Q1 2022 Petco Health and Wellness Company Inc Earnings Call
[music].
Good morning, everyone and welcome to you Pekka is first quarter of 2022 earnings conference call.
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After todays present.
Please note todays conference call is being recorded at this time I'd like to turn the conference call over to Benjamin deal along that goes director of executive and business Communications Benjamin you may begin.
Good morning, everyone and thank you for joining Pepsico's first quarter 2022 earnings conference call.
In addition to the earnings release, there was a presentation and info graphic available to download on our website at IR.
Summarizing our first quarter 2022 results.
On the call with me today, Mr. Ron Coughlin, Heico's, Chairman and Chief Executive Officer, Mr. Brian The Rhodes <unk> Chief Financial Officer.
Few moments I would invite Ron and Brian to provide their perspective on <unk> financial and operating performance for the quarter and that outlook and priorities for the quarters and year ahead.
Before I begin I would like to remind you that on this call. We will make forward looking statements regarding our current plans beliefs and expectations, which are not guarantees of future performance and are subject to a number of risks and uncertainties and other factors that could cause actual results and events to differ materially from results and events contemplated by such forward.
Good looking statements.
These risks and uncertainties include those set out in our earnings release, and our filings with the Securities and Exchange Commission. These.
These forward looking statements are made only as of the date marks and except as required by law. We undertake no obligation to update or revise any of them, whether as a result of new information future events or otherwise.
In addition, today's presentation contains references to non-GAAP financial measures reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release, and our presentation as well as in our filings with the Securities and Exchange Commission.
And finally during the question and answer portion of today's call and to allow US time for questions from as many participants as possible we would be grateful if you could keep to one question and one follow up with that let me turn it over to Ron.
Good morning, everyone and welcome.
Given all the noise in the retail space I will start very simply.
That goes team executed we over delivered on topline with a 5% comp we over delivered on EBITDA growth with a positive spread between revenue and EBITDA growth.
Our guidance remains unchanged, we are comfortable with our inventory position.
And it aligns well with near term projected demand.
The mix shift towards more premium products continues.
The pet care and distribution center teams did an excellent job matching staffing costs with sales and that has continued into Q2.
For those of you joined us at our inaugural Investor Day in March you heard us outline our strategic vision to boldly redefine the future of pet parenting through a one of a kind end to end pet health and wellness ecosystem.
That includes differentiated services and merchandise delivered through an advantaged.
Retail threet, Idaho Omnichannel model.
You also talked about our confidence as operators to deliver whether in times of tailwind or headwinds.
Make no mistake about it petco has been.
And we will continue to be a growth company.
This is our 14th consecutive quarter of growth.
One was a quarter that not only reinforced our ability to drive growth.
But it also exemplifies the team's operational prowess and.
And importantly, once again, we delivered that performance with purpose.
Proving lives of pets pet parents, and our Petco partners for.
For the quarter, a resilient category, our advantaged model and the team's operational excellence translated into Comping last year's stimulus aided 28% comp with the 5% comp I shared earlier that generates an incredible two year comp of 33%.
First quarter revenue growth was 4% and growth has continued into Q2.
And our ability to generate leverage from our model delivered a positive spread to adjusted EBITDA with 5% EBITDA growth.
Gross profit was $608 million translating to a gross margin rate consistent with historical quarter to quarter seasonality of 41, two for the quarter.
The team's performance lapping unprecedented year ago comps, while navigating a stormy macro environment is.
It is truly exceptional.
It also speaks to the resilience of our core higher value customer.
Overall, we continue to grow our active customer base with almost 400000 net new customer adds in the quarter, representing a double digit growth year over year.
Pet care centers, where a significant customer acquisition engine with another double digit increase year over year, including strong growth in active veterinary and grooming customers.
Spend per customer increased sequentially and year over year with recurring revenue sales growing double digits, driven by programs like vital care repeat delivery and insurance.
High value multichannel customers also grew double digits year over year.
These results reflect the continued strength of our model and the resiliency of our customer. They also speak to the commitment of our incredible 28000 Petco partners ever.
Every day, our partners engage inform and guide pet parents to make the right choices for their pets. They.
They bring her in health and wellness philosophy per life.
Introducing pet parents to new products and sticky services, while driving repeat visits.
In fact last month Petco partners from across the country joined us in San Diego for our Epic Elite Achievers Award event.
Celebration and honored 200 partners, who have driven exceptional performance, while also exemplifying <unk> mission and values.
It was wonderful to reward and recognize these partners and to see firsthand their passion for delivering that.
Debt of Amazing Petcare fantastic business results, all while improving.
Moving our lives are the partners that work for Petco. These are the people that make petco special and I'm, So thankful to each and every partner across our pet care centers support centers and distribution centers for everything that they do.
We operate in an incredible and highly resilient category occur.
According to Nielsen in March April 2022 pet.
<unk> was the fastest growing category among the 30 categories that they track.
Let me repeat that.
<unk> was the fastest growing category.
<unk> tracks.
Pet category is positioned to grow even in todays challenging macroeconomic environment.
It is the embodiment of a defensive growth category why because for the pet category consumables or the equivalent of know eggs or bread and human stores and going to the vet and groomer is far down the list in terms of things that pet parents cut out of their routines and more and more people continue to love.
And spoil their pets.
Every single day of.
Of course in the near term, we like others will need to navigate rising supply chain commodity in gas costs and consumer inflationary pressures, particularly in discretionary categories.
The two things are equally certain first we will continue to leverage our unique integrated ecosystem and value proposition to get pet parents, what they want when they want it to ensure pets remain happy and healthy and we gained share of wallet.
And second we have a track record in core confidence around cost management and generating leverage in our model that we will flex through this cycle, while we continue to make strategic investments in areas like vet fresh frozen vital care and our people aimed at driving above market growth and deepening.
Our competitive moats.
Turning to the core elements of our business health and wellness services have extended the strong momentum we saw in 2021 with total services sales, including <unk> growing by 19% in Q1 and 83% on a two year basis.
Because of the economic installation of our services business and the team's ability to execute.
Our vet business in particular has experienced dramatic scaling we are gaining that share and we remain on track to deliver one of the fastest that hospital expansions the category has ever seen.
In the quarter, we celebrated the opening of our 200 full service hospital.
I remember just 18 months ago being at the ribbon cutting ceremony for our 100th opening in Encinitas, California.
We also averaged almost 1100 vetco clinics per week up 10% from year ago. In March we reached an agreement to purchase the remaining stake in our thrive joint venture, adding almost 100 full service veterinary hospitals into our own Vetco total care network and Consol.
<unk> all of our PCC veterinary hospitals under the Vetco brand name. The deal successfully closed earlier this month and I could not be more delighted to welcome the nearly 800 veterinary professionals to the Petco family.
And as we stated on the last earnings call. Our primary focus for Q1 and Q2 is the successful integration of the thrive hospitals and that is going very well, thus far we've achieved a 90% retention rate of thrive veterinary professionals ahead of our expectations.
This validates the compelling nature of our employee value proposition for veterinarians and vertex.
We are now at scale with over 3800 Vet service partners across our network. Additionally, we have a strategic pipeline for talent through a registered vet Tech education program that will advantage petco for years to come.
Last we see hiring tailwind as in times of past economic uncertainty veterinarians have migrated to the larger more secure industry players.
Yeah.
While we are primarily focused on integrating the thrive practices and professionals. We also opened four new owned hospitals during the quarter that pace will accelerate in Q2, and we expect to return to the roughly 70 per year pace in the back half of the year.
That hospital footprint today gives us significant scale and geographical reach and by the end of fiscal 2022, we are projecting to have locations in 48 states.
We also know that our veterinary professionals love working with US from a recent voice of the partner survey, we scored highly among our veterinary professionals demonstrating not only that our working model is an attractive proposition.
But also that Petco is now a destination for veterinary professionals.
And for <unk>, it's not just about scale and volume. It's also about the quality of care.
<unk> saw significant advances in care, including the addition of stuff Fanta and innovative canine mathstar cancer treatment. The addition of highly specialized blood product transfusion services, which are not a mainstay of traditional practices.
Think of various AI technologies, and the launch of auto Rx fulfillment to Petco Pharmacy E Commerce.
This is not only lifesaving work for pets, but an incredible testament to the leadership of our chief veterinarian, Dr. Whitney Miller and her team's commitment to advancing veterinary medicine and care.
Considering the scale and maturity of our offering in such a short time the power of <unk> unique step and repeat that expansion model and our commitment to advancing quality of care. It's clear we have a long runway in this non discretionary growth category of veterinary hospitals and clinics.
Las Vegas market is a Prime example, it was a pilot market for one vet that we launch in early 2019 today, we have six hospitals in Las Vegas offering the full spectrum of care, including holistic wellness preventative care dental four hospital surgery lab work and even highly specialized <unk>.
<unk>.
We even had a mouse that was recovering from a leg amputation. It does not get more specialized than that.
Our foothold in the Las Vegas market is creating tremendous value and enabling share gains all while providing exceptional care.
Is the type of growth that we're relentlessly focused on.
Overall customer satisfaction of our services also had a record levels with average scores over nine out of 10.
<unk> had a strong quarter and we've been able to pass along grooming supplier price increases without significant impact to guest satisfaction. We are poised for ongoing growth in grooming, we continue to add grooming professionals facilitated by our grooming training flywheel, which is spinning at a rate that is enabling us to help more trainees.
Than ever before become pet stylists. This ensures we have the capacity to keep pace with growing demand.
Turning now to merchandize consumables continue to outperform with sales growth of 15% year on year or 28% on a two year stack.
Clearly as a non discretionary category it continues to exhibit strength.
And the shift to more premium foods continued unabated, despite the macro environment and we have not seen a down trade dynamic.
We continue to gain premium super premium share.
And mix shifting to premium and Super premium crude helps us improve pet lives. It also deepens our competitive moats as many of these foods are either exclusive to petco or have limited channel footprints.
Notably owned brands Wholehearted, so fresh litter and our premium apparel brand ready all delivered double digit growth year over year. We ended the quarter was 71 ready shop in shops, we like the results, we're seeing and are targeting approximately 100 by the end of the fiscal year.
The consumer shift to the ultimate in premium.
Should I say Super premium food fresh frozen continued with strong double digit year over year growth just food for dogs maintained its upward trajectory complementing instincts double digit growth.
It is clear that our differentiated exclusive and artificial ingredients free brands continue to resonate deeply with the highest value pet parents, who over index at Petco, and who we're resolute in their commitment to feeding their pets the healthiest food they can.
In our pet care centers, our teams under Justin Tichy have been navigating evolving customer dynamics and an ever changing COVID-19 situation without losing sight of our northstar, providing a great customer experience.
Earlier this month, we receive feedback from our customer and our new model store in San Marcos, saying and I quote.
This location is literally everything I need from a new puppy, it's like a one stop shop for US health is food is treats is toys is bad we love it here and quote.
This pet care center with Veterinary hospital grooming and unique merchandise offerings is our end to end ecosystem in action and it is our amazing Petco partners inaction.
These are the difference makers that have helped us drive total brick and mortar comp growth for eight consecutive quarters correspondingly on average our pet care Center partners and center store saw a double digit percentage increase in average wage versus a year ago.
Testament to our principle that as the company does better.
<unk> do better this past quarter I visited partners in San Antonio Dallas, Nashville, Bethlehem Pittsburgh in New York.
And one of the Pittsburgh Pet care centers, a customer came in and she was looking overwhelmed our partner Nikola introduced yourself learned the customer was about to get her first puppy.
And needed help making the right choices not only win was Nicola able to help the customer make the right nutrition selections for her new Golden Doodle as well as learn how to set up a recurring delivery, but she was also able to advise on treats achieving toys and harness for a new pump.
Without a doubt Nikola created long term value face to face right. There in the pet care Center. This is not only an example of the care and attention our team brings but a practical example of our unique ability to build baskets with customers in the aisle.
From a talent standpoint, we continue to see an improving environment with a 11% year over year increase in our application rate and a robust pipeline to support our growth.
And were working feverishly to open our first small town rural location in June with more to follow in FY 'twenty two in our scale test.
We are excited with this opportunity to extend our physical footprint to address underserved high growth markets and bring more pets into our differentiated health and wellness ecosystem.
And of course, our lowest partnership is also progressing nicely with promising early results I visited the petco shop in shop in the lows of Alamo Ranch location I left fired up after seeing how great. The products look and lows how the teams are working together and their shared excitement.
Moving to digital.
Sales driven by repeat delivery mobile app customers focus and ship from store we're strong.
In Q1, we gained share with total digital sales up 11% or 32% on a two year basis.
Our digital customer spend is now up over 25% year over year outpacing our key online competitors latest results.
Our digital channels continue to show meaningful gross profit improvements driven by higher <unk> and improved operating efficiencies, including our recently renegotiated contract with door dash driving meaningfully lower fulfillment costs and buoyed by a significant marketing investment from them. We have also enjoyed strong demand.
Man for a digital AD platform with advertising spending more than doubling year over year.
Our ecosystem is winning and we're confident we'll continue to do so we have a unique ability to meet customer needs wherever and whenever they arise and we were able to leverage the structural advantages of our physical pet care center footprint to uniquely meet the needs of those who shop in an omnichannel manner. This also enables us to.
<unk> digital orders faster and in most cases for lower cost <unk>.
<unk> heard me say it before and you'll hear me say it again.
<unk> like this are what makes petco, a leader in the evolution to retail <unk>.
Turning to our customer acquisition engine, we continue to benefit from our world class marketing capabilities customer acquisition costs were down significantly year over year. Additionally, we increased our weekly active users on our app by over 60% year over year, introducing high value app customers.
To loyalty programs, facilitating efficiencies and decreasing cost per services appointment booking.
We've also launched new marketing campaigns to drive brand awareness, both ready and vital care received their first dedicated marketing campaigns, leveraging social media to target the highest value pet parents.
Investment from our vendor community also remains strong having grown over 100% over the past two years with incremental investment expected in full year 2022.
In Q1, we saw evidence of this with vendors leaning in with incremental investments behind our industry, leading personalized marketing engine onsite advertising and prominent experiences in our pet care centers.
And while it's too early to report the full impact of the ready campaign signs are promising and our high impact economics campaign was a significant driver in the acceleration of vital care sign ups, bringing our subscription total to over 220000.
Head of our objectives.
Our vital care members visit one five times more they spend one seven times more and they have three one times higher LTV and average customers. These vital care customers combined with our repeat delivery insurance and our box customers are driving a 48% year over year.
<unk> and recurring revenue customers sales dollars.
Memberships remain a critical lever for expanding our customer base, while providing pet parents with a tailored tool to generate value. We launched <unk> in March we introduced new benefits and made the membership more accessible.
Now, including Cats. It has also allowed us to capture new customers and build baskets more efficiently through attachments, such as food and cat litter.
Offerings like this in our grooming and nutrition perks now at almost one 4 million members are fundamentally changing the way people care for their pets health and wellness, while also keeping their wallets healthy which is particularly important in this inflationary environment.
Before I hand, it over to Brian I'd like to finish by focusing on purpose.
Getting with our Petco partners Q1 was truly a quarter of the Petco partner. In addition to our epic Achievers event in Q1, we celebrated diversity months with all seven of our partner resorts groups coming together to discuss how their unique identity show up in the workplace. The goal of this event was the showcase inclusive environment, we continue to.
Cultivate and allow partners the space to share their experiences over the last two years.
The importance of these groups for the well being and inclusion of our <unk> partners cannot be overstated, but they also connect as deeply with local communities in which we operate and Neuro example includes blackett Petco, who hosted a drive to acquire books by Bipack authors are featuring bypass characters diversify the bookshelves of commute.
The organizations serving youth.
In March our National support Center partners joined United by Blue for the trash bags and tail Wags cleanup campaign to celebrate Earth month by voluntary to cleanup dog Beach, where yummy and I like to go and the San Diego River mouth, and our partners in San Antonio a launch and Mentorship program with Big Brothers Big Sisters of South.
Texas.
And to further deliver against our purpose. We continue our quest to set the highest standards and responsible animal care as well as preserve the health of our planet and help our people thrive.
We're excited to share more details regarding our ESG initiatives and our upcoming 2021 sustainability report in June and are proud of our industry, leading achievements, so far including our standing commitment to increase our assortment of sustainable products to 50% by the end of 2025, strengthening our responsible sourcing management.
Systems to include on brand suppliers, and ESG risk assessments, and requiring all foreign suppliers conduct SM EDTA audits annually.
And together with Petco Love, we continue our mission to help save pet lives. We've now delivered over 724000 free vaccines to date to under resource communities towards our $1 billion commitment and partnership with Merck.
We also saved over 100000 pet locked in the quarter alone and reunited over 6000 pets, but theyre loving families through Petco Love lost.
This quarter together with Petco Love, we donated $1 million and assistance to organizations, helping pets and pet families affected by the war in.
In Ukraine.
And in March through a thorough and careful independent third party evaluation of the welfare wellbeing overall condition of all companion animals, we became the first pet retailer in history to be awarded the American Humane certified seal of approval something I am incredibly proud of.
As the world's largest certifier of animal welfare protecting more than 1 billion animals around the globe with the most recognized credible and respected humane programs. Their review complements <unk> already established stringent animal care policies and procedures designed to ensure animals feel loved happy come.
<unk> and secure every step of the way to their new families.
For our Q1 results demonstrate nothing else there.
So our ability to execute and deliver without sacrificing progress against our long term strategic roadmap for our purpose, making.
Make no mistake about it we say we're committed to delivering purpose driven performance.
We mean, it and with that let me hand, it over to our CFO Bryan the Roes.
Thanks, Ron.
As just mentioned at our Investor day in March we emphasized our commitment to operational excellence with a relentless focus on cost management, while making the appropriate long term investments in our business.
Investments that will deepen petco has relationship with our customers driving share of wallet and providing pet parents with the one stop shop, they want and need.
When I think about the first quarter, while we remain focused on driving performance every day, we are equally maintaining our commitment to making investment decisions with a long term perspective.
Not limiting our horizon two a month.
Season, a quarter or even a year, but thinking about how to position petco as the definitive leader in the pet health and wellness category.
Looking at the quarter, specifically, we delivered yet another strong quarter with comparable sales of 5% or 33% on a two year stack with particular strength in average basket trends.
And net revenue at 1.4 dollars 8 billion up 4% year over year.
Services grew 19% year over year in the quarter and 83% on a two year stack across the pet grooming and training.
Youll remember in our last earnings call, we outlined that supplies and companion animal will be lapping a stimulus driven elevated prior year comparable.
Like others, we have seen some softening in discretionary spend but our total merchandising mix remains incredibly strong and aggregate.
Momentum in consumables continued up 28% on a two year stack and 15% year over year.
<unk> in companion animal two year stack was 24%.
These figures reflect the dynamic cost and supply environment, which have remained pervasive throughout the year, while the macro environment remains unsettled. It's clear our team is executing extremely well and we were able to leverage our structural advantages versus our competitors, including the ability to offer both this same day delivery and ship from store.
<unk> by leveraging our pet care centers as micro distribution centers.
We have been building our execution on muscle for years, and we will continue to do so remaining agile and attuned to the environments in which we operate.
This is why as far back as the fall of last year, we saw inflationary pressures coming and launched programmatic cost initiatives to allow us to weather. These storms and maintain operating leverage while staying ahead of any consumer reaction to these pressures in the immediate and long term.
Moving down the P&L gross profit increased $11 million or 2% to $608 million.
Gross margin was 41, 2% down 102 basis points year over year at 80 basis points on a quarter over quarter basis.
This reduction was driven by a combination of mix and digital and services mix in consumables and supply chain and commodity costs.
SG&A as a percentage of revenue improved from 38, 8% in Q1 2021 to 37, 8% in Q1, 2022, improving 103 basis points, demonstrating the leverage across our model.
On an absolute basis, SG&A expense was $558 million up $8 million or one 5% from prior year as we remained adept and aligning all of our costs, including labor and continued to invest and sustain future growth through infrastructure and our people.
And while there will always be puts and takes in aggregate our network inventory levels remained well managed and in line with our topline growth on a unit basis.
Q1, adjusted EBITDA was $133 million, an increase of 5% from prior year outpacing revenue growth with an adjusted EBITDA margin of 9.0% against eight 9% in the prior year improving by nine basis points.
Q1, adjusted EPS remained consistent with the prior year at 17.
Based on 265 million weighted average fully diluted shares as well as our normalized effective tax rate of 26%.
We continue to have strong liquidity, ending the quarter with $630 million inclusive of $191 million cash and cash equivalents and $439 million of availability on our revolving credit facility.
Looking at cash flow, we generated strong cash from operations of $58 million and had $66 million in capital expenditures, which increased capex investment by 39% year over year as we continued to reinvest in future sustainable growth.
Beyond Capex in early May we closed on the purchase of our remaining stake in the thrive joint venture with a price of $35 million.
The ROI on the transaction alone is well above our hurdle rates with further upside over time and I am confident in the team's ability to execute as we fully integrate <unk> into our ecosystem.
Turning to guidance, we are maintaining our full year guidance with revenue of $6. One 5 billion to $6 two 5 billion adjusted.
Adjusted EBITDA between $630 million and $645 million and adjusted EPS between <unk> 97, and $1 per share based on $76 million of net interest expense.
While we typically do not guide to the quarter. There are a few things to keep in mind.
In light of the current operating environment, we do expect growth in consumables to outpace supplies and companion animals.
Concurrent with the closing of our thrive acquisition, we expect to incur a $15 million to $20 million of transaction and one time cost primarily in the second quarter.
We are anticipating impact on gross margin associated with private transaction related charges in the second quarter to be roughly 40 basis points.
And as a reminder, barring the anomalous 2020 year second quarter sales typically sit between flat to slightly up from the first quarter in line with expected seasonality and that in aggregate. We continue to operate in a challenging supply chain environment.
That said because of the strategic advantages, we have inherently built into our ecosystem and because our customers are typically higher spending we remain confident in our guidance in the mid to long term and remain committed to maintaining our strategic investments to deliver expected results for the full year and beyond including those set out in our long term framework.
To reiterate our priority is sustained profitable growth delivered through strong brands are differentiated model powered by our one of a kind of pet health wellness and ecosystem and our continued drive for operational excellence.
Our Q1 results demonstrate our ability to execute as promised and position us well to navigate the current environment.
Because of that I want to take this moment to thank our entire team for delivering a great quarter.
The trajectory, we're on simply wouldn't be possible if it wasn't for the relentless enthusiasm and attention to detail all of our partners deliver each and every day.
Thank you for your time and with that we'll move to questions.
Ladies and gentlemen at this time well begin the question and answer session.
Once again to ask a question you May press Star and then one if you will.
We are using a speaker phone would you ask that you. Please pick up the handset before pressing the keys to ensure the best sound quality.
The majority of your questions you May press Star two.
Our first question today comes from Peter Benedict from Baird. Please go ahead with your question.
Alright.
Hey, guys. Thank you for taking the question Brian I just.
I just wanted to ask you about.
How your focus for the P&L would evolve over the balance of the year if demand ends up coming in softer than you expected.
You've talked about the.
Programmatic expense.
Controls, but just curious if you guys would lean further into kind of pushing customer acquisition and for the top line.
Would you default to preserving profitability. That's just my first kind of a bigger picture question.
Yes, thanks for the question Peter.
I'll first start with the category Peter we've talked about this this is a resilient category and if you look back over time, even through recessionary environments. The category has remained relatively resilient through that through those <unk>.
Cycles, So strong category and we are operating in a environment, where we feel like we have a differentiated offering in that environment.
And specific to cost look we've been building execution muscle for eight years and will continue to do so.
You referenced back to what we talked about in analyst day, where we talked about programmatic cost efficiencies that we're driving out of the P&L.
Again, we've been doing this for years typically generate $20 million to $30 million, we saw inflation coming back in the fall and we kicked off.
Programmatic initiatives across areas like procurement spend management customer service supply chain I would say also with our vendors our chief merchant Amy College does a tremendous job of engaging with vendors on a variety of both cost and term initiatives to maximize benefits. The company help us manage the P&L and also gives us good visibility going into the back.
Half of the year as we saw these things come in.
Okay. That's helpful. And then just second question is just around the level of inflation not sure. If you could put maybe.
Maybe a little bit more.
Numbers to that what the impact was maybe in the first quarter, but how do you just see inflation.
Aiding your topline over the over the balance of the year. Thanks.
Yeah, I won't get into specifics on it either I will say obviously in place it did contribute to the comp for the quarter, but when we think about inflation impact on pricing in other areas, it's really not kind of a one size fits all answer.
As we think about inflation I mentioned, Amy does a good job managing the visibility with vendors. So that we see cost coming and we then take a step back and look at analytics on a SKU by SKU basis, as we think about pricing, we monitor the broader market, we balanced that our pricing actions against consumer demand and I would just say that the situation remains fluid.
And we remain focused on protecting our customers while optimizing margins. The other thing I would say Peter and thanks for the question. Ron is we have a unique dynamic in this industry. It's been for a decade and quite frankly, it's not changing here. It didn't change in Q1, and it's not changing hearing now and thats a shift towards more premium consumables.
That shift towards premium and Super premium has been here for about a decade. It's benefited us. It continued in Q1 and continuing into Q2, and so that is creating some price inflation that is not due to inflation, it's due to customer demand and the humanization trends Gen Z years of millennials.
Adopting more of the new pets.
Great. Thanks, so much guys I appreciate it.
Okay.
Our next question comes from Seth Basham from Wedbush. Please go ahead with your question.
Thanks, a lot and good morning, I'm, Brian I could just follow up on some of the commentary you provided regarding the second quarter are you, suggesting that comp should be in a 4% to 5% range based on what Youre seeing right now and as a follow up to that are you seeing more than expected pressure on the discretionary side of your business.
Yes, let me answer that two ways. So if you do the math of what we talked about was sequentially. Historically, if you ignore 2020, which was an anomalous year revenue Q1 to Q2 is flat to slightly up. So you can do the math on that and what that implies.
In terms of the category, Yes, we expect consumables to continue to outpace supplies and companion animal consumables Ron mentioned in his prepared remarks, that's a category that's fundamentally a staple it's not it's not very different than what milk or eggs are in a human environment. So we expect that category to remain strong.
<unk>, we have seen some softening in the discretionary categories as a for instance.
If youre going to get a new tennis ball for you Pat you may wait a little bit on that there are elements in the supplies category that are less discretionary but that would be the dynamic that I would call out.
Got it so the confidence in maintaining our full year guidance. Despite some incremental pressure on the discretionary side is driven by continued strength on the consumable side and the other trends that you spoke to.
This is Ron the thing I would add is you really have three tiers of product groupings. The first tier is consumables, which is staple not only a staple but I think can milk and eggs. You don't have an upgrade dynamic that we have in our business right people arent upgrading to higher end eggs or milk or maybe they are I don't know that.
Industry, but we have an upgrade dynamic within a strong stable category consumables, which helps buoy US number two in terms of services grooming and that isn't something that has a lot of discretionary impact it has slightly more than consumables, but it doesn't really have.
Discretionary impact and then you get to the <unk>.
Supply side that said about supplies, if you look at our ready brand.
Fashion forward brands it grew double digits in the quarter, so, but yes, that's the touring that we would have across our categories.
Understood. Thank you.
Thank you.
Our next question comes from Liz Suzuki from Bank of America. Please go ahead with your question.
Great. Thank you answer some of the broadline retailers that have reported this earnings season have talked about trade down in grocery and I thought I heard this in your prepared remarks, but can you just clarify whether you're seeing any consumer shift in food from better for best to better ore from better to date and have you ever seen a period in the company.
Prior recessions or economic downturn.
The answer is no next question, though just kidding list, but the answer is no we're not seeing trade down.
It's one of the.
The best attributes of this category is the continued premium position and we've talked about it for a while it is a category truth, which is why players like us benefit because some of the <unk>.
Rocher types don't have those premium brands number one number two you have this migration to fresh frozen sitting on top of the historic premium position of Kibble that category is supposed to go from one 5% to $4 billion to $5 billion. So that is a grab.
Gravitational pull upwards. So we're not seeing that and I think the ready example, and within supplies is a good one as well I mean that is significantly more expensive line, but people are paying for the fashion and paying for the functionality that that brand has so no we're not seeing the downgrade in our portfolio.
Okay.
Clarify that and then follow up just on E. Commerce have you seen customers shifting away from e-commerce at all and going more towards in store and doing some trip consolidation or just trying to avoid additional shipping costs.
This high inflationary environment.
Yes.
It's been it's been a.
Few years of consumers flowing across.
From e-commerce to brick and mortar and back again.
And so the great news is as an Omnichannel player and I think we shared the number before I think the latest number was 39% of customer shop in an omnichannel fashion. So we don't really look at our customers in a segmented fashion and we look at them across the enterprise.
We have seen strength in brick and mortar we have seen ship consolidation, we have seen strong baskets super strong baskets and.
The end result of that is higher efficiency for us if we have.
We have customers, having higher baskets, and that's a more efficient customer for us, but we are seeing relative strength brick and mortar versus E. Com, but we're pleased with our E com double digit growth for the quarter and as we said.
We grew double digit side, we grew share in the quarter on digital as well.
Great. Thanks very much.
Thank you.
Our next question comes from Zack <unk> from Wells Fargo. Please go ahead with your question.
Hey, good morning, So theyre spending some evidence that the mass channel has begun to take some share back from the specialty channels. So first question is what you think could be driving that and then to what extent your initiatives like vital care fresh frozen private label are sticky enough to keep your share gains building from here.
Yes.
We look at the categories, what we're focused on which is premium super premium, which is that which is digital and we continue to gain share in those spaces. So we're gaining share in the areas where we're focused.
And so we're happy with what we're seeing I would add on grooming theres a lot of noise in terms of openings and closing pre COVID-19. We were at $5 five today, we're over seven in terms of share.
So we're pleased with what we're seeing in terms of share gains where we're focused.
<unk>.
If you take about mass I mean, we don't we don't have a product that competes against the old boys of the world. We got out of artificial ingredients artificial flavors. So we don't have products that compete against those we're not focused on that so that's not really subcategories that we're focused on categories that we're focused on where the growth is where the profit is we're gaining share.
Got it and then for Brian .
At the gross margin line can you talk about the extent that pass through pricing is offsetting some of the mix and supply chain headwinds in your business and as we look to Q2. When you begin to lap some of the deeper mixed driven headwinds from a year ago are there reasons to believe we could start to see some relief at this line going.
<unk>.
Yes, let me start with the first question Zack we took pricing actions in the back half of last year, primarily and what we said at that time is that in aggregate. We did not see an impact on a unit basis and also that those pricing actions were largely offsetting those cost increases now I would also say when you think about cost incurred.
Do you need to think about it holistically. So I mentioned Amy call as our new Chief merchant. She does a great job working with vendors on total cost to serve so as we see cost coming in she has great relationships with them to get visibility into that she will look at that total cost to serve will work on terms of vendor funded ways to go to market together and we.
Look at that total bucket, sometimes that may mean pricing action, sometimes that mean, if you look at the total cost bucket a little bit differently.
In terms of gross margin I would say for Q2.
What I said on the call was that there are a couple of different dynamics in play going into Q2, we would expect consumables to remains strong which is a good thing the consumables customer.
High LTV long term valuable customer, we would expect that to remain strong into the second quarter. There also is a onetime 40 basis point impact to gross margin in Q2 associated with the thrive transactions those are onetime associated costs as part of the $15 million to $20 million that we called out, but primarily that will impact.
Q2.
Will that cost be adjusted out.
That piece of it yes.
Got it thanks for the time.
Thank you.
Our next question comes from Kate Mcshane from Goldman Sachs. Please go ahead with your question.
Hi, Good morning, Thanks for taking our question, we wanted to ask a little bit more about the renegotiated contract with door Dash you mentioned.
Our fulfillment cost is that with regards to the contractor just joined ash.
Relationship in general and can you talk about the composition of our fulfillment for your digital business as of Q1, where youre seeing the growth by the way both at our same day delivery and how the gross margin headwind from digital and maybe Damon.
Diminished.
And then options grow.
Yes, hey, thanks for the question.
In terms of the door dash contracted contractual lower rate and not just lower rates, but it also has a marketing.
Marketing component, where we get incremental marketing support so that's very good for us and it is contractual so it's structural.
All of all of our go to markets in terms of digital are growing if you look at.
What we say in terms of pet care center fulfillment that continues to be around 80%. So we continue to get faster to the customer lower costs than our digital competitors.
We see that leverage continuing to be a significant competitive advantage in terms of gross margin on digital I'll, let Bryan comments there, yes, we've seen expansion on gross margin in digital.
Quarter on quarter and year over year case.
If you look at where were driving that it's better baskets, it's better leverage from the fulfillment that we have so as Ron mentioned earlier as the customer dynamics change and you have fluidity between shopping online coming into brick and mortar trip consolidation. The great News is we're positioned well wherever the customer goes we have both have same deliberate delivery.
We have ship from store and we have traditional digital so it sets us up nicely and as Ron mentioned, 80% of our orders continue to be fulfilled through PCC is giving us great leverage.
Thank you.
Thanks Kate.
Our next question comes from Michael Lasser from UBS. Please go ahead with your question.
Good morning, Thanks, a lot for taking my question given what you experienced in the first quarter and your comments around the second quarter. It looks like Youll have to experience a meaningful acceleration in your same store sales growth in the back half of the year in order to get to the midpoint of your full year sales guidance.
It would drive that meaningful acceleration.
Yes, I can take that one Michael I mean, you have to look at the lapping dynamic. If you go back to Q1 last year right. We did a 5% comp this year on top of 28 last year. We know that last year was aided we called out 700 to 800 basis points of comp in Q1 last year. If you look at the comp Q1, Q2, Q3 Q4, each quarter last year.
At that comp was lower than the quarter before that so you have a last dynamic that's factoring into the math associated with what to expect for the balance of the year.
I would say is.
It's no secret that the at the category level supply is chasing demand.
And our vendors investments that they made when they saw the 11 million new pets in 2020 that I called the FERC annuity those investments are coming coming online I was in Kansas during the quarter and I saw honest kitchens, new new factory and it's great to see this new capacity coming online. So we would anticipate.
<unk> heightened.
Heightened or.
A narrowing of the gap between supply and demand.
As we progress through the year.
Thank you very much for that my follow up question is as supply and demand.
Demand comes closer together.
And perhaps the macroeconomic backdrop becomes a little weaker would you expect promotions to increase across the sector, especially as many are looking to grab those high volume most loyal consumers.
And that is where a lot of the promotional activity could be concentrated.
Yes, So let me start and then I'll pass over to Brian .
We are very lucky.
Roughly 70% of our products arent sold at the mass players aren't sold that the grocers. Many of our products are installed at our online competitor many of our products uneven so that some of our pet specialty competitors. So we have product installation that helps us on this front. The second thing is there is more.
Matt.
A lot of the product lines that have overlaps with those players. So our exposure to irrational promotions is much much lower than your average retailer and that helps us insulate things that said there continues to be a gap between supply and demand that has brought rationality.
So the market and we see that continuing.
For the next couple of quarters, but I'll pass it onto Brian to make further comments, yes, I would just add Michael that overall, we're not seeing the market is overly promotional it's remained really rational.
As we look to the balance of the year, we will continue to be very strategic on how we do employ promotions, we will use them to drive specific outcomes to drive things like loyalty program adoptions or other areas, where we see a large LP will treat it like.
We're much more interested in getting people into our perks programs and our vital care program that we are doing high low discounting and we don't have to because a lot of our product line is insulated from competitive standpoint.
Thank you very much.
Thank you.
Our next question comes from Oliver Winter mantle from Evercore ISI. Please go ahead with your question.
Yes. Good morning. Thank you. So my question is about the about the active customer growth and retention rates.
If you can maybe comment a little bit on the retention rates over over the last year year and a half.
And then secondly, where the active customer growth is coming from from from one from each segment.
We're pleased with the active customer growth as we said in terms of active customers were up double digit for the quarter.
And we are roughly double of pre pandemic levels in terms of our ads.
We're about 60%.
Head of our key online competitor in terms of the ads that they reported last quarter. So we're pleased with that 2020, one where unique years because of the all of the ads that happened in terms of number of pets in 2020 one while we continue to see heightened adoptions 2020, one we're unique and so it's natural.
Come off those numbers, but at 400000, Thats a pretty strong number.
And in terms of retention, we're really focused on driving programs like vital care focused on programs like our perks program, which now have over $1 4 million members to drive retention in our business.
Got it and to follow up would be on the leverage ratio, Brian has anything changed there since since the.
At the analyst day with the current environment or do you think still.
The leverage ratios going forward it down and then maybe in 2023, we could see some some buybacks.
Yes, Nothing's changed I think Thats, an easy one we're committed to our leverage target at one 9% exit 'twenty three.
Got it thanks, very much and good luck.
Thank you.
Our next question comes from Steven Zaccone from Citi. Please go ahead with your question.
Great. Good morning, Thanks for taking my question I wanted to follow up on the comment about discretionary softening.
Maybe how much of your business would you characterize as discretionary versus more staple like and then within consumables overall, how much of your assortment would you say is premium versus maybe more mass channel.
So let me start with.
Thanks for the question in terms of premium.
I would say the majority of our products are premium and.
Yes.
We gravitate towards those and we've had significant mix shift.
Towards that space.
Also extend that to surprise, where we are increasingly premium premium premium rising.
So we're not as far as we are on consumable side of the house.
In terms of.
The second yeah in terms of the overall split Stephen if you look in the earnings presentation, we breakout consumable supplies and services and that and I would say you take consumables services and that.
Those are non discretionary categories across the board and if you look at supplies and CA. It's a portion of that so largely our R. A T.
Assortment across product and services is non discretionary theres a component of that is discretionary of course.
I would add that we were seeing improvement as we head into Q2 on the suppliers.
Business.
Okay. That's helpful color there.
The other question I had is just just could you elaborate a little bit more on the vital care rollout, maybe how that's progressing thus far.
As you think about the customers that are kind of signing up like where are you seeing come from.
Okay.
We couldn't be happier with vital care.
We're ahead of our projections in terms of members when we launch vital care Trudeau, we added cat.
And we added enhanced benefits.
And that the sign up rate for vital care has improved since the launch of vital care <unk>, Idaho, we've accelerated which is just great to see.
As we said earlier the vital care members have one five times higher traffic, one seven times higher spend and generate three times higher LTV.
Sourcing customers, both from brick and mortar as well as digitally I will tell you.
I talked about all of the.
The markets that I visited last quarter in the <unk>.
Prior quarter as well.
Our partners in the pet care centers love talking about vital care, because they want to help.
Customers that shop, and vital care is a great way to provide value two to $300 of value for an average customer and so our partners in the pet care centers are signing people up left and right. They love This program, our groomers love it because it drives frequency.
Gives loyalty so we have a lot of excitement across our enterprise for vital care and that will continue and as we continue to drive enhancements and expansion of the program. We would only see further acceleration in there.
Great. Thanks for the detail.
Thank you.
And our next question comes from Andrew.
And driver from Needham. Please go ahead with your question.
Great. Thank you so much and good morning, guys.
Two quick ones from US I guess, you Ron I wanted to follow up on that you guys have done a really good job there, but are you seeing labor gets tighter at all lately are there any less expensive option.
In Nevada are popping up in the space and then secondly to Brian .
Really nice expense management during the quarter and you had talked about $20 million to $30 million in annual savings.
Looks like you're finding some additional opportunity.
For expense management can you talk about some of the buckets of savings for us and thank you so much.
Yes, So let me start broadly on labor and then get into the debt piece.
So we.
What we see is we've turned the corner on labor tightness.
And we see a labor market that we are able to operate and we're able to fill our fill our needs and our applications are up double digits. So we firmly believe we've turned the corner in terms of the tight labor market and the labor market dynamics have fundamentally changed to the better that's number one in terms of <unk>.
Let me start with the acquisition.
I am so thrilled at having over 90% of the thrive partners coming on <unk> that is just wonderful news. It was a concern in any type of transaction are you able to retain the talent and they've signed on which is just awesome and it shows the power of of our offering.
And how we've honed that experience inside petco and thanks to the team.
And Dr. Whitney for making sure that we do that.
In terms of hiring events the vet market is tight we.
Continue to operate at a faster time to fill than industry benchmarks and as we've said right now we're focused on making sure. We onboard all of those wonderful thrive that's in vertex, but we'll get back to our 70 per year pace in Q3, Q4 will pick up the pace from Q1 and Q2.
And we will continue to execute that's what we do on.
On your second part of your question and I'll pivot off of Ron's comments on labor one of the largest line items that we have in terms of cost of labor and just in tissue who runs. Our PCC is just did an exceptional job this quarter at aligning our labor costs.
Our revenue trajectory on a broader notion for that 20% to $33 million, it's across those areas that I talked about that the great news about.
Those programs that we have in place and it's not binary.
We drive those initiatives in environments, where we're growing double digits can we drive them in environments, where we grow 4% like we did in the first quarter, we take those savings we either reinvest in the business or we use them to offset cost inputs or dropped to the bottom line. So I'm proud of the way the team executed once again this quarter.
Alright.
I would add the only thing I missed in my commentary it was our vet Tech program. So we are taking center store partners.
100, we took we took we put 100 through already we have another 100 going through now and we help them with their education to become vet Tech. So think about it as I'm a baseball fan of minor leagues and we develop them and then they become full that text within our system and that is a competitive advantage that we have that others don't have.
Awesome. Thank you so much.
Thank you.
Our next question comes from Chris, particularly Arie from BNP Paribas. Please go ahead with your question.
Hey, guys. Thanks for taking the questions.
First of all I would like to ask about SG&A I think last year was a little bit lumpier kind of quarter on quarter throughout the year.
Given your guidance on sales for Q2 versus Q1 and kind of just normal seasonality can you give us a sense of how we should be taking up model yesterday throughout 2022.
Yes, I mean, im not going to get into specifics by quarter or anything Chris, but I would tell you that SG&A has components that are more fixed than some that are more variable.
You look at the investments that we continue to make we're going to continue to invest in our people. We're going to continue to make sure. We're investing into that build out we're going to continue to keep investing in our infrastructure. There are other areas that are part of our $20 to $30 million of annual efficiencies. We think about overall spend management procurement et cetera from a variability standpoint.
We look at things like marketing, where we continue to like the ROI on our marketing investments. There are years like last year, where you have a bit heavier upper funnel spend as we relaunched our TB.
<unk> TV campaign, and our brand platform. So we had more upper funnel versus lower funnel spend last year and that slipped back a little bit. This year, so puts and takes across the board. We're good at this we continue to execute and manage the overall envelope.
Okay. Thanks, and then the next question was just on transportation.
Some some good guys some bad guys with ocean freight contracts being renegotiated.
Fuel costs going up now and then positively it sounds like the kind of third parties truck spot rate markets kind of softening recently. So can you just help us think through like the net of all of that how do we think about supply chain pressure over the balance of the year relative to what you saw in Q1.
Yeah, I mean, let me start with I think the team did a great job this quarter, Chris managing through this we haven't seen.
These types of environments in a while and I thought the team managed through a very very well we do expect some of these headwinds to continue if rates if rates one of those areas I think the good news for US is we have a physical footprint that allows us to distribute digital orders through the <unk> that gives us enormous leverage versus pure online competitors, particularly in areas like fresh with.
Talk about this in the past is fresh continues to scale that is a huge advantage for us to deliver fresh product on same day delivery versus shifting from a D. C. I think the team remember remains focused on reducing the number of packages per online order and we remain confident in the tools in our arsenal to help offset some of that pressure.
Thank you.
Thank you.
Our next question comes from Steph Wissink from Jefferies. Please go ahead with your question.
Thank you for all the information everyone I just wanted to go back to a prior question on pricing and make sure. We're hearing you correctly.
Just help us think through how much pricing you've taken and then your inventory balance I think you quantified at unit growth in line with sales.
Does that give us some sense of what level of inflation is kind of yet to come through your pricing matrix. If you could just share with us a little bit about how much more pricing you expect to take that would be helpful.
Yeah, I won't get into forward looking on on pricing Stephanie for obvious reasons, but I will tell you that let.
Let me start with the inventory dynamic you heard US right. If you look at inventory on the balance sheet inventory dollars were up 19% year on year, we commented that units were.
Roughly in line with revenue. So you can do the math on that and by whats on the balance sheet in terms of pricing I wouldn't I wouldn't read into that that is pricing, we have yet to take because a lot of those cost inputs are already in the back if you look backwards for the last six to nine months those cost have been coming in had been impacting inventory we've taken pricing.
Actions against that largely there remain pockets and we manage this thing.
Holistically. So most the majority of those pricing actions have been taken in Q3 Q4, as we look to any further actions, we will weigh that against consumer demand. So we'll work with our vendors will go SKU by SKU, we'll do deep analytics will manage the demand environment, what consumers are looking for as well as our ability to control overall.
Cost to serve with our vendors.
Okay. That's helpful. My final question is on thrive and just wondering if it changes your thinking regarding de novo versus acquisitions. If the success you've seen there with retention and integration if it reshaped your view of the balance of your growth.
We like our strategy.
Thank you the evolution of our thinking was how much we like our own bet model and that's why I cited Las Vegas, because that was proven.
Proving it to ourselves that we could run and own that network not only do we like that we like when we have multiple vet hospitals in a city, we see an exponential return when we do that so we are dedicated to our own vet strategy, we will complement that with one and choosy.
That acquisitions that have been relatively successful that is the add on strategy that is not the core strategy. The core strategy is build out our step and repeat model of bringing hospitals, just food for dogs and ready store in stores in existing pet care centers, where we see not only the vet revenue, but the floor.
Five lift in center store that strategy works. There is hardly a retailer that has that type of step and repeat model that is inherent in our model.
And we like it we will supplement that with acquisitions opportunistically, but we've talked about 123 or four it's not a mass we don't like evaluations on the big networks in general.
Very clear thank you so much.
Thank you.
Our next question comes from Simeon Gutman from Morgan Stanley . Please go ahead with your question.
Hey, Hey, Ron Hey, Brian .
The 400000 net new customers do you quantify it doesn't matter what percentage of what contribution it was within the five comp versus I think you did say spend per pet was up I don't think you quantify it and how important or how.
I guess is that mix changing and is that something you pay attention to.
We did say that we had 400000 ads.
We did say that we our spend per customer was up.
And we're driving both.
In the I would say in the 2021 window. When you have this explosion of pets. We are primarily focused on ads because that was a.
Once in an industry opportunity to capture new customers and we got much more than our fair share. We are now taking a more balanced approach where we're both driving customer adds ahead of our pre pandemic levels as well as ahead of our online competitors levels.
But we're really driving share of wallet and driving spend per customer as well and I think we said on the earlier commentary double digit increase there, which is great. We really started focusing heavily on that three or four quarters ago, and we're seeing the fruit of that and the best example of that to me is vital care right where.
As we add vital care customers, 20% of them weren't buying food from a 30% werent buying one having services from us and so we're capturing that share of wallet and we'll continue to do that I think complementing that as these perks programs, where we now have $1 4 million members in our grooming.
And our food perks programs that are generating royalties. So we are in a much more balanced approach right now I think which is fitting with the market dynamics when pets, where explosion exploding we wanted to get more than our fair share, which we did now.
Now to be clear the latest projection from Euro monitor says that the number of pets is projected to be up 2% for the year, that's above historic 1%. So the pet industry continues to get good news in terms of.
The new pet dynamics.
And then maybe one quick follow up it sounds like your customers as you said still kind of moving up the ladder in terms of premium innovation.
And it sounds like your customer base in general is more middle maybe even to upper income are you seeing a different first is that fair and then are you seeing a divergence in the basket.
Within different customer cohorts and I think you've made it clear we don't really have a big range of customer cohorts, but are you seeing some difference in different baskets of unique customers.
Yeah good.
Good questions Jimmy Thank you so we over index on the higher value customers the highest value customers.
Which theres been lots of talk about that you have a stratification.
The mid to high end.
Is relatively inelastic.
And Thats, where the majority of our customers are and Thats. Why we are seeing continued premium position the mid to lower end customers, which is not really our bailiwick.
Fair.
What we see is more cutbacks across.
The retail industry. The good news is we're really focused is the higher end customer, which tends to correlate to the higher income customer.
We're seeing much less elasticity from that customer and Thats why we have this dynamic of premium innovation happening within our portfolio, which is really healthy and it's not new it's relatively timeless I think there was a question of whether in a in a.
Extra inflationary environment with that continue and the answer is yes.
Thanks, Ron and good luck.
Great to have you on the call.
And our next question comes from John Heimbach <unk> from Guggenheim. Please go ahead with your question.
Hey, Ron a question.
Service utilization picks up maybe you can talk about affordability.
For different income groups, and then does do we know yet.
Downturn here.
And acceleration in vital care and insurance.
Sort of a permanent acceleration.
Eight affordability.
Yeah, Great Great question. So we are.
We're seeing an acceleration in vital care.
And a lot of what we hear is about the affordability and it helps me take the total care of my pet in a more affordable way that's great for the customer and it's great for us because that means we're picking up more share of wallet I cited the share of wallet componentry earlier. So it is one of our key tools on providing affordable.
<unk> without kind of financially degrading.
Another tool, we have obviously as wholehearted, which is a high quality product for our more affordable price, but a strong margin for us which is another win win. So the answer is yes, I see that migration continuing so the current economic environment should be a stimulant for vital care sign ups, which then.
Drives more recurring revenue, which drives more predictability for us. So I think that's good our insurance business.
<unk> grew strongly in the quarter and we're continuing to work on.
On ways to further enhance that and I would anticipate further news on that front in the coming quarters on insurance, we see that if you recall, what I said I think four or five quarters ago about Rx I said, it's a big opportunity we're going to get after it we got after it and we're seeing strong growth in scaling I would say the same thing about insurance we haven't.
Nice business. It is growing robustly, but we have an opportunity to scale much more rapidly and there'll be news.
In the next couple of quarters on that front.
Okay. Thank you very much.
Thank you John .
And ladies and gentlemen, with that we will be concluding today's question and answer session I would like to turn the floor back over to Ron Kaufman for closing.
Thank you operator.
Once again, thank you for spending time with us today to our analysts. We appreciate the time and insights that you provide and to our investors. Thank you for showing faith in US every single day to reiterate we have been we are and we will continue to be a growth company.
Why because we operate in a category that remains strong and resilient even in times of economic headwinds.
Our world class team knows how to execute.
And our model is differentiated with tangible competitive advantages. These attributes will continue to enable meaningful growth for petco, while concurrently, bringing our long term strategic vision to life and delivering against our purpose.
Thank you for your time.
That concludes <unk> first quarter 2022 earnings conference call. The team will be available after the call. If you have any follow up questions. Thank you.
Ladies and gentlemen, with that we'll conclude today's conference call and presentation. We do thank you for joining you may now disconnect your lines.