Pet Valu Holdings Ltd. (PET) Earnings Call Transcript & Summary

The next item to be voted on is the nonbinding advisory resolution on the company's approach to executive compensation. This approach is set out starting on Page 28 of the circular, along with the full text and the advisory resolution, which is set out on Page 23 of the circular. This vote is advisory only and nonbinding on the company and the Board. However, the Board will consider the outcome of the vote as part of its ongoing review of executive compensation. I move on the advisory basis and not to diminish the role and responsibilities of the Board of Directors that the shareholders accept the approach to executive compensation disclosed in the circular delivered in advance of the meeting. Are there any comments, questions on the advisory vote of executive compensation.

No, there are no comments or questions.

As there are no further comments, we will now proceed. The final item of business to consider is the ratification of the company's long-term incentive plan and continued granting of unallocated entitlements issuable thereunder. The circular sets out these details on the motion on Page 24, along with the full text of the resolution, which is set out in the Appendix A of the circular. This vote is to approve a special resolution authorizing the renewal of the company's long-term incentive plan and the continued granting of unallocated entitlements by the company pursuant to its -- for the next 3 years. I move that all unallocated entitlements under the company's long-term incentive plan be approved and that the company be authorized to continue granting entitlements under the long-term incentive plan until May 7, 2027, being the date that is 3 years from the date of this meeting. Are there any comments or questions on the motion?

No. There are no comments or questions.

As there are no further comments or questions, we will now proceed. This completes the matters to be voted on at this meeting. The poll will close in 1 minute. So if you have not yet voted on the matters, please do so immediately. While we are waiting for the poll to close, let me advise you that immediately after they close, our scrutineer will provide me with a preliminary tabulation of the results on each matter voted on based on proxies received in advance of the meeting and votes cast at this meeting. I will announce those results presently. Full ballot resolve for each item submitted to shareholder vote at this meeting will be posted on the company's SEDAR profile following the meeting. The polls are now closed, and I have received the scrutineer's preliminary report. The preliminary results are as follows: With respect to the election of directors, each of the nominees has received a sufficient number of for votes to be elected to the Board until the next Annual General Meeting. And that for each nominee for the number of withheld votes is less than the number of for votes. With respect to the appointment of the company's auditor, a majority of the common shares voting on this motion voted for appointing Ernst & Young LLP as the auditor of the company until the next Annual General Meeting and for authorizing the directors to fix the remuneration payable to the auditors. With respect to the advisory resolution on the company's approach to executive compensation, a majority of the common shares voting on this motion voted for adopting the advisory resolution. With respect to the ratification of the company's long-term incentive plan and continued granting of unallocated entitlements thereunder a 2/3 majority of the common shares voting on this motion voted for approval of all unallocated entitlements under the company's long-term incentive plan and the continued granting of entitlements thereunder until May 7, 2027. I declare that each of the motions submitted to a vote of the shareholders at this meeting has been approved. We have completed the formal business for which this meeting has been called. I now ask that if anyone has any other business they would like to bring before the meeting. If you wish to bring any other motion or objection before this meeting, please click the messaging tab and type your question. I'll pause now to allow any attendees to submit comments.

There are no motions or objections.

There being no other business or objection. I now declare the meeting terminated. I'll now hand the proceedings over to Richard Maltsbarger, President and Chief Executive Officer of the company.

Thank you, Tony. On behalf of the Board, our franchise owners, our leaders, and our ACEs across Canada. I would like to thank you for attending the meeting and for your ongoing support of Pet Valu. I would like to now share with you a short presentation on Pet Valu's 2023 accomplishments and our expectations for this year before opening up the call for Q&A. Please take a moment to review the caution regarding forward-looking statements and non-IFRS measures provided on your screen. Overall, our business delivered strong results in 2023 on top of 2 very strong years for Pet Valu in 2021 and 2022. As we benefited from the lasting impacts of heightened pet adoption through the pandemic, together with perennial humanization and premiumization tailwinds. Together with our franchisees, we held our market share, growing system-wide sales 2%, fueled by a combination of same-store sales growth of 5%, and 39 new store openings. Exceptional focus and agility by our people enable us to convert this robust network performance into strong revenue and profit growth. We grew revenue by 11% to surpass $1 billion and delivered 8% growth in adjusted EBITDA even as we navigated FX headwinds and normalization of the promotional environment back to prepandemic levels. I'm especially proud of the efforts from all our team to quickly adapt their priorities to meet the evolving demand environment and needs from our customers as the year progressed. At the same time, we achieved key milestones on strategic priorities, such as initiating our supply chain transformation, which will serve to provide a platform for continued profitable growth for many years to come. As you've heard me say many times, the key ingredients to this success and our growth engines are our people and Our Four Paws. It's our people who bring a healthy balance of safety, compassion, expertise and efficiency to work every day and deliver on Our Four Paws promise. It's our people who either directly or indirectly help for meaningful and lasting connections with devoted pet lovers across Canada. And it's to our people that I say thank you again for all that you do to help continue to build our company. Equally as important as our people, is our franchise network, composed of the hundreds of franchisees and their ACEs who collectively operate over 560 pet value Chico, Bosleys or Paulmac's locations across Canada. As average franchisee tenure surpasses a decade, we are grateful for the ongoing trust they place in us as their franchisor of choice, helping them foster enduring bonds with their customers and help provide the best lives for the beloved pets in their communities. Through my coast-to-coast store visits and regional meetings, I continue to be amazed by the passion and entrepreneurial fire our franchisees bring to their stores and communities every day. A great example is Jennifer Pegg, one of our pinnacle award-winning franchisees in 2023 for her commitment to community and inclusion, the standards of our stores and our team's overall great performance. Jennifer is our second-generation owner at Bradford, recently transitioned the store from her parents who operated our store there for over 25 years. Another great example of Michael Schipper, who purchased its first store in January 2021 in partnership with [ Marilyn, David Godfrey ], his family members and some of our longest tenured franchisees. Then last September, Michael opened a new store less than 2 kilometers away from his first store to great success, helping to show just how closely we can locate our stores in metro areas to serve our devoted pet levers. And yet another great example are Aarti Patel and Sukhdeep Singh, who just this past month, opened their fourth store in one of our newest locations on Lake Shore Boulevard in Etobicoke. We look forward to continuing to support our franchisees like Jennifer, Michael, Aarti, Sukhdeep and hundreds of others in growing their successful businesses. We welcome more entrepreneurs to join us as we grow our franchise store network. One key investment we are making to support their growth, together with the growth through our corporate store network and e-commerce channels is through a supply chain transformation. This $110 million investment primarily spread across 4 years will see us optimize our legacy distribution network into 3 semi-automated distribution centers in the key hubs of the GTA, Vancouver and Calgary, further supported by smaller regional cross-dock centers where needed. Once complete, we believe we will operate Canada's strongest pet specialty supply chain, doubling our capacity to support growth over the next decade, while employing leading-edge technology to deliver enhanced productivity, efficiency and flexibility. In 2023, we reached key milestones in this multiyear journey. Last summer, we officially opened our new built-for-purpose 670,000 square foot GTA DC, representing the largest of its kind in Canada, servicing the pet specialty industry and creating hundreds of jobs in the city of Brampton. We also took possession of our new 350,000 square foot Vancouver DC in November and commenced fit up. While taking moments to celebrate our accomplishments, our distribution and supply chain teams remain hard at work towards delivering on key milestones for 2024, including activation of our goods to picker automation at our GTA DC and transition into our new Vancouver DC. Another highlight from 2023 was our targeted expansion of our proprietary brand offering, often priced at a 5% to 20% discount to comparable national brands with equivalent quality and ingredients, our proprietary brands complement our broad selection of premium national brands to provide a key value alternative if and when our devoted pet lovers want. In hard lines, we continued our multiyear journey to broaden our good, better and best proprietary offering across categories, highlighted by the introduction of over 200 new JUMP! toys last summer and tapped further into humanization trends with the expansion of our Bailey & Bella celebrations apparel line. In consumables, where our proprietary brands have a deeper heritage, we doubled the size of our performatrin Ultra freeze-dried raw portfolio, introduced new protein alternatives with performatrin Ultra kangaroo and expanded our treats offering through performatrin Ultra raw coated caviars, collagen, and bully alternative chews. As we turn to 2024, we are thrilled to elevate our proprietary brand lineup even further with the launch of performatrin culinary, our first entry into the freezer category. Together with freeze-dried raw, the culinary pet food category is one of our fastest-growing categories with a 3-year CAGR of over 30%. Our initial lineup will include 15 frozen raw meals and gently cooked recipes. From the products we sell, the workplaces and environments we've established, to the relationships we've fostered, our mission, values and strategy are all anchored in the belief that utilizing sustainable business practices across Pet Valu will help deliver profitable growth and create value for our shareholders and other stakeholders. We've captured this essence in our first environmental, social and governance report, which we released last November. The report discusses how we manage key ESG factors important to our business, including fostering strong relationships with our franchisees, providing a welcoming and engaging work environment for our ACEs, managing energy and emissions to deliver efficiencies, responsibly stewarding our operations and selling safe and high-quality products to our customers. We look forward to updating this report later this year. All these investments and actions continue to position Pet Valu to deliver our mission of being Canada's preferred pet retailer as we deliver the product's care, expertise, and memorable moments in stores and online to millions of devoted pet levers across Canada. Through the differentiated retail platform we operate together with the exciting strategic initiatives set to roll out this year, we expect to deliver another year of solid growth in 2024. First unveiled back in March and reaffirmed today, we expect Pet Valu to drive 5% to 8% revenue growth and 7% to 10% adjusted EBITDA growth this year while holding our adjusted net income per diluted share roughly flat as we absorbed $20 million pretax or $0.20 per share of incremental depreciation and interest expense associated with our new distribution centers. Additionally, we expect to see an inflection in our free cash flow growth later this year as we stabilize our working capital and complete our largest year of supply chain investments. Together, our ACEs, our franchisees and our leaders are always building and improving the strongest foundation for long-term profitable growth in the Canadian pet industry. Together, we will continue to be the place Canadians turn to for the most challenging and most rewarding parts of being a devoted pet lover. This is Pet Valu, and we love what we do. This concludes my prepared remarks, and I'd be happy to respond to any questions. Team, are there any questions on the Lumi platform? Seeing as there are no further questions, this concludes our presentation. Thank you for joining us today via webcast or over the telephone, and for your continued support of Pet Valu.

Meeting has ended. Goodbye.