Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) Q3 2022 Earnings Call Transcript

Steven Zaccone: Okay. Great. Follow-up question just on farm and pet supply. Could you talk a little bit more detail about the early learnings from the concept? Maybe what’s the potential sales productivity of these boxes? How do we think about the four-wall profitability relative to your existing stores? And then relative to the six to seven openings by year-end, what’s an appropriate level of openings for 2023?

Ron Coughlin: Yes. Thanks for the question. We are fired up about the farm and neighborhood farm and pet supply. If you look at rural markets today, it’s roughly a $7 billion TAM. We have not had our fair share of that, and that TAM is growing rapidly. So, then there was a question, can we compete with our brand. We did the research, research is, absolutely, people are looking for a pet specialty player in these markets. Then we launched our first or second and now our third and the performance is ahead of our expectations proving that people are looking for that pet specialty player. I have cited before, what I heard in the aisle when I go to these locations is, well, I don’t have to drive an hour anymore to San Antonio to get my pet specialty products or I am so glad that I could get these products.

So, it’s very, very encouraging. As I said, we are going to get to seven or eight by the end of the year. We are in the process of finalizing capital allocations for 2023. But we would anticipate building out at a more rapid rate for 2023 because it is so promising. The other thing I would say is it extends our merchandise portfolio into these products. So, we are seeing some really nice sales in new products for chickens, new products for other breeds as well that adds to our portfolio.

Brian LaRose: The last thing I would add to you the great thing about these pet care centers is they turned positive in year one, which is a little bit anomalistic from the way we manage sort of a traditional pet care centers. So, that gives us a lot of positive momentum and the early signs from the three stores we have opened a promise.

Operator: Our next question comes from Seth Basham from Wedbush. Please go ahead.

Seth Basham: Thanks a lot and good morning. Since you brought it up, Ron, just regarding the near-term Black Friday and Cyber Monday periods, where you grew sales, you also mentioned that promo debt declined 300 basis points over this period. So, does that mean that merchandise gross profit dollar growth meaningfully increased year-over-year during this period?

Ron Coughlin: That would be dependent on mix. So, quite frankly, we have been here prepping for earnings. So, we haven’t dug into some of the mix dynamics there, but that would be dependent on mix. So, we are pleased with the sales that we generated. We are pleased with the response to our promotional activity. We are also pleased, by the way, with week-over-week our holiday merchandise sales have increased. But I think it’s premature to get into the mix of what we sold over Black Friday and Cyber Monday.

Brian LaRose: Yes. And I think I would say the other thing I had mention on promotions is €“ if you look at some of the promotions that we did, some of those were come back promotions, right. So, think about the ones that we did, you talked about $30 up $100 on, that is on your next visit into the pet care centers. So, some of the promotions that we did are not impactful from a gross margin standpoint around Black Friday, and they bring that customer back into our pet care center in the holiday season.