Hey, everyone. Going to get started. Good afternoon. Thank you for joining us. It is my pleasure to introduce Petco and moderate our fireside chat. Today we have with us Joel Anderson, Chief Executive Officer, and Sabrina Simmons, Chief Financial Officer. Thank you for joining us today. Thank you, Kate. I feel like you guys have so much going on, and it is kind of fun being here a year later, because you came last year, and you were still in your phase I, entering phase II last year, and now we are fully into phase III of your new strategy. Yes. I thought we could maybe start there, just now that you are in the Reach for the Sky, phase III, shifting from cost cutting to driving top line growth, what are some early signs that you are seeing that is allowing you to get more confidence in the story? Well, I would start by saying I would be remiss if my person next to me didn't remind me that phase II never goes away. That is right. You are always focused on efficiency and getting better there. It is much more fun to talk about phase III, right? Getting back to growth, right? We call it Reach for the Sky. I think so much of our growth, Kate, was really trying to figure out how is Petco different? How do we differentiate ourselves? Through that, four pillars emerged, and behind that, several building blocks. While we are still in the very early innings of it is nice to now have reported two quarters in a row of positive comps. Doing so with healthy margins. I feel like we are a really nice balance and making a lot of good progress on it. Talking about the differentiation, the pet space is so fragmented still, I feel like. Maybe could you walk us through, you have the four pillars, but maybe in terms of as you discover things along the way, what do you think is some of the key parts of the differentiation of Petco versus everyone else? Yeah. We will start with that we have services. What is unique about our services is that they are wholly owned, so grooming, hospitals, they are all part of Petco. I think one of the mistakes we made in the past was that we kind of ran them separately. One of the things we have uncovered is bringing it all together one Petco way. That really allows our groomers now to see what product they are buying or for our veterinarians to recommend product. That is just one example, but it is an example of it is a point of differentiation we were not taking advantage of. You look at our companion animal business, we are the only national retailer that does saltwater fish, as an example. So we have got a real big focus on differentiation, both in the services side and the product side. Those are just a couple of real good examples. Yeah. I know when you first came into the role, you were very excited about vet and services in general, because at a minimum, it is a traffic driver. Right. So maybe what are some of the improvements you have made in those services in particular? Maybe leave vet for a little bit later. Okay. But on the grooming and training side. One of them was what I was just alluding to, and it was, in some ways, just a technology unlock. That was really arming our groomers with more information. Up until a few months ago, they couldn't even see what food that the pets they were grooming were buying. They might uncover itchy skin or something wrong with the coat, and now they can actually see what food they're feeding their dog or cat and they can recommend, "You might want to try this instead of that." That's just an example of really trying to be bigger and fully serve our customer in a greater way than we have in the past. In that vein, I think getting much better at enabling our customers ease of use to make appointments. Yeah. Reminders. We weren't doing any of that a year ago, and we're still pretty early in the journey of using the data to actually enable ease of appointment and more frequency and visits. Yeah, you go on the app now and services are right there front and center. You can make all your appointments there much easier than you could before. It's that whole unlock to making it easier to interact with Petco in many different ways. Great. That's great. I think one thing that we get a lot of questions on is just what is happening in the pet space in general. Not the competitive stuff, but just the industry. I think the trend that seems to be emerging is growth in cat adoption, maybe flattish dog adoption, or maybe still down a little bit. We wanted to talk through that a little bit. Okay. How you think if this were to be more of a secular trend where you do see more growth in cat versus dog, is there a different lifetime value associated with that, and how do you manage that? Yeah, you got it pretty right. Pretty close to right. Dog adoption is down a little bit this year, and cat adoption's up. I think any great retailer and especially specialty retailer, you've got to be really good at uncovering trends. Even within dog, while it's down in terms of adoption, one of the trends in dog is premiumization, fresh and frozen. We talked a lot about on our last call, the rollout of Hill's in quarter three here, all the freezers we added in the first half of the year that'll now support new products. I think even when there's a down area, you still got to look for the bright spots within that. As it relates to cat, yeah, that is growing, and it's an area where kittens for the first time have passed puppy households, new puppies versus new kittens. It is an area we have been leaning into for a while. And the merchant team has done a great job of tracing that trend. We are seeing a lot of adoption in treats and our new cat shop, candy shop, which has been great. So that is just a good example of us being really good at being better and nimbler about chasing new trends quicker. I think something that comes up, too, with regards to just the competitive set is just all the price investment. And I think this came up on your quarterly call, too, in terms of you have had these tariff refunds. There have been a couple of retailers out there talking about price investment. It can kind of go across the board, right? It might not all be in pet necessarily, but there does seem to be some more focus on that. So could you maybe talk a little bit about your pricing strategy, how you are managing promotions, what you are seeing in the environment when it comes to just price competitiveness? Well, there is probably not a week that goes by that Sabrina and I do not talk about price. Having said that, as a specialty retailer, price is important. It is important to our customer. We watch it every week. But it is not how we are going to win. So we have got to stay close on price, but it is not a winning strategy for us to go up against Amazon and Walmart and try and lead our way through price. We believe at Petco, through differentiated product, integrated services, the knowledge our pet partners, our store partners have, that is how we are going to win. And so as long as we stay competitive in price, it is those other areas that are the points of differentiation for us. Mm-hmm. Yeah. I think, along with the price from a competitive standpoint, speed is the other piece. I know Petco has always had a very robust omni-channel strategy. Again, digitally, it sounds like there's been a lot of improvement there. Could you maybe walk us through what you've brought to the omni-channel strategy, how that has changed? How do you compete on speed Yeah when it comes to more of the consumables piece of the business? Well, it's important that specifically when we talk about that pillar, Kate, we call it integrated omni-channel, and we're intentional on that because from an NSBAC perspective, somebody that shops us both center store, services, and online is five times the NSBAC for us. As we've uncovered that, we've known we had to make our omni-channel capabilities more robust. While we improved a lot of profitability last year, Autoship's a big piece of it now. Our in-stock on Autoship is approaching 100%, meaning somebody's really counting on that Autoship order, we've got to deliver it on time. We've added BOPUS capabilities, so you can now have your Autoship sent to the store. That's something that's a point of differentiation from a pure play, and if you think about it, you're sending fresh food, or you live somewhere where you're not going to be home when it's coming in. Having that convenience of picking it up at our store on your time frame is a real point of differentiation. We're adding in all the omni-channel capabilities, but it's really about unlocking bigger NSBAC for our customer. That's really where the focus has been. That's great. Would you say there was any friction on the Autoship side of things as you've gotten that to be a bigger percentage of your revenues? What have you improved there, and where do you see that going? Well, let's start with, we changed the name to Autoship. Yep. That's really being relevant to where the industry is. That's become an industry name, and that alone has really changed the perception of the customer. "Oh, I didn't know you offered Autoship." There's that piece of it. We've improved the speed. We do a lot of our Autoship fulfillment from the stores so that we can get it to the customer quickly. Then we've improved in-stocks. I think that's something we really learned was really an important concern of the customer is the reliability that my monthly or bi-monthly order is always there on time and is in stock. So those are some of the big pieces of it. Unlocking the friction, improving the customer service has been another piece of it. I don't know if I left anything else out. Well, I would just add that the really exciting thing is that we did all the cleanup, especially online last year, and we're seeing really healthy regrowth in that channel, but at great margins. Much healthier. The plan that we set the journey on last year to execute is working. In other words, we're regrowing that business but with much healthier margins. Great. That's great. Maybe if we could just go back to the stores. I jumped to digital. Yeah. With stores, I think you're still expecting to close 15- 20 stores this year as part of your optimization strategy. Can you maybe talk to us a little bit about where we go beyond this year? Are there still stores that you're looking at to close? Are these stores that you're closing unprofitable? And just how much has it contributed, maybe, to the improvement that you've seen so far with a healthier store base? Yeah. I think our fleet overall is in a very healthy, great position overall. Some of the closures we're doing is what you would expect naturally is cropping on a 1,500 store fleet, just cropping some of the underperformers, which occur in retail over time naturally, as some locations become less trafficked than others. We look to relocate or in some cases close those stores. But again, I think the fleet overall is in a very healthy position. We're really focused on, over time, hopefully the net becomes a net positive. But the foremost focus area is really in improving sales per square foot and productivity and comp. I think we're well on our way on that path with the two quarters of positive comp and focusing on all of our operational improvements and all of the four pillar work with assortment, et cetera, that's going to drive sales improvement inside that box. Great. Joel, you had mentioned that you are testing a seven-store prototype that's shown great results in sales and margins. I know it's very early days, but there's been a lot of curiosity about what those stores look like, what you're seeing- Yeah -out of those stores, and then how you're thinking about the rollout or potential rollout one day. Well, if I piggyback on what Sabrina was just talking about, as about half of our fleet comes up for renewal in the next three years, one of the options is certainly closing, and that number's getting less and less. But we also are looking at relocating. And when you relocate, you want to move forward with your newest and best thinking. And I think any specialty retailer or any physical brick and mortar retailer, the physical environment's really important. We've been doing a lot of experimenting on a new prototype, and we're really pleased with the results we're seeing. The NPS scores have improved dramatically. The average order size is up, transactions are up. So we're reactivating customers in the market. We've done a much better job on impulse in the market. But at the same time, when you're doing remodels, you want to make sure you get it right before you go deploy that capital. We're going to be very disciplined in that. You get economies of scale when you start a rollout. But one of the other benefits you get from a new prototype is you get learnings that can be deployed throughout the rest of the chain that might not even be capital intensive. Little nuggets of gold there that you want to deploy out. So we're really pleased with it. It's really early. Eventually, it'll lead to a remodel strategy. But we're going to make sure we get it right before we roll with it. But early results have been really good. We're going to test a few more stores this year still. And some other standalone markets to make sure we're getting the right reads, but early results are good, Kate. Great. That is great. The size of the store, is it pretty comparable. Pretty comparable. Yep. Okay. We did not change the footprint. We used a pretty steady market that represents the fleet. Yeah. But yeah, no change in size at all. Okay. 50% up for renewal. I know Sabrina just mentioned that. That's a big number in terms of the next three years. How are you thinking about relocations again? Are you looking for similar size real estate? Are you looking to really drastically change anything when relocating? I think we bring that up, and please add in Sabrina, more of just to give everyone confidence, we have flexibility. And so that just gives us the opportunity that when you've been in a market, DMA or a spot for 10 years, 15, sometimes the centroid moves. Yeah. That flexibility, you still might want to be in that spot, but it might be a mile down the road or a half mile down the road or a different center. We just have a lot of flexibility without having to break leases or do anything that is pretty episodic. It will be a very smooth transition over time, and it might be a remodel, it might actually be going back to the landlord for some TA money to help us in the remodel. There is just a lot of flexibility going forward. Yeah, I think we have been really successful in having those opportunities. Yeah To open up a conversation around negotiation. We have done pretty well in the last couple of years together regarding rent and how we are renewing and making sure we are getting really good fair rents for the location and the traffic, et cetera, and getting that equation. As everyone in retail knows, so much of the equation is about rent. The team has done a great job, I think, of really using the opportunities that we have with the renewals to have those conversations and right-size that. Yeah. Petco is a differentiated player in a strip center, and people forget, it brings a lot of families. The landlords like having us as part of it, so that, to Sabrina's point, gives us some leverage. That's great. Back to services again. I know I said we maybe would set veterinary aside. Yep. You have the wholly owned vet hospital model, which I think is still around 300 locations. Yep. It's a pretty major differentiator as you mentioned, and you just posted double-digit growth in visits. I know you've looked at this as a crown jewel since you started, Joel. So can you maybe talk a little bit more about the challenges of the vet model? How you're thinking you can go beyond the 300 stores, what you need to see? Yep. Then we'll follow up. Yeah, look, I think it's less about the challenges and it's more about the opportunities we've uncovered. Obviously one of those was the point of differentiation, that they're all wholly owned by Petco. The other point was the employment opportunity, and I think, since COVID, if you're a new veterinarian coming out of vet school, you got to think twice about, do I want to take on all the capital expense and the debt of owning my own hospital, or is this a new alternative that Petco could offer to me? What we've really built is a nice labor model that we've got now full-time vets, part-time vets, shift vets that only want to do surgeries, vets that don't want to do surgeries, just see pets. That suite of offering, and there's 300 stores, you can move geographically, and we have opportunities across the country. Then we take care of all the financial side of it. You don't have to worry about paying your debt down and all that. It's a real nice alternative for a new vet to consider Petco. As opposed to doing it on their own. Between the labor model now being at scale, wholly owned, being differentiated, we also had to then unlock, for our vets, information about the other services in our store. What food the pets are using. All that's been unlocked now and we'll start to build upon that going forward, Kate. I think I would add to that, the beauty of where we sit right now is, as Joel said, we have these 300 vet hospitals, we have scale. But we have, within that 300, a really healthy runway ahead of us t o continue maturing those vet hospitals and actually improving the return. Without adding any capital, we just see a great runway to continue optimizing, mostly through what Joel said, matching the labor supply with the demand and really honing that. We have learned so much over just the last couple of years that we are applying to all of the stores, but these are lessons that we will take with us as we think about growing the fleet some more into the future. You did talk a lot about the labor supply, which sounds very healthy with all the flexibility that you give. What about the customer awareness and the brand awareness of the veterinary service? Is there any friction there that has to be corrected or fixed? No. Look, I think we always can improve awareness, right? A little bit of what Sabrina was saying is you got to match your labor demand with the number of appointments you need and that type of thing. But I think we are now at a scale enough that people are starting to know the vet offerings we have. There is certainly more we can do on awareness. We are starting to spend more on marketing on not only our vet services, but our grooming services as well. But that optimization is just continued upside we see in the services space. From a pharmaceutical standpoint, a pharmacy standpoint, can you remind us where you are in terms of what you offer and where that business can grow? Yeah, we've got a full script offering. In fact, I think that was one of our other unlocks with the vets is we were letting too many scripts go out the door not fulfilled by Petco. That's another change we've made in our keeping those scripts in-house for us. Not only is it important we do that for our top-line growth, but it actually is important for the customer because now our vets know what scripts their pets are getting. They're coming to see us for veterinarian services. They want to be able to check in on them and see what scripts they're using, as opposed if you let that go out the door to some other service provider, then you've lost contact with that. Right. It's another one that's really in an early phase. Yeah. I think we have a lot of opportunity there, and it should be margin accretive, and it's very customer friendly to fulfill all their needs so they walk out done with the appointment completely with the script as well. That's great. I wanted to make sure I asked about Petco Perks. Okay. Just because the recent relaunch sounds very exciting. I know there was a surge in redemptions that impacted Q2 sales a little bit, but sounds like that'll be a good thing in the long run. So just how will this more simplified program drive the repeat visits that you want to see? Are you anticipating, or have you quantified any comp lift associated with this specifically? Yeah, look, we needed to redo our membership program. Our old program was antiquated, had too much friction for not only our customers but for our store partners as well. Check the box, very successful there. It was hard to load points. Customers couldn't see what points they had. Our associates couldn't see it. So we improved all that. Branding's much better. It was called Vital Care, now it's called Petco Perks. Makes so much more sense. The real unlock of our membership program is the next phase, which is really about loyalty, right? It is about personalization. Now we can really see across all the ecosystem, what services are they using, what products are they buying, supplies. With Petco Perks now, we can reactivate old customers. We can incent grooming customers to buy food from us or food customers to use our vet services. You talked earlier about awareness of vet. Here is a great way to build that awareness. We know every customer that walks in a store that has a vet but hasn't used our vet services. Let's share that knowledge through our Petco Perks and entice them to use vet services. Really excited about where Petco Perks is, but as we've said a couple times, early innings to it. The real unlocks, the loyalty, and personalization part. Yeah. I think what's so impressive about your story is that you've really been able to make so many changes in a non-capital intensive way. Because you've had a good amount of debt that you've had to focus on, and you just recently made a voluntary $75 million debt payment in September, and you're getting closer to this 2x leverage target. What does that unlock eventually for you? Again, being able to make all these great changes without really having to spend. Now you have a little bit more flexibility. How should we think about that, the opportunity? Well, Sabrina deserves all the- She's amazing. -credit for... I know, I know. -getting our balance sheet back in order. Yeah. I'll let you talk a little bit. Yeah, I think the important point to make is that because of where we were at, the debt wasn't really a constrainer to investment because like we said, we had a lot of assets that we adopted on our balance sheet already that we've had the opportunity to optimize and get the return on. So it didn't require a large amount of capital. It still doesn't require a large amount of capital. So that's the good news, and we've been able to balance therefore by getting our economic model in shape, which is of course driving sales with healthy margins. Yep Leveraging SG&A, and having profit growth in excess of those sales, which generates a lot of cash flow. We've been able, with the excess cash, to pay down this $170 million in total within nine months. So we've gone from a 4.2x net debt to EBITDA just as we started 2025 to 2.8x today. We're making really fast progress toward our goal. I think that timing's really nice because when we get to our goal of two times, we'll have much more flexibility. We can start to discuss shareholder distributions, and with that cash-generating model and machine we will have built, we'll have more opportunity to invest in things that we will have fully tested by then, like our remodels and start to be able to roll them out. It's kind of been nice timing in terms of how we're making our progress. Yeah. No, it's been very impressive. Just in our last few minutes here, we're asking for questions of every company that joins us on-stage. Okay. Because you guys have so much going on, I didn't even really ask you about the health of the consumer, what you're seeing from the consumer. So the first question is just what are your expectations for the consumer environment in the second half of 2026 versus what you saw in the first half? Yeah. I mean, not surprising, the consumer is under a lot of stress, right? Gas prices have remained high. I think a lot of us thought the war would be over by now. I think as we've built in our guidance and the forecast, we haven't assumed anything significant improvement or worsening. I think it's a little bit, unfortunately, more of the same. Yeah. Our second question's on pricing. Yeah. Do you expect prices to be higher, lower, or the same in the second half of this year versus the first half? Yeah. As it relates to the pet industry, as I said earlier on, we watch price a lot. I would say it's been rational, and we expect it to kind of remain that the balance of this year. We'll see what happens going into next year, but I think for right now, we expect it to be pretty stable. Our third question is around margins. Do you expect to see more margin headwinds or tailwinds in 2027 versus 2026? Well, it's very early to be speculating on 2027. Especially for Petco, we talked to you a lot about it being a self-help year. Regardless of the macro side of margins, there are a lot of improvements we're making to margins ourselves. I'd call out specifically owned brands. That's an area we think we can grow and return back to growth, and that has a very different margin profile. I think that we're in a unique situation versus where the bigger macro is as it relates to margins, but we still believe we've got some areas to improve our margins. We'll be focused on continuing with this economic model that has worked with us, where we don't compromise sales for unhealthy margins, but we grow our sales with healthy margins and then leverage the SG&A, so we're going to do our best to continue on with that model. That's great. Maybe if I could just deviate and ask about owned brands because since you mentioned it, you have very strong brand awareness, I think. with your own brands. Is there anything that you're doing again, to kind of reintroduce it? Is there any kind of reformulation? Just how are you thinking about owned brands from here? Because it is- Yeah Pretty much integrated. To be honest, Kate, we had too many. The first thing we're doing is rationalizing our brands bringing it down to seven. A large segment of the smaller ones are going to be rebranded under Petco because as we've tested it, the Petco name really resonated strong, a stamp of approval, so to speak. Also, when you have that many different brands, you got to put marketing dollars into it. So this will make our marketing spend more efficient. As it relates to it, think of it as a rolling rollout over the next 12- 18 months. We're really excited about the owned brand strategy. The team's engaged, and our Well & Good, which is our grooming, owned brands, has already started to roll out, and we're seeing really good results from that initial rollout. So really pleased with the progress so far. Great. Our final rapid-fire question is on AI, which we have to ask about. Do you expect a significant increase in the efficiency or in the company's efficiency as a result of AI this year versus, I'm sorry, next year versus this year? Look, AI is important in everything we're doing. We're already starting to see efficiency, especially in customer service and chat and the involvement there. We expect to leverage AI as really part of our strategy going forward to really drive productivity, so I don't see it being a hockey stick change for us, but I definitely see it playing in 2027 more than it did 2026. Someone brought up, there's AI for efficiency, then there's the revenue generation part of AI. Is Petco anywhere near thinking about that piece of it? We're definitely thinking about it. I would say the adoption on it is still very much in the early innings of it. We've been experimenting with agentic, and we've been watching it, but the customer adoption to it is still very small as it relates to our space anyways. Right. Good. Well, thank you for joining us today. We appreciate all the time. Thanks, Kate. Thanks for having us. Appreciate it. Thank you. Thank you.