Pet Valu Holdings, the leading Canadian specialty retailer of pet food and pet-related supplies, announces its financial results for the third quarter ended October 2, 2021.
Third Quarter Highlights
"We are incredibly pleased with the strong performance our business delivered in the third quarter, with every aspect of our operating model contributing to this success," said Richard Maltsbarger, president and chief executive officer. "Pet Valu continued to outpace the robust growth in the pet industry due to the strength of our brand as well as our unique and engaging customer experiences, underscoring our position as Canada's pet authority.
"Given the strong performance in Q3 and momentum in early Q4, we have raised our 2021 guidance. As we move through the balance of the year and into 2022, we are proactively managing current market challenges in supply chain, labour and inflation with purposeful investments that support our long-term growth strategies," continued Maltsbarger. "We remain in a strong position to continue serving Canada's growing population of pets and devoted pet lovers."
Financial Results for the Third Quarter Fiscal 2021
All comparative figures below are for the 13-week period ended October 2, 2021, compared to the 13-week period ended September 26, 2020.
Revenue increased by 25.6% to $200.7 million, compared to $159.8 million in the third quarter last year. The increase in revenue was driven by growth in retail sales, as well as franchise and other revenues.
Same-store sales growth(1) was 20.3% in Q3 2021 primarily driven by a 12.9% increase in same-store transactions and a 6.6% increase in same-store average spend per transaction. This is compared to same-store sales growth of 12.4% in Q3 2020 which primarily consisted of a (3.4)% decrease in same-store transactions and a 16.3% increase in same-store average spend per transaction.
Gross profit increased by $20.4 million, or 35.2%, to $78.3 million in Q3 2021, compared to $57.9 million in Q3 2020. Gross profit margin was 39.0% in Q3 2021 compared to 36.3% in Q3 2020. The gross profit margin increase of 2.7% was primarily driven by: (i) the favourable impact of the stronger Canadian dollar on products sourced outside Canada and primarily denominated in U.S. dollars; (ii) leverage gained on fixed costs due to higher revenue; (iii) higher discounts in Q3 2020; and (iv) partially offset by the absorption of incremental freight costs due to global supply chain issues, distribution costs driven by e-commerce sales, and incremental wages in our warehouses to support increased demand.
Selling, general and administrative ("SG&A") expenses increased by 27.3% to $39.4 million, compared to $30.9 million in the third quarter last year. SG&A expenses were 19.6% of revenue compared to 19.3% of revenue in the third quarter last year. The increase of $8.4 million in SG&A expenses was primarily due to: (i) increased compensation costs of $4.7 million as a result of the Company operating separately from the Group, headcount investments made to align with certain strategic initiatives and requirements applicable to becoming a public company, and additional bonus expense for key management as a result of the performance of the business and the completion of the initial public offering (the "Offering"); (ii) higher information technology expenses of $1.2 million associated with the implementation of SaaS arrangements.; (iii) higher advertising expenses of $0.9 million; (iv) higher depreciation and amortization of $0.7 million due to leasehold improvements and furniture and fixtures for new and existing corporate-owned stores; and (v) fees associated to the secondary offering of $0.4 million with the remainder of the variance being associated to other general expenses and professional fees including public company expenses.
Adjusted EBITDA(1) was $50.7 million, or 25.2% of revenue, compared to $36.3 million, or 22.7% of revenue, in the third quarter last year.
Net interest expense was $4.5 million in Q3 2021, a decrease of $10.5 million, or 70.1%, compared to $15.0 million in Q3 2020. The decrease was primarily driven by lower interest expense on the 2021 Credit Facilities resulting from lower interest rates and lower total debt outstanding following the closing of the Offering.
Income taxes were $9.8 million in Q3 2021 compared to $3.5 million in Q3 2020, an increase of $6.3 million year over year. The increase in income taxes was primarily the result of higher taxable earnings in Q3 2021. The effective income tax rate was unchanged at 28.6% in Q3 2021 and Q3 2020. The effective tax rates are higher than the blended statutory rate of 26.5% primarily because of non-deductible expenses.
Net income was $24.3 million, an increase of $15.7 million from net income of $8.7 million in the third quarter last year. The change in net income is explained from the factors described above.
Adjusted Net Income(1) increased by $17.8 million to $27.7 million in Q3 2021, compared to $9.9 million in Q3 2020. Adjusted Net Income as a percentage of revenue was 13.8% in Q3 2021 and 6.2% in Q3 2020.
Adjusted Net Income per Diluted Share(1) was $0.39 compared to $0.18 in the third quarter last year.
Cash and cash equivalents at the end of the third quarter totaled $23.3 million.
Free Cash Flow(1) amounted to $46.8 million in Q3 2021.
Inventory at end of the third quarter of 2021 was $88.1 million.
Refer to "Non-IFRS Measures and Industry Metrics" and "Selected Consolidated Financial Information" below, including for a reconciliation of the non-IFRS measures used in this release to the most comparable IFRS measures. Also refer to sections entitled "How We Assess the Performance of our Business", "Non-IFRS Measures and Industry Metrics" and "Selected Consolidated Financial Information" in the Company's Management's Discussion and Analysis ("MD&A") for the third quarter ended October 2, 2021, for further details concerning same-store sales growth, Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per Diluted Share and Free Cash Flow including definitions and reconciliations to the relevant reported IFRS measure.
The Board of Directors has declared an initial quarterly dividend of $0.01 per common share, payable on December 15, 2021 to holders of common shares of record as at the close of business on November 30, 2021.
The Company has raised its 2021 guidance, driven by strong performance in the third quarter and momentum early in the fourth quarter. Pet Valu now expects to achieve the following for the full year 2021:
Since the onset of the COVID-19 pandemic in early 2020, Pet Valu's performance has been significantly impacted by shifts in consumption patterns, various iterations of pandemic-related operating restrictions, and industry-wide supply chain disruptions. While restrictions have eased in recent months, a heightened level of uncertainty remains regarding potential for future disruption in the second half of 2021. The above outlook is based on several assumptions, including, but not limited to, the continued gradual normalization in the industry and operating environment through the remainder of 2021.
Net Capital Expenditures represents purchase of property and equipment, purchase of intangible assets, proceeds on disposal of property and equipment and tenant allowances.
Conference Call Details
A conference call to discuss the company's third quarter results is scheduled for November 16, 2021, at 8:30 a.m. ET. To access Pet Valu's conference call, please dial 1-888-350-3870, (access code: 5518274). A live webcast of the call will also be available through the Events & Presentations section of the Company's website at https://investors.petvalu.com/.
For those unable to participate, a playback will be available shortly after the conclusion of the call by dialing 1-800-770-2030 (ID: 5518274#) and will be accessible until November 23, 2021. The webcast will also be archived and available through the Events & Presentations section of the company's website at https://investors.petvalu.com/.
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