Pet Valu Q1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
May 12, 2026

Key Takeaways

  • Neutral Sentiment: PetValue reported Q1 revenue growth of 3% and systemwide sales up 2.5%, which management said was in line with the midpoint of its full-year guidance.
  • Negative Sentiment: Gross margin declined as customers leaned harder into promotions and value-seeking behavior, with management also citing pressure from higher fuel costs beginning to hit transportation, freight, and procurement.
  • Positive Sentiment: The company said it continued to gain share, with loyalty penetration reaching an all-time high near 90% and more casual customers converting into monthly shoppers.
  • Positive Sentiment: PetValue remains active on store expansion and digital growth, opening eight stores in the quarter and seeing strong momentum in click-and-collect, online delivery, and Autoship subscriptions.
  • Neutral Sentiment: Management updated full-year 2026 guidance to reflect the tougher fuel-cost and promotional environment, now expecting about 2% to 4% revenue growth, roughly a 21% adjusted EBITDA margin, and continued share buybacks/dividends.
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Earnings Conference Call
Pet Valu Q1 2026
00:00 / 00:00

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Operator

Good morning, everyone. Thank you for standing by. Welcome to Pet Valu's first quarter 2026 earnings conference call. My name is Liz. I will be coordinating today's call. All lines have been placed on mute to prevent any background noise. Please note that following the formal remarks, there will be a question-and-answer session. If you'd like to ask a question at that time, please press star one one on your telephone keypad. If you're using a speakerphone, please lift the handset before pressing any keys. We kindly request that you limit your time to one question plus a follow-up before cycling back into the queue, so that we allow time for as many of you to ask questions as possible. I would now like to turn the call over to James Allison, Vice President of Investor Relations and Treasury at Pet Valu. Please go ahead, Mr. Allison.

James Allison
James Allison
VP of Investor Relations and Treasury at Pet Valu

Good morning, and thank you for joining Pet Valu's call to discuss our first quarter 2026 results, which were released earlier this morning and can be found on our website at investors.petvalu.ca. With me on the call is Greg Ramier, Chief Executive Officer, and Linda Drysdale, Chief Financial Officer. Before we begin, I would like to remind you that management may make forward-looking statements, which include guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties, which could cause actual results to differ materially from those expressed today. For a broader description of risks related to our business, please see our Q1 2026 MD&A, 2025 Annual Information Form, and other filings available on SEDAR+. Today's remarks will also be accompanied by an earnings presentation, which can be viewed through our live webcast and is also available on our website.

James Allison
James Allison
VP of Investor Relations and Treasury at Pet Valu

Now, I would like to turn the call over to Greg.

Greg Ramier
Greg Ramier
CEO at Pet Valu

Thank you, James, and good morning, everyone. I'll start with the review of the quarter and our operational accomplishments, pass it over to Linda to discuss our financials and outlook. The Canadian pet industry continued to be shaped by a strong desire for value in Q1, driven by sustained, if not rising inflationary pressure across household budgets. Most notable are retail fuel costs, which rose 40% through the quarter and have contributed to declines in prominent consumer confidence indices and spending expectations measured by the Bank of Canada. Importantly, Pet Valu is there to meet the needs of devoted pet lovers, leveraging our prior price investments and sharp promotional program together with complementary strengths in convenience, quality, and expertise to drive meaningful market share gains in the quarter.

Greg Ramier
Greg Ramier
CEO at Pet Valu

To that end, we were pleased to deliver revenue growth of 3% at the midpoint of our full year guidance, making us one of the fastest pockets of growth within Canadian pet retail. The composition of this growth tells a tale of two stories. We saw higher discount sales penetration as heightened value-seeking industry-wide, saw devoted pet lovers lean heavier into periods of events and promotions, which weighed on our margin rate in the quarter. However, when taking a closer look, our growth was in the right areas of our business. Our loyalty penetration hit another all-time record of approximately 90% in the quarter, and within that cohort, we successfully converted more casual customers to monthly shoppers, drawn by our compelling value and offering in needs-based consumables.

Greg Ramier
Greg Ramier
CEO at Pet Valu

This is a critical outcome because as Pet Valu becomes the habitual destination where more and more devoted pet lovers do their monthly stock-ups, this stickiness will continue to pay dividends well into the future, especially as consumer confidence improves. Importantly, our scale and capabilities remain central to our clear competitive advantage in today's tighter market. Our strong vendor relationships, together with procurement economics, enabled opportunities to deliver value at competitive investment levels while growing volumes with our strategic pet specialty brand partners. The breadth and the legacy of our proprietary food brands worked in lockstep at each quality tier, providing compelling opportunities for customer trade-up or retention. Additionally, we continued to realize efficiencies and leverage from our world-class pet specialty supply chain, all while maintaining industry-leading on-time in full service levels to our stores and franchisees.

Greg Ramier
Greg Ramier
CEO at Pet Valu

Throughout all of this, we consistently returned capital to our shareholders in the quarter through share buybacks, fueled by our strong free cash flow and easing business reinvestment needs. From an operational perspective, we advanced several initiatives in the quarter aligned with each of our three core focuses. On our first focus, to be Canada's local and everywhere pet specialty retailer, network expansion activities started the year off strong. We and our franchisees opened eight stores in the first quarter, including further expansion into rural markets with exciting openings in the Northern Ontario communities of Wawa and Manitouwadge. We ended the quarter with 870 stores nationwide and are pacing to open roughly 40 stores this year, many of which will provide us with first-to-market pet specialty access to growing rural communities across the country.

Greg Ramier
Greg Ramier
CEO at Pet Valu

At the same time, our digital capabilities continue to provide a tailwind to our growth. While we saw solid growth through our direct-to-consumer channel, performance was strongest in Click & Collect and online delivery platforms. This underscores the strength of our unmatched omnichannel offering, where our digital and physical presence complement one another to provide industry-leading convenience to devoted pet lovers across Canada. Basket analysis continues to indicate online delivery platform customers are over-indexing in in-store only products like our Frozen Raw or Gently Cooked offering, reiterating the incrementality of this business to our direct-to-customer platform. We also saw further momentum in our AutoShip subscription service in the quarter, with strong growth and low churn since the introduction of our everyday value last year. We've seen strong participation from our vendors, helping to supply compelling offers and drive incremental sales.

Greg Ramier
Greg Ramier
CEO at Pet Valu

In addition to convenience, we amplified our strengths in value, quality, and expertise to deliver the best pet customer experiences. We continue to be pleased with our competitive pricing position following our investments throughout 2025, which has been a critical component to our ongoing success winning the monthly shop over the last year. In the first quarter, we complemented this with new programs, events, and promotional activities. Following years of success with our Treat of the Month offering, we launched our Item of the Month program in February, providing exciting value on everyday hardlines essentials to help build the basket. We've been pleased with its reception, as performance has increasingly exceeded our expectations, building momentum with each subsequent month.

Greg Ramier
Greg Ramier
CEO at Pet Valu

In February, we participated in Tim Hortons iconic Roll Up To Win contest as the first-ever pet prize partner, enabling devoted pet lovers to share their winnings with their four-legged family members. Not only was this a great brand-building collaboration, it also broadened our reach, drawing in new pet parents to our ecosystem. Through the quarter, we delivered a sharpened promotional program, enhancing our relevance within a competitive marketplace. Just as important are the investments we are making to deliver newness to our assortment through high quality and innovative products. Just this month, we launched an exclusive listing of Canada Pooch's new interactive toy line, WAGLAB. We also have some exciting new innovation coming from our proprietary brands, including Performatrin Prime Digestion Support, representing our first foray into vet-formulated diet consumables, and the expansion of our Performatrin Culinary lineup with the introduction of Frozen Raw for Cats.

Greg Ramier
Greg Ramier
CEO at Pet Valu

Finally, we're elevating our in-aisle expertise, highlighted by our enhanced culinary experience, which strengthens our position within the highest growth consumables category. Converted stores are outperforming the rest of the network on culinary-specific and total store sales at expected gaps. Following the completion of over 130 stores in 2025, we will complete roughly 40 conversions in 2026, heavily weighted towards franchise stores starting in late Q2. At the same time, we are continuing our ACE training to reinforce knowledge and share best sales practices learned through the first year of the program. Turning to our third focus, to fortify strong retail and wholesale fundamentals. In our stores, we are continually refining our customer service model to empower our ACEs as they deliver the best advice and product recommendations.

Greg Ramier
Greg Ramier
CEO at Pet Valu

With today's dynamic promotional environment, our corporate, field, and frontline teams are working closer than ever to develop and execute our commercial strategy at speed, which is showing up in the sustained strength of our units per transaction, or UPT. At the same time, enhancements within our supply chain are progressing as planned, with the successful implementation of our labor management system in our flagship Brampton DC in January, setting the stage for subsequent rollouts across our remaining DCs later this year. We are also in the midst of activating inbound transportation management systems across our three DCs. These enhancements, together with continual process optimizations unlocked by our new facilities and automation, are delivering the expected efficiency and productivity gains, providing a consistent leverage on our DC costs.

Greg Ramier
Greg Ramier
CEO at Pet Valu

As we apply insights from our Q1 performance and what we are seeing today, I want to share with you what has changed in our outlook for the year, and just as importantly, what hasn't since we last spoke with you in early March. First, what has changed? As I mentioned earlier, devoted pet lovers, like all Canadians, have had to absorb a surge in fuel prices starting in March, elevating value-seeking behavior which continues today. Starting in the second quarter, we are gradually seeing the implications of higher fuel prices on our cost structure through transportation, freight, and procurement. As you would expect, we are taking decisive actions to adapt, making responsible decisions on where and how to best direct our investments. We are optimizing our commercial plan with speed to deliver value more efficiently while contemplating these cost pressures.

Greg Ramier
Greg Ramier
CEO at Pet Valu

We are also calibrating our operating expenses to capture savings that provide stronger support to our competitive positioning. At the same time, we will benefit from the gradual lapping of last year's price investments and from planned corporate resale activity through the balance of the year. Now to the elements of our outlook that haven't changed. We continue to see heightened yet rational competitive behavior in our market, and we will continue to encourage a stable trading environment. We also retain strong conviction in our ability to continue winning and grow share in this environment like we did in Q1, leveraging our scale and capabilities to be Canada's pet retailer of choice. We have incorporated all of this into our updated outlook for the year, which we believe is realistic and achievable.

Greg Ramier
Greg Ramier
CEO at Pet Valu

I'll now pass it over to Linda to walk through our financials and update a full year outlook in more detail. Linda?

Linda Drysdale
Linda Drysdale
CFO at Pet Valu

Thank you, Greg. In the face of sustained value-seeking demand, we leveraged our strong financial position to support our enhanced value proposition in the first quarter, meeting the needs of devoted pet lovers, supporting our franchisees, and expanding market share. While this constrained earnings performance in the quarter, as Greg mentioned, we expect our plans to deliver sequential improvement in our adjusted EBITDA margins through the year, underpinning our updated 2026 outlook. I will expand on this shortly, but first, let me review our financial performance in the first quarter. System-wide sales were CAD 375 million, up 2.5% from last year as we and our franchisees continued to expand our store network with 41 new locations opened over the last 12 months.

Linda Drysdale
Linda Drysdale
CFO at Pet Valu

Same-store sales were flat with growth in average basket offset by trip consolidation and fewer non-loyalty trips, similar to the trends seen in Q4. While we continue to see the impact of heightened value-seeking behavior and the annualization of last year's investments in everyday value, we are retaining and growing the coveted monthly trips and using those moments to help build baskets. Performance by category was similar to the fourth quarter, with growth in consumables offset by continued softness in hardlines tied to weak discretionary demand. Q1 revenue was CAD 288 million, increasing 3% year-over-year, similar to system-wide sales growth and at the midpoint of our full year outlook range. Gross profit was CAD 90 million, representing a gross margin of 31.4% compared to 33.1% last year after excluding minor non-recurring costs related to the supply chain transformation.

Linda Drysdale
Linda Drysdale
CFO at Pet Valu

The decline in rate was mainly attributable to higher sales in areas where we have made purposeful investments in pricing and promotions, which are helping grow our market share and successfully win more monthly consumable trips. At the same time, we delivered another quarter of distribution cost leverage, supported by efficiency gains, providing a consistent and strategic tailwind that few, if any, of our pet specialty peers can replicate. Selling, general, and administrative expenses in the first quarter were CAD 56 million. Excluding share-based compensation and costs not indicative of business performance, our SG&A expenses were CAD 54 million or 18.7% of revenue, up 50 basis points from Q1 last year. Rate was impacted by higher technology SaaS fees and costs associated with a higher corporate store count, a number of which are early in their sales maturation curve.

Linda Drysdale
Linda Drysdale
CFO at Pet Valu

Adjusted EBITDA was CAD 56 million, representing an adjusted EBITDA margin of 19.4%. Net income was CAD 20 million compared to CAD 22 million last year. Excluding items not indicative of our underlying performance, adjusted net income was CAD 22 million or CAD 0.31 per diluted share, compared to CAD 25 million or CAD 0.36 per diluted share last year, driven by factors I just mentioned. Looking at our balance sheet and cash flow, we remain in a strong financial position with over CAD 180 million in liquidity and leverage of 2.3x, including our net lease obligations, well within our comfort range. Q1 inventories were CAD 143 million, up 7% from Q1 last year, reflecting timing of receipts to support new programs and item launches.

Linda Drysdale
Linda Drysdale
CFO at Pet Valu

We remain comfortable with the quality of our inventory across our DCs and stores and expect levels to be more in line with revenue growth through the balance of the year. Net capital expenditures in the quarter were CAD 7 million, supporting new stores, renovations, and other maintenance activities. We continue to expect net CapEx to total approximately CAD 20 million this year. We generated CAD 13 million in free cash flow in the quarter, compared to CAD 15 million last year due to higher tax payments. On a trailing four-quarter basis, free cash flow conversion remained at 40%, reflecting our disciplined approach to capital deployment, unlocking attractive opportunities to return capital to our shareholders. We remained active on share buybacks throughout Q1, repurchasing almost 600,000 shares under our NCIB for total consideration of CAD 15 million.

Linda Drysdale
Linda Drysdale
CFO at Pet Valu

So far into Q2, we have repurchased another CAD 10 million as we continue to see appealing value in our shares, supported by the strength of our fundamentals and confidence in our future growth trajectory. Now, turning to our 2026 outlook. While growth in the Canadian pet industry is largely materializing as expected so far this year, it has been shaped by a heightened level of value-seeking behavior driven by sustained inflationary pressure on household budgets and, in particular, the recent surge in fuel prices. As a result, we saw a shift in sales towards periods of promotions and events such as our monthly seniors and military discount days through the latter part of Q1.

Linda Drysdale
Linda Drysdale
CFO at Pet Valu

With this behavior continuing into Q2, as well as higher fuel prices starting to materialize in our transportation expenses and product costs, we are taking a number of actions to improve our profitability and earnings growth through the remainder of the year while continuing to deliver exceptional quality and value to devoted pet lovers. First, our merchandising and marketing teams are optimizing our commercial plan to provide efficient value in the current market as we leverage real-time learnings from our pricing and promotions engine and adapt to the evolving cost environment.

Linda Drysdale
Linda Drysdale
CFO at Pet Valu

This, together with the easing headwind of last year's price investments as we lap those actions, is expected to help strengthen our gross margins sequentially through the year. Second, we are actively calibrating down operating expenses to capture savings, which together with planned benefits from greater corporate resale activity through the remainder of the year, should see us return to SG&A leverage. Factoring in our Q1 performance, the evolving demand and cost environment, and the benefits resulting from the actions I just mentioned, we have updated our full year 2026 outlook as follows. We continue to expect revenue growth of between 2% and 4% on a 52-week comparable basis, supported by approximately 40 new stores, flat to 2% same-store sales growth and a slight increase in wholesale penetration.

Linda Drysdale
Linda Drysdale
CFO at Pet Valu

Q1 growth was right in the middle of this range with a similar trend seen in the second quarter to date. Adjusted EBITDA margin is now expected to be approximately 21%, factoring in the current state of value-seeking behavior, together with a heightened fuel cost environment, as well as the benefits of the actions we are taking to adapt to both of these. With our revenue growth and tight cost control, we expect adjusted net income per diluted share to be similar to 2025 on 52-week comparable basis. I want to emphasize, we have a strong line of sight for how we will deliver the improved performance required to meet or exceed these metrics. Knowing what we can control and the actions we are taking, we expect 2/3 of the improvement to be driven by greater SG&A leverage and 1/3 by adjustments to our commercial plan.

Linda Drysdale
Linda Drysdale
CFO at Pet Valu

In parallel, we will continue returning capital to shareholders, funded by a resilient and compelling free cash flow profile. This includes our regular and growing dividends, as well as our recently enhanced buyback activity. We and our board see immense value currently not reflected in our shares, presenting an excellent opportunity to deploy our excess capital, which you can expect to continue throughout the balance of the year. As I conclude my remarks, I want to reiterate that we are navigating today's transitory environment from a position of strength, unlocked through our unmatched scale, deep customer data, and leading talent in the Canadian pet industry. In parallel, we continue to make the right long-term investments while others cannot. Building stores, supporting our franchisees' financial success, enhancing our in-store expertise, and entrenching Pet Valu as the household name in Canadian pet.

Linda Drysdale
Linda Drysdale
CFO at Pet Valu

With clear goals set for the year, our teams are focused and aligned on how to achieve them. With that, I'll turn it back to Greg for some closing thoughts.

Greg Ramier
Greg Ramier
CEO at Pet Valu

Thanks, Linda. This is a great business, shaped and fortified by half a century serving Canadian devoted pet lovers and their pets, and half a century of successfully navigating multiple demand cycles through proven actions like those we are taking today. The legacy we have established and the foundation we have built over this time are incredibly powerful assets. Equally compelling is the resilience of our franchise community, where we continue to support their growth through competitive wholesale pricing and effective programs, showcasing how tightly tied our joint success is in this environment. Together, these are all advantages that enable us to both win in today's market and strengthen our moat to drive growth well into the future. It has never been more important to deliver a winning combination of convenience, value, quality, and expertise that our customers expect.

Greg Ramier
Greg Ramier
CEO at Pet Valu

With strengths on each of these fronts, I am confident Pet Valu will continue to be the pet retailer of choice for millions of Canada's most discerning and devoted pet lovers. With that, we will be happy to take your questions.

Operator

As a reminder, if you'd like to ask a question at this time, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Our first question comes from Irene Nattel with RBC Capital Markets.

Irene Nattel
Irene Nattel
Analyst at RBC Capital Markets

Thanks, good morning, everyone. Thank you for all the commentary. I just want to make sure that we're all understanding. Is it a deeper promotional intensity or is it higher promotional penetration that's causing the gross margin pressure?

Greg Ramier
Greg Ramier
CEO at Pet Valu

Morning, Irene, thank you for the question. Overall, we continue to see the prevailing demand for both quality and value that you've heard us talk about over the last year. Devoted pet lovers are still seeking out high-quality specialty products to provide better care for their pets. This continues to be most evident in needs-based consumables, where we see resilient growth in Premium Culinary, Scientific Diets, and the Natural Balance enhanced formulations. At the same time, pet parents are making these decisions with value in mind, finding ways to purchase quality at the best price to ease pressure on their household budgets. Our original outlook was built on two key assumptions. First, that the industry growth would remain constrained due to macro pressures. Second, that competitive intensity would remain at the elevated levels that we saw in Q4.

Greg Ramier
Greg Ramier
CEO at Pet Valu

While these base assumptions remain in place today, there are two key changes, both tied to the rise in fuel prices since we first set guidance. They've changed the shape of demand and cost across our industry over the near term. First, on the demand side, this has resulted in a higher level of value-seeking behavior from devoted pet lovers, shifting more demand to periods of promotions or events and out of non-promotional periods. We saw this through the latter part of Q1, it has continued into the second quarter.

Greg Ramier
Greg Ramier
CEO at Pet Valu

Second, we're starting in Q2, higher fuel costs are beginning to show up in our freight and transportation activities as well as our vendor costs, presenting pressure that will take some time to work through the system. As Linda said in her prepared remarks, we're optimizing our commercial plan, to provide value efficiently in today's environment. This together with the gradual lapping of last year's price investments, should deliver stronger margins sequentially through the year. At the same time, we expect to drive a greater expense leverage as we calibrate our operating costs and right-size discretionary spend, plus benefit from the planned corporate resale activity through the remainder of 2026.

Greg Ramier
Greg Ramier
CEO at Pet Valu

Tying all this together, we arrived at a new profitability trajectory for the year, one that we feel strongly we can deliver, because it does fully incorporate these new market dynamics at their current run rates and the controllable actions we are taking to adapt to them. Linda, what would you add?

Linda Drysdale
Linda Drysdale
CFO at Pet Valu

Yeah. Thanks, Greg, and good morning, Irene. Just wanted to reiterate a few of the key elements of our updated guidance. First, our top-line outlook remains unchanged at 2%-4% revenue growth on a 52-week basis. We've had good progress on this in the first quarter, supported by our market share gains, and it's continued into Q2. Second, our adjusted EBITDA margin expectations of approximately 21% implies easing year-over-year pressure for the balance of the year. This is supported by the controllable actions Greg just mentioned. Given their nature, we expect this to materialize gradually over the course of the year. Then I'll just put all that into context. Our business has shown a resilient track record of delivering EBITDA margins, historically between 21%-23%, and our 2026 outlook is in that range.

Linda Drysdale
Linda Drysdale
CFO at Pet Valu

Just as importantly, it continues to enable us to generate that strong free cash flow, which we plan to continue returning to shareholders.

Irene Nattel
Irene Nattel
Analyst at RBC Capital Markets

That's very helpful. Thank you. Quicker follow-up question. What happened to private label penetration? Because, you know, part of your value offering has always been the Performatrin lineup. What's been happening there?

Greg Ramier
Greg Ramier
CEO at Pet Valu

Irene, we've seen the macro pressure on the consumer show up in three ways: higher promotional penetration, as we talked about, a greater loyalty program adoption and usage, and demand for our proprietary brands. All three of those saw greater activity as we moved through the quarter. They're all elements the customer was looking for with the current pressure that they're seeing.

Irene Nattel
Irene Nattel
Analyst at RBC Capital Markets

That's it. Thanks.

Operator

Our next question comes from Mark Petrie with CIBC.

Mark Petrie
Mark Petrie
Analyst at CIBC

Hey, good morning. Thank you. Just with regards to the EBITDA margin guidance, are there further price investments embedded in that from here? I just wanna sort of clarify and understand a bit better, you know, how do you react to the consumer sort of leaning more into promo? Obviously, I understand the cost control element. Are you pushing harder on promotions in order to sort of capture those sales, or are you pulling back in order to preserve gross margins?

Greg Ramier
Greg Ramier
CEO at Pet Valu

Mark, it's Greg. I'll take that one. We are-I'm very happy, we're very happy with our price position right now and the investments that we've made through 2025. We think those set us up really well in this environment. If I talk about the commercial plan, so for competitive reasons, I'm not gonna go into too much detail, but I, but I'll give you some headlines that you should think about. We're changing our promotional depth and breadth and leveraging our loyalty program. We're making sure that both our promotion and pricing adjustments are based on the current behavior we're seeing and the cost pressure that we're seeing in this environment.

Greg Ramier
Greg Ramier
CEO at Pet Valu

We're gonna lean into some of our more successful programs, like Item of the Month that we talked about in the pre-prepared remarks, because we're seeing momentum. We remain committed to making sure that we have the best value in Canadian pet specialty, but that we are encouraging stable trading in this environment.

Mark Petrie
Mark Petrie
Analyst at CIBC

Yeah, understood. Fair enough. Okay. That's helpful. Thank you. Just on refranchising, I'm just curious, you know, if you could update us on your expectations for 2026, and then the visibility that you have to that as you stand today.

Greg Ramier
Greg Ramier
CEO at Pet Valu

Yeah. Thanks, Mark. Maybe I'll touch on franchise mix before I go into refranchising. We believe that the low 70% franchise penetration that we talked about previously remains a sustainable mix over the next several years, and it's consistent with how we're planning the business. Naturally, there is a higher mix of corporate stores in our recent new store openings, and that's driven by the best site first approach that we've talked about a number of times and the more rural regions we are expanding into. At the same time, we're pairing this with an active corporate resale program. It can be lumpy at times, and we didn't have any activity in Q1.

Greg Ramier
Greg Ramier
CEO at Pet Valu

We've already had a few stores trade hands in Q2, and we expect this to pick up through the year, and it'll be an accelerated program to keep us in that, in the low 70%, from a mix perspective.

Mark Petrie
Mark Petrie
Analyst at CIBC

Okay. Appreciate that. I'll pass the line. All the best.

Greg Ramier
Greg Ramier
CEO at Pet Valu

Okay. Thank you, Mark.

Operator

Our next question comes from Martin Landry with Stifel.

Martin Landry
Martin Landry
Analyst at Stifel

Good morning, guys. I was wondering, with the industry slowing down right now, how does that impact the payback period of your new stores? I was wondering if you can touch a little bit on the health of your franchisees right now?

Greg Ramier
Greg Ramier
CEO at Pet Valu

Thanks, Martin. I'll touch on both. The stores, we built 40 stores, rolled out 40 stores last year, and remain on track to do that both this year and next year. Still seeing some really strong returns in them. They're great locations. I'll remind you that we're making 10-year investments, both us and our franchisees, as we go into new locations. It is an area we're leaning into given the returns to make sure that we take up white space and that we can service more devoted pet lovers. It's been an important part of our revenue growth over the last number of quarters, including last quarter. Franchise health, happy with it.

Greg Ramier
Greg Ramier
CEO at Pet Valu

It was flat year-over-year as we talked about in our franchise disclosure document. In a tighter environment, we are seeing them being just as successful as they have with strong four-wall EBITDA rates, and lots of help from us in making sure that we have the right mix of programs to drive their sales, including our proprietary brands, and that they're getting the right level of costing to be successful.

Martin Landry
Martin Landry
Analyst at Stifel

Okay. In your prepared remark, Greg, you mentioned that, you've been gaining share. Can you tell us what's your assessment of the industry performance in Q1?

Greg Ramier
Greg Ramier
CEO at Pet Valu

I can. Our market share tracking, both with our loyalty and customer data, doesn't show any meaningful trade out of specialty. What we are seeing is a relatively flat to possibly slight growth in the total market. The performance within the quarter mapped pretty close to what we would have shared as we exited Q4 last year, where we're consolidating customers and winning within pet specialty, and Amazon or pure plays in e-commerce are winning within the mass and online channel. We think there's some really clear reasons on why when you look at the retail experience and the preferences of our core customers and the products they seek, it's all very different and unique to what's available through mass.

Greg Ramier
Greg Ramier
CEO at Pet Valu

What you've heard us, what you are seeing and what you've heard us say many times is the higher desire for value within our stores and digital channels is causing customers to change when they buy. In the quarter, we were extremely happy with what we saw on our digital channel. Our online sales continued to outpace, I talked about in the prepared results, real strength in our Click & Collect and our online delivery platform, offerings, and that really brings to light the strength of the omnichannel experience we have when combined with our stores.

Martin Landry
Martin Landry
Analyst at Stifel

Okay. Thank you for all the color, and best of luck.

Greg Ramier
Greg Ramier
CEO at Pet Valu

Okay. Thank you, Martin.

Operator

Our next question comes from Vishal Shreedhar with National Bank.

Vishal Shreedhar
Vishal Shreedhar
Analyst at National Bank

Hi, thanks for taking my questions. Just on the e-commerce, are you able to provide us with more discrete indications of how it's performing by channel, the growth, like, be it your Click & Collect or in-store offerings versus third party, and what the profit impact is on the P&L? Is that something that you anticipated to grow at the rates that it's growing at? I'll just stop there. I'll follow up later.

Greg Ramier
Greg Ramier
CEO at Pet Valu

Okay. Thanks, Vishal. The short answer to the question is that we do expect it to continue at the same rate. We've been very happy with customer pickup and very happy with the total demand that we've seen through the digital channels. The areas that are growing the most within that are the Click & Collect and online delivery platforms, which for us at this point are Uber, Instacart and DoorDash. Those are avenues where somebody is taking advantage of the store and the bricks and mortar network and our expertise. Those sales are the exact same profitability profile that we would see for a regular bricks and mortar purchase. We remain very happy with it.

Greg Ramier
Greg Ramier
CEO at Pet Valu

I expect the pace to continue and it really doesn't have any real swing on the profitability of the business.

Vishal Shreedhar
Vishal Shreedhar
Analyst at National Bank

Just to clarify. When you get a third party aggregator delivery, when you're talking about there's no impact to the profitability business, you're talking about related to Pet Valu corporate, but the franchisee, there would be a little bit less profitability so you share some with the aggregator. Is that, is that correct or?

Greg Ramier
Greg Ramier
CEO at Pet Valu

No. The profitability profile for both Pet Valu, the franchisor, and our franchisees is the exact same as an in-store purchase.

Vishal Shreedhar
Vishal Shreedhar
Analyst at National Bank

Okay. Just to help us understand, what happens to pet adoption trends during periods of heightened consumer stress? Do you see that tail off in your experience at Pet Valu?

Greg Ramier
Greg Ramier
CEO at Pet Valu

We haven't seen any real indication that there's a change in adoptions or in surrenders. We have seen that, over time that, pet ownership will track with household formation growth. That's been pretty consistent over multiple demand cycles through the years. Not really clear data around the percentage of pet ownership and changes. What we would say is we've always in Canada had a little higher percentage of cat ownership than what some of our peers in the U.S. would have. That we're well-positioned regardless of ownership type within that. To answer your question, no clear indication that we're seeing a shift in ownership type.

Vishal Shreedhar
Vishal Shreedhar
Analyst at National Bank

Thank you.

Operator

Our next question comes from-

Greg Ramier
Greg Ramier
CEO at Pet Valu

Thank you.

Operator

Our next question is from Chris Li with Desjardins.

Chris Li
Chris Li
Analyst at Desjardins

Hi, good morning, everyone. Greg, within your basket growth of 0.6% in the quarter, can you share with us how much of that was deflation or inflation and versus unit volume?

Greg Ramier
Greg Ramier
CEO at Pet Valu

Absolutely. Thanks, Chris. I'll touch on transactions first, same-store transactions. Like every retailer, we have a spectrum of visitors, from our most loyal customers who shop with us monthly to casual customers who visit occasionally, to those who are not on our loyalty program and perhaps just stopping in to find a deal. When we dig into our traffic in the quarter, we saw a greater proportion of our most loyal customers, our most loyal monthly customers, in our transaction growth, and fewer from our non-loyalty visitors. Within our loyalty members, we are also seeing a bit of consolidation, as customers trim their discretionary trips due to higher fuel costs.

Greg Ramier
Greg Ramier
CEO at Pet Valu

We were very happy in the quarter with our ability to grow monthly customers and to take advantage of a customer coming in the door to top up their trip with the programs that we've talked about and the extra programs that we added, like Item of the Month. On the basket growth, Chris, the factors are largely similar to Q4. Units per transaction remain strong, which is that's really intentional from us, based on our commercial plan and strong in-store execution from our ACEs. At the same time, I'll remind you and everybody on the call that we're still cycling the everyday value actions. Combined with some promo-seeking behavior from our customers, we are seeing continued deflationary headwind in the quarter.

Chris Li
Chris Li
Analyst at Desjardins

Got it. Okay. No, that's helpful. My other question is on the adjusted EBITDA margin guidance for the year. I don't mean to be too precise, but is your 21% roughly EBITDA margin guide anchored towards the midpoint of your revenue and same-store guidance? Is there a risk to margin if you were to, say, only achieve the low end of your revenue guidance or other buffers that would still allow you to achieve that margin, irrespective of the range on the top line? Thank you.

Linda Drysdale
Linda Drysdale
CFO at Pet Valu

No, I wouldn't say that, Chris. I think what I would say is that we have a good conviction in our guidance. When I focus on how what that shape of that guide is, it's really taking, looking at the current pressure in fuel prices and the value-seeking demand that Greg's been speaking about, and looking at the actions that we can take to control, to manage those things, and they are very much within our control. 2/3 of that improvement needed to reach or exceed our guidance relates to the operating expense leverage, and that's tied to very tangible elements like our corporate store resales that are well underway.

Linda Drysdale
Linda Drysdale
CFO at Pet Valu

The other 1/3 relates to our commercial plan, where we have good visibility into the pockets of opportunity to drive that margin without impacting our value proposition. Lastly, I'd just add that should we see fuel prices ease and that value-seeking demand revert back to where we started at the beginning of the year, that would present upside.

Chris Li
Chris Li
Analyst at Desjardins

Okay. Thanks very much, and all the best.

Operator

Our next question comes from Michael Glen with Raymond James.

Michael Glen
Michael Glen
Analyst at Raymond James

Hey, good morning. Just on the inflation you're seeing right now in your input costs on consumables specifically, we're seeing obviously a lot of headlines regarding cost inflation on various inputs. I'm trying to understand exactly, are you not seeing this from your supply base in terms of consumable price inflation?

Greg Ramier
Greg Ramier
CEO at Pet Valu

Thanks, Michael. It's Greg. I'll take that one. We are seeing cost pressure in the environment, both on product cost and fuel costs. We do expect that to remain elevated in the near term. Our team remains focused on leveraging our scale and maintain, or managing what is what we expect to be a pretty dynamic situation. That would track back to the to the merchandising or commercial plan optimization work that Linda spoke to in her prepared remarks.

Michael Glen
Michael Glen
Analyst at Raymond James

Okay. Just on loyalty, has there been any discussion or motivation or any reason to think you would benefit from the introduction of a mobile app?

Greg Ramier
Greg Ramier
CEO at Pet Valu

Michael, we were very happy with how customers leaned into our loyalty program last year. You'll remember that we added a number of brands onto it as part of 2025. I think the extra value with the Frequent Buyers program that our devoted pet lovers see has helped us this year, and we've seen customers add or lean into it harder. You should expect us over the near to medium term to continue to work on channels just like the one that you're talking about to have more access to the 3 million devoted pet lovers in our loyalty system.

Michael Glen
Michael Glen
Analyst at Raymond James

Okay. Thanks for taking the question.

Greg Ramier
Greg Ramier
CEO at Pet Valu

Okay. Thank you, Michael.

Operator

Our next question comes from Cheryl Zhang with TD Cowen.

Cheryl Zhang
Cheryl Zhang
Analyst at TD Cowen

Hey, good morning, Greg, Linda, and James. This is Cheryl on for Michael. Thanks for taking our questions. First, just wanted to follow up on the higher promotional penetration. Is that coming from more items being on promotions, consumer switching between brands and product tiers, or something else?

Greg Ramier
Greg Ramier
CEO at Pet Valu

Thanks, Cheryl, and welcome to the call.

Cheryl Zhang
Cheryl Zhang
Analyst at TD Cowen

Thank you.

Greg Ramier
Greg Ramier
CEO at Pet Valu

On promotions, really, the quarter finished as we would've expected it, with promotional activity across the industry remained elevated, but similar to Q4 in Q1. We continue to see heightened activity from a few select specialty peers chasing growth. The activity didn't meaningfully intensify, but we did see pet parents lean heavier into those moments. We had a strong program, which together with, our convenience of our stores and the expertise and execution of our ACEs was key to ensure that we gain share in a tighter market. At the end of the day, we saw elevated but not increasing promotional intensity in the quarter.

Cheryl Zhang
Cheryl Zhang
Analyst at TD Cowen

Okay, got it. Just wanted to touch on the performance between categories. How did the consumables, hardlines, and culinary, the different categories, trend in Q1?

Greg Ramier
Greg Ramier
CEO at Pet Valu

Cheryl, I'll touch on culinary first. We continue to be very pleased with the culinary category. It is at the top tier of our, of our product offering, and it remains our fastest-growing category. That is helped by the, by the work that we did last year with rolling out the 130 stores in with destination culinary. Us increasing our capacity and expertise in that category like we did last year and like we'll do in the extra 40 stores this year is an important element for us. The rest of the portfolio, we saw pretty consistent trends to what we saw in Q4 with needs-based consumables up.

Greg Ramier
Greg Ramier
CEO at Pet Valu

The, the higher ends of our needs-based consumables were our growth areas, and discretionary items like hardlines remained under a bit of pressure.

Cheryl Zhang
Cheryl Zhang
Analyst at TD Cowen

Okay, that's very helpful. Thank you. I'll requeue.

Greg Ramier
Greg Ramier
CEO at Pet Valu

Okay. Thank you, Cheryl.

Operator

Our next question comes from Adrienne Yih with Barclays.

Analyst at Barclays

Good morning. This is Michael on for Adrienne Yih. Thank you for taking our questions. I know that marketing and advertising spend was higher during the quarter, as well as discounting. What other strategies do you have in place, or what are you really gonna lean into to drive customer traffic in the stores and online? I know you have one of the best value offerings through your proprietary brands. How are you gonna drive new customers sales offerings for the remainder of 2026?

Greg Ramier
Greg Ramier
CEO at Pet Valu

Thanks. Thanks, Michael. I will come back to you. We were quite happy with our monthly customer growth through our loyalty program in Q1. The softness we saw was in non-loyals, who are casual customers for us. We're very happy with winning with our core, most profitable, highest spend customer base. To help us over the next year, you've seen us pivot our marketing efforts more into mass media. That happened through Q1 and will continue across the country, both radio and digital.

Greg Ramier
Greg Ramier
CEO at Pet Valu

We are continuing to leverage our investments in our everyday value through last year, including our proprietary brands, and making sure that we take advantage of the traffic that we see that comes into the store because we are continuing to expect a bit of trip consolidation from our customers. It's very important that we leverage programs like we talked about with Item of the Month, to be able to add a discretionary item into the basket. I will add one more thing, because I'd be remiss if I didn't. Our growth of stores really helps with this. At 3% revenue growth, we were happy with that number in the quarter, and that's a direct outcome of us continuing to invest in high-quality stores this year and next.

Analyst at Barclays

Great. Yeah. That was actually part of the follow-up I had is I was gonna ask, are you seeing any trends, signs of traffic improvement quarter to date, and is it, or is the growth really gonna rely on the ticket size in the new stores?

Greg Ramier
Greg Ramier
CEO at Pet Valu

The growth of new stores, you should view that as consistent and very helpful to us. As far as trends in Q2 so far, remains competitive, very much in line with our expectations. We see the same consumer dynamics and the same competitive dynamics that we would have seen in Q1, especially post the change in fuel prices. We continue to compete effectively, leveraging our commercial tools and our scale. As we talked about through this call, we have made and will make changes to our commercial strategy to adjust to both the consumer behavior and the cost pressure. We've seen relatively similar same-store sales growth in Q2 so far that we would have seen in Q1.

Analyst at Barclays

Great. Thank you very much.

Greg Ramier
Greg Ramier
CEO at Pet Valu

Okay. Thank you, Mike.

Operator

That concludes today's question and answer session. I'd like to turn the call over to Greg Ramier for closing remarks.

Greg Ramier
Greg Ramier
CEO at Pet Valu

Thank you all for your questions. We look forward to talking to you as we finish up Q2. Have a great day.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

Executives
    • Greg Ramier
      Greg Ramier
      CEO
    • James Allison
      James Allison
      VP of Investor Relations and Treasury
    • Linda Drysdale
      Linda Drysdale
      CFO
Analysts
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