did not mention the positive impacts coming from accessories, and in the second quarter, you had mentioned this impact. I believe that since the second quarter of last year, you talked about recovery on sales performance for this category. I would like to understand if you do not see this growth going back to normal levels. The second question is, I just wanted to explore on the loyalty program. Aline mentioned that the number of subscribers doubled quarter versus quarter. Perhaps you could share us some other metrics on the recurrent level that subscribers have and the average ticket. And maybe.

Another interesting metric would be to understand the share that they have in your active users’ database. Thank you for the questions, Alexandre. O ponto que você traz sobre o crescimento de acessórios, você tem razão. You’re right about accessories. In the moment, we mentioned that accessories were standing out in our growth. Currently, this category is presenting a growth that is in line with company average. Of course, variations here and there between types of products, but a more in-line growth rate. The increase in share or the recovery of share is more stabilized in this moment. That is why we did not highlight that piece of information. Now, regarding the questions about the loyalty program, about share, average ticket, and recurrence. I’m sorry, Alexandre, I have to apologize to you right now, but naturally, isso cannot be disclosed. These are important differentiators for us.

We know this is a very positive movement, but of course, this is a public call, and we have 60,000-70,000 competitors watching us right now or at any other point in time since this is a recorded meeting. I apologize, but we cannot share any details on the different metrics for the loyalty club. Okay, but at least you see a higher recurrence rate between subscribers and non-subscribers, I imagine. Yes, naturally. O que fica. Até. Embora seja. Uma obviedade que eu vou colocar, mas... Anybody know this is going to sound obvious if we did not perceive this benefit, we either change it or delete it. Não. We just do not want to share the secret behind that. Okay? That is all. Thank you, Sergio. Thank you, Aline. A próxima pergunta vem de Nicolas Lahan. Next question comes from Nicolas Lahan from JP Morgan. Bom dia, boa tarde.

Good morning, good afternoon, Aline, Sergio, thank you for taking my question. Most of them have been answered, but perhaps. Como que você sente? I just wanted to get some color on the services and our focus for the fourth quarter. We saw a good recovery on the service segments, and I would like to understand what are you thinking about this recovery and the scenario for 2026? Nicolas, muito obrigado. Nicolas, thank you for your question. Services, more than ever. Embora serviço, a gente sempre entendeu que fosse importante. You know, we have always considered services to be important, but more than ever, services have become a strategic component for us, whether it’s grooming services or veterinarian services. It is essential for a reason. Again, everything we have mentioned about the competition against different players in the digital world.

If we see the significant increase in competition in the digital world, one of our strategies to deal with that level of competition is having our service network, serious as a benchmark for veterinary services in Brazil, and our grooming services as the place for consumers to find the better cost-benefit ratio for taking care of their pets. Now, what we try to do now is identify the best ways to compete in this market, which is still quite informal. This is really well known. Em algum estabelecimento que recebe uma nota fiscal. It’s very common for these services to be provided without invoices or tax receipts, something that is obviously not possible for a listed company. Of course, we collect all the taxes from our operations. We are considering how we or analyzing how we can compete in this market.

This is more another competition challenge, but certainly a strategic one for us. What I can say is that we see the service sector as a very important one for our growth. We need to grow services more than we grow products. That is essential because in the past few years, we focused a lot on our growth in products and opening stores, and now it is time to resume our growth or more expressive growth in services. Especially when you think of competitiveness and competing against this more informal market of the thousands of small pet shops in the market, one way to compete against that is our franchise project. We mentioned this in the release. This is an ongoing pilot project with a lot of opportunities to be rolled out next year because at the end, the franchise structure with a different tax system.

Makes it easier to improve the profitability of the segment. Just like we did for products, maybe become even more competitive in prices as well. That is a little bit of the mindset. We have two big initiatives ongoing, whether it is the franchisee model for grooming services and for our veterinarian health clinics. We are expecting to share more news about that next year. Also, our health insurance program, which is still in the beginning. We have not provided so many details in the presentation today, but the project is ongoing. Our health plan is focused on prevention. The beauty of our strategy is creating a link between both worlds through Clubs. If you buy a health insurance plan by Petz, you are already at the diamond Petz Club. If you are gold or silver, you have discounts.

We are focusing on the recurrence that we get from the Clubs, integrating this benefit for services as well. Thank you very much and congratulations. A sessão de perguntas e respostas. The Q&A session is now closed. Now we will hand the floor to Mr. Sergio Zimmerman for his final remarks. Bom, pessoal, muito obrigado. Good afternoon and thank you very much for having followed us this far. Like I said in the beginning, this is the last results call that we will have before the final ruling from the CADE. I would like to use this opportunity to reinforce our confidence in the decision. Tem todos os elementos técnicos para ser. The confidence that we have presented all the technical elements for a non-remedy approval. I also wanted to reinforce that we are extremely pleased with the technical level of the discussions brought by the CADE.

This is truly done in order to protect Brazilian consumers and protect healthy competition. I would like to close this call with a quote that was said during the public consultation hearing that can serve as food for thought for everyone. Because again, the more I have learned about the CADE, the more clear this became to me. The CADE is a regulatory authority that exists to protect competition and not competitors. I think this is the key takeaway from this whole process for me. Because we are not going to meet again this year, I would like to wish you all happy holidays. I hope 2026 is a year of a lot of health and prosperity. See you next year. Aline. É isso, gente. Boa tarde a todos. Good afternoon, everyone. Thank you for staying with us. Thank you.

The Petz Group conference call is now closed. Our investor relations department is available to take any further questions. Thank you for coming and have a great afternoon.

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