Kendall Toscano

Kendall Toscano asked for more details on the impact of tariffs in Q3, specifically regarding COGS impact and consumer elasticity in affected categories, and the expected Q4 impact. She also inquired about the anticipated tailwind on sales growth from the relaunch of the membership program.

Answer

Sabrina Simmons, Petco's Chief Financial Officer, clarified that Q3 was the first quarter with meaningful tariff impact on COGS, with Q4 expecting a slightly more significant but manageable headwind, primarily in private label supplies. Joel Anderson, Petco's Chief Executive Officer, confirmed the new membership program is on track, with live end-to-end testing underway in Q4, and a full rollout planned for 2026, which is a crucial element for growth.

Kendall Toscano asked about the impact of tariffs in Q3, specifically on COGS and consumer elasticity in affected categories, and expectations for Q4. She also inquired about the anticipated tailwind on same-store sales or services growth from the planned relaunch and pilot of the membership program.

Answer

Sabrina Simmons, Petco's Chief Financial Officer, clarified that Q3 was the first quarter with meaningful tariff impact on the P&L, with Q4 expected to be more meaningful but manageable, primarily affecting private label supplies. Joel Anderson, Petco's Chief Executive Officer, confirmed the new membership program is on track, with live end-to-end testing in Q4 and a full rollout in 2026, noting its importance for growth. Simmons added that the services segment continues to be a strategically important area of nice growth.

Kendall Toscano from Bank of America asked for a breakdown of the comparable sales performance between customer transactions and average unit retail (AUR) during the quarter. She also questioned what the largest remaining execution gaps are that need to be addressed before the company fully shifts into its Phase 3 growth strategy.

Answer

CFO Sabrina Simmons responded that while units per transaction (UPT) and basket size were pleasing, customer transactions remain the biggest opportunity for improvement. CEO Joel Anderson stated that rather than focusing on gaps, the strong progress to date gives them the confidence to begin reinvesting in the business. Simmons elaborated that future opportunities for margin expansion include sourcing, growing the pharmacy category, and rebuilding the supplies business.

Kendall Toscano from Bank of America asked for an update on Petco's high-level differentiation strategy and requested color on the breakdown of traffic versus pricing in the fourth quarter's comparable sales.

Answer

CEO Joel Anderson stated that he was not ready to discuss the differentiation strategy openly, as the company is currently in 'Phase 2,' focusing on execution and cost control, rather than 'Phase 3' growth initiatives. Regarding the comp drivers, CFO Sabrina Simmons noted that the company is using all available levers in a balanced way and did not provide a specific breakdown between traffic and price.

Kendall Toscano from BofA Securities inquired about the response from vendors to new negotiation efforts and asked for an updated timeline on resuming the rollout of new vet hospitals.

Answer

Executive Joel Anderson reported that vendor discussions were 'really well received,' emphasizing transparency and collaboration in building joint business plans. Regarding vet hospitals, he confirmed they remain a key growth driver. CFO Brian LaRose added that the recent pause in openings was a strategic move to strengthen the balance sheet, not a change in the long-term belief in the high-ROI project.

Kendall Toscano asked if the strong growth in the services business was also driven more by ticket than traffic. She also questioned the product category margins, noting the sequential decline in product gross margin, and asked for the outlook.

Answer

CFO Brian LaRose explained that growth in the vet business is driven by both transactions and basket size, as maturing hospitals ramp up capacity. For product margins, he attributed the year-over-year weakness to the mix shift away from higher-margin discretionary goods. The slight sequential change was due to mix within the mix, such as strength in fresh frozen products, which have a different margin profile but high lifetime value.

Kendall Toscano of Bank of America asked for a breakdown of growth within the services category and inquired about the reasons for the negative inflection in consumables sales during the quarter.

Answer

CFO Sabrina Simmons explained that the overall services growth rate was dampened by the temporary de-emphasis of the Vital Care membership program ahead of its relaunch, noting the core services business remains healthy. CEO Joel Anderson added that the softness in consumables was expected and resulted from a strategic reduction in 'empty calorie' promotions, which successfully improved the category's margin profile.

Kendall Toscano of Bank of America inquired about the slowdown in services growth, asking for specific callouts within the segment, and also questioned the negative inflection in the consumables category.

Answer

CFO Sabrina Simmons explained that the services growth rate was dragged down by the intentional de-emphasis of the Vital Care membership program ahead of its 2026 relaunch, and that the core services business remains healthy. CEO Joel Anderson added that the consumables performance was expected due to the timing of category resets and a reduction in 'empty calorie' promotions, which improved the margin profile.

Kendall Toscano of Bank of America inquired about the reasons for the slowdown in services growth and the factors contributing to the negative inflection in consumables sales during the quarter.

Answer

CFO Sabrina Simmons attributed the services slowdown to the intentional de-emphasis of the Vital Care membership program ahead of its 2026 relaunch. CEO Joel Anderson explained that the softness in consumables was expected and resulted from a strategic reduction of 'empty calorie' promotions, which in turn benefited the margin profile.

Kendall Toscano of Bank of America followed up on category growth, asking for details on the slowdown in services growth and the factors contributing to the negative inflection in the consumables category during the quarter.

Answer

CFO Sabrina Simmons explained that the services growth rate was impacted by the de-emphasis of the Vital Care membership program ahead of its relaunch, which created a drag on the segment. CEO Joel Anderson added that the core services business remains healthy and is strengthening. Regarding consumables, Anderson stated the decline was expected as the company eliminated "empty calorie" promotions, which successfully improved the category's margin profile.

Kendall Toscano of Bank of America asked for details on the services category, noting its growth had slowed, and also inquired about the negative sales inflection in the consumables category during the quarter.

Answer

CFO Sabrina Simmons explained that the overall services growth figure was dragged down by the intentional de-emphasis of the Vital Care membership program ahead of its 2026 relaunch, and that the core services business remains healthy. CEO Joel Anderson added that the softness in consumables was expected due to a reduction in 'empty calorie' promotions, which positively impacted the margin profile.

Kendall Toscano of Bank of America questioned the slowdown in services growth to 1% year-over-year, asking for specific business callouts within the segment. She also asked if the negative inflection in consumables was expected and what drove the softness.

Answer

CFO Sabrina Simmons explained that the services growth rate was impacted by the de-emphasis of the Vital Care membership program ahead of its 2026 relaunch, and that the core services business remains healthy. CEO Joel Anderson added that the consumables performance was in line with expectations, partly due to a self-induced cleanup of 'empty calorie' promotions, and that the company is pleased with the resulting margin profile.

Kendall Toscano, on for Robbie Ohmes, asked about the current level of grocery and pharmacy cross-shopping and whether the high pharmacy growth rate might be nearing normalization.

Answer

CEO Susan Morris emphasized that cross-shopping is pivotal and that the company is well-positioned to capture share as competitor pharmacy locations close, creating a competitive moat. She sees continued opportunity, not normalization, driven by acquiring scripts and hiring pharmacists. President & CFO Sharon McCollam added that digital integration, like combining prescription and grocery pickup, is creating further linkage and incremental opportunity for this valuable customer segment.

Kendall Toscano, on for Robbie Ohmes, asked if Sprouts was seeing any pricing actions from peers in anticipation of tariffs. She also requested more color on the specific categories driving supply constraints and whether the associated gross margin benefit would continue into Q2.

Answer

President and COO Nick Konat and CFO Curtis Valentine confirmed they are not seeing any preemptive pricing actions from competitors related to tariffs. Valentine explained that supply constraints were driven by the meat category's self-distribution transition, avian flu impacting eggs, and generally chasing inventory due to strong sales. He noted the meat transition issue is largely resolved and that some of the margin benefit might leak into Q2, but the focus is on getting back in stock.