Petco Health and Wellness Company, Inc. (WOOF) Earnings Call Transcript & Summary

Please welcome to the stage, Vice President of Investor Relations, Kristy Moser.

Good morning, everybody, and welcome to Petco's Inaugural Investor Day. I couldn't be more pleased to be here with you today and welcome you both in person and virtually. We've got a really busy agenda today where we'll hear from leaders from across our organization to cover things like our strategy, market positioning, operational capabilities and financial results. First, we'll begin by welcoming Ron, our Chairman and Chief Executive Officer, to cover Petco's strategy and market positioning. Then Ron will hand it over to Mike Nuzzo, Petco's Chief Operating Officer and President of Services. He'll be joined by Dr. Whitney Miller, our Chief Veterinarian, and together, they'll cover both services, including the build-out of our vet business. Mike will pass it over to Amy College, our Chief Merchant, who will also cover our differentiated health and wellness merchandise offering. We'll then take a brief break. And for those of you in the room, we have a couple of showcases where you can interact with our leadership and take a look at a few of our product offerings along the way. When we resume, Darren MacDonald, our Chief Innovation and Digital Officer, will be joined by Justin Tichy, our -- mouthful, our Chief Pet Care Center Officer, who will walk through our omnichannel go-to-market strategy, combining the best of a physical network with best-in-class digital assets. We'll then take a pause to go through Q&A to cover Petco's strategy, operations and market positioning. At that time, we'll take a second break to take a look at a couple of showcases, including our digital app and an exciting new concept. And in the final block, Ron will kick us off to cover our leading membership and subscription program. Katie Nauman, our Chief Marketing Officer, will give us more color on the richest data in the category, translating to customer acquisition, retention and loyalty. And finally, Brian LaRose, our Chief Financial Officer, will end the day with an overview of our financials, including our long-term financial algorithm. We'll then go into a final Q&A session and close out the day with our last showcases and lunch. Before I turn it over to Ron, I'd like to highlight our safe harbor statement. Please note, some of our discussions, presentations and statements that we will make today regarding our business operations and financial performance may be considered forward-looking. Such statements involve a number of risks and uncertainties that could cause actual results to differ materially from such statements. In many cases, these statements are beyond our control. Although the company believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that such expectations or any of our forward-looking statements will prove to be correct, and actual results may differ materially from such expectations. Important factors that could cause actual results to differ materially from those reflected in our forward-looking statements are included at the end of today's press release issued this morning and in the company's filings with the Securities and Exchange Commission. Because we use for -- we use select non-GAAP measures to describe our business performance, we've provided a reconciliation of these measures to the most directly comparable GAAP financial measures in the appendix of this presentation that will be posted to the IR section of our website after today's call. And with that, let me turn it over to Ron. [Presentation]

Thanks, Kristy. Don't feel bad about having trouble pronouncing Chief Pet Care Center Officer. When I told Justin we were changing the name from stores to pet care centers and your new title is Chief Pet Care Center Officer, his jaw dropped. That wasn't a good day for Justin. So anyway, hey, it's great to see all of you here today in person as well as those of us who are joining us virtually, we really appreciate you tuning in. To our investors, thank you very much for having confidence in us. We take your trust in us seriously. We work every day to enhance shareholder value, I assure you. And to our analysts, we really appreciate the time you spend on our business. Your insights make us smarter, and we appreciate that greatly. So this is the first investor event since our IPO in January of 2021. And we're really, really excited to share how we're reinventing pet parenting for tomorrow, but doing it today. I join you today excited and confident, confident in our ability to drive profitable growth. We operate in a tremendous category that is growing rapidly. Within that category, we're the only player with an end-to-end ecosystem. We have competitive advantages. Our offering is differentiated, and that's going to enable us to gain share. And we also have absolutely tremendous people. We unlocked their passion in 2018. And COVID made us even stronger, and we have not looked back. And they are led by an incredible management team that I am so excited for you to meet today. And make no mistake about it, we're on a mission. We are on a mission to reinvent pet parenting, nothing short of it. On our earnings calls, I've talked about something called purpose-driven performance. And for me, it's a real passion point. We are here to improve lives while, at the same time, executing as well as any company on the planet. We think that makes us unique, it is our mission, it is our North Star. And I hope after today, you'll believe that we are well on our way. So let me talk about what we've accomplished since our IPO. That was a very exciting day, a little over a year ago, downtown a bit, actually directly that way. We've had a record performance, beat and raised 4 consecutive quarters in a row. And what that tells you is that our ecosystem-led strategy is resonating with customers. We've continued to deepen our competitive moats. And we believe we are at the forefront of what I call Retail 3.0, and I'm going to share our definition of Retail 3.0. Impressively, we just reported a 30%, 2-year comp, driven by 7 consecutive quarters of double-digit growth, 7 consecutive quarters of double-digit growth. If you look at the top 50 retailers, there's only 3 who have had 7 consecutive quarters of double-digit growth, and one is Petco. And this growth flowed to the bottom line with expanding adjusted EBITDA margins. And we've proven we have operating leverage in our model. And our customer acquisition engine, it is an absolute competitive advantage. I can't wait for you to see Katie's presentation today. We have precision marketing that delivers 3x industry benchmarks on marketing. And we've added millions of customers this past year. We're now at 24.1 million customers. And overall, we join you, positioned for profitable growth. It starts with a category that's supposed to grow 7% from '21 to '25 according to forecast. That's a category that's resilient to economic downturns, resilient to inflation. Within that category, we have the only end-to-end ecosystem. And over half of pet parents say that's exactly what they want, they want to consolidate with one partner. We portfolio shift to services, grooming and training the fastest vet build-out in history. And to be clear, at maturity, our services business is EBITDA neutral to our business. We build competitive moats around our merchandise such that the majority of our merchandise can't be found in other places. The majority of our merchandise cannot be found at other places. We've built world-class digital assets, connecting digital and brick-and-mortar. Our fulfillment is a competitive advantage. Our fulfillment is a competitive advantage. And our competitive advantages extend to marketing, to data, to our people. So we have significant competitive advantage. Combined, these competitive advantages and capabilities lead us to have confidence that we're going to add more customers, we're going to gain more share of wallet from those customers, which enables us to gain share, which enables us to drive profitable growth and growth above the category projection. And we'll have a positive spread between revenue and profit, and Brian will elaborate. That will allow us to drive tangible enhancements in shareholder value. So the team driving this purpose-driven performance has been hand-selected. We have an amazing team, Fortune 50 talent combined with deep retail knowledge from the likes of Target, Walmart, Walmart.com, Jet.com, HP, PepsiCo, Best Buy, combined with Restoration Hardware, Abercrombie's in their heyday, Boardriders, et cetera. So we have a fantastic, fantastic team. And together, we are executing day in, day out. Whether the skies are clear, cloudy or they are stormy as can be, this team has executed. And now we're focused on nothing short of reinventing pet parenting. We're ambitious. And to remake the category, we need to understand the trends that are going to shape the future of the category. So one of the trends that we're talking about is humanization and personalization. We've aligned our strategies to these types of trends. And pet parents are humanizing and humanizing and humanizing some more. Pet parents don't want to be called pet owners. 77% say they want to be called pet parents, and 60% say they love spoiling their pets. Anybody read The New York Times here? Anybody read the wedding section? This Sunday, I couldn't believe it, I was looking through the wedding section. Why? I don't know. And this ran in the wedding section, which is the first time I've seen pets announcement of getting married in the wedding section of The New York Times. If I've ever seen humanization, this is it. These pet parents are the ones who are buying fresh frozen. They're the ones who are going to SoHo to buy our Reddy products. This trend has been here for the last decade, and it will continue, only furthered by millennials and Gen Z-ers. If you look at the last year alone, 26% of Gen Z-ers and 24% of millennials got a new pet. That is providing upward movement on the premiumization because they spend even more. And in fact, 66% of them say they love to pamper their pets. Customers are looking to buy when they want, where they want, how they want, so connected experiences is even more important. This is a key tenet of Retail 3.0, connecting digital and brick-and-mortar. And we're attracting and retaining customers through our integrated model, to be a one-stop shop, whether they're in digital or whether they are in brick-and-mortar. Customers are looking for personalized advice. If my dog has a neck rash, I don't want you to talk to me about anything else. I wanted to know how to fix the neck rash. If I have a 14-year-old dog, I don't want to hear about puppies. So the whole thing is about personalization. 2/3 of pet parents want a partner who can offer them personalized solutions, and that's a lot of what Katie is going to talk to you about today. And then sustainability, more and more customers are looking for sustainable products. 1/3 say they're willing to spend more on a sustainable product. Two years ago, we launched a product -- or a product line called Started as a Bottle. I was like, oh, I don't know if this is going to work. Sold out immediately. It was all different toys and products made from recycled bottles that were headed for the ocean. So we're confident. We have a proven ability to take advantage of these trends to capture the $8 billion to $10 billion of annual category growth more than our fair share. So let's talk about growth. If you look at the category, it has been, is and will continue to be a high-growth category. Over the last 2 years, it's delivered a 9% CAGR, driven by pandemic and historic highs, delivering us an install base that we call the furry annuity. They're going to need to be fed. They're going to need to be groomed. They're going to need to be vaccinated. But at the same time, these pets are coupled with a mid-single-digit increase in spend per pet. So let me go to the furry annuity and the pet boom. I analogized that with what happened after World War 2 with the baby boom. If you look at what happened with the baby boom, in the '50s and '60s, they drove diaper sales. In the '70s, the discos were full. In the 2000s, it's driven a boom in health care. Except in this instance, Petco is the Pampers, Petco is the Studio 54 and Petco is the Kaiser Permanente. We benefit from that furry annuity from cradle to grave. And the retooling that we did in '18 and '19 position us perfectly to get more than our fair share of that pet boom. Now looking ahead, category forecast from '21 to '25 are for 7% growth. '22 will be slightly lower because of the overlap to last year's stimulus. Now moving over to the right side, what I would highlight is $45 billion of the TAM is services. Of that $45 billion, roughly 97% is hands on pets, vet hospitals, grooming, training. So I hear a lot about things like TeleVet, which we participate in, 97% of the $45 billion is hands on pets. So today, you'll hear about how we're going to grow share in our existing categories, but you'll also hear how we're going to go after $40 billion of incremental TAM. $40 billion of incremental TAM, that's across insurance, that's across Rx, that's across geographic opportunities, fresh frozen. We have tremendous incremental TAM capture. This is a really exciting time to be part of this category. So to go get that business, you need to make sure you're targeting the right customers. And at Petco, we target those customers that take the best care of their pets. We target those customers that spend the most. We target those customers that are the most inelastic to economic dynamics. These are the pet parents that are health conscious. These pet parents spend over double digits more than your average pet parent, which positions us very well. And when we bring in new customers, they over-index towards these segments. Why? Well, if you are the pet parent that likes to take the best care of the pet, guess what, the company that got rid of artificial ingredients, the only company that got rid of artificial ingredients is your type of company. The company that got rid of shock collars is your type of company. The company that has the end-to-end health and wellness ecosystem is your type of company. And as we continue to strengthen our offers, including Vital Care, we bring that ecosystem to bear for customers. As we get sharper on analytics and CRM, we bring that ecosystem to bear. So we are confident we're going to continue to win these high-value customers, these inelastic customers. So following our rebuild, coming out of COVID stronger, we've set a strategy to win that gives us confidence to drive the profitability and the profitable growth. And it starts with leveraging the competitive advantages that we built, and the first is the industry's only integrated ecosystem, and I'll share more on that in a second. Our omnichannel capability, being able to connect digital to brick-and-mortar as well as anybody in the world, what we're calling Retail 3.0. And then lastly, our people. Make no mistake, our people are an advantage. Have I wondered about it? COVID proved it to me. At the heat and the peak of COVID, this mantra came around, Petco Strong. I didn't develop it. The marketing leader didn't develop it. The comms person didn't develop it. It came from the folks in our pet care centers. It showed up on hats, it showed up on T-shirts, it showed up on Zoom backgrounds and it was all about being Petco Strong for pets and being Petco Strong for each other. So our people are an absolute competitive advantage. And we leverage those competitive advantages across 3 strategic pillars. The first is mix shifting to services, headlined by the fastest -- one of the fastest build-outs in history, and again, at maturity, EBITDA neutral to the rest of our portfolio. Second, we've been curating our portfolio. So as I said, the majority isn't sold to other places. The majority isn't sold to other places, whether that's owned or exclusive and limited distribution offers. And then lastly, I think that you're going to get a double-click into this, we haven't shown you before, we are becoming a powerful data company. And our data is advantaged because it goes from the hospital to the trainer to the groomer and into merchandise. That is a data competitive advantage. Couple that with Vital Care and it's clear that we are leading innovation in the pet industry. It's also clear that we'll be able to gain more share of wallet from more customers. So execution against these strategic pillars will drive profitable growth and enhance shareholder returns. So let me talk about our ecosystem for a second. The only integrated end-to-end ecosystem for pet parents, something that says 54% of customers say exactly what they want, that's up 4 points in the last 2 years. So more and more customers are looking for this consolidation. Let's take the [ Coglin ] household before I joined Petco. I went down the street to a groomer, they were okay. I went on Google to find a trainer who came to my house, didn't know anything about him. I went to a vet 10 miles away, never met the vet, only dealt with the vet tech and, of course, the cashier. Didn't have a great experience there. Went to 2 different places for food, had no affiliation there. I'm across multiple places, nobody has my data. The groomer doesn't know what the vet said. The vet doesn't know what the groomer saw. There's nothing across that ecosystem, right? This is something that customers are looking for, 54%, nobody else, nobody else can provide it. So going across -- just 4 years ago, we set out to build this end-to-end ecosystem across services, products, digital and brick-and-mortar. In services, we now have 200 vet hospitals. We run 1,000 mobile clinics. We've reinvigorated our grooming, reinvigorated our training. Those are leading to scaling in Rx and insurance. From a product standpoint, we're a proven brand builder on the own brand side of the house. And we also partner with vendors for exclusives and limited distribution products. Over the last few years, we've built world-class digital assets that complement our physical network. And over the last 2 years, we've extended our micro-distribution strategy, and this is a true competitive advantage. 493 incremental ship-from-store locations, 1,427 curbside locations, 1,406 same-day locations, all that work in the last few years, faster to the customer, and the majority of cases lower cost than DC-shipped product. Faster to the customer, lower cost than DC-shipped product. We've created structural advantages versus online-only competitors. Let me give you my favorite example on this. This tennis ball on DoorDash costs us the exact same to get to a customer as a 40-pound bag of dog food. This tennis ball cost the same as a 40-pound dog -- bag of dog food in DoorDash. That's a generator of competitive advantage. In the outer ring, we've developed powerful loyalty programs led by Vital Care, the industry's first comprehensive wellness program, just a tremendous move forward in pet parenting and one of the ways we're reinventing pet parenting. So why is this important? It's important for the pet, but it's also about share of wallet. This drives share of wallet. If you look at Vital Care, they spend 3x more than your average pet parent. $330 million for each point of share of wallet, Vital Care is a proof point. I have multiple proof points of how we drive share of wallet with our ecosystem strategy, and we are just getting started. So let me now talk about Retail 3.0. So I was in tech for 11 years with HP. And in tech, they talk about technology rollovers as kind of 1.0, 2.0, 3.0 and disruptions. We are in a retail disruption now. We are in a retail disruption now. COVID accelerated that disruption. So if I go back 50, 75 years, you had mom-and-pops and general merchandisers like Sears, the mass players of today took a lot of that business. In the '90s, online was scaling, and the theory was we were going to buy all of our merchandise from online players. But today, we know the answer is a different answer. The answer is an omnichannel that we've been talking about for a decade is now here and now flexing. Customers want to go from digital to online to mobile to stores and back again, and the micro-distribution competitive advantages are proven. We've seen other retailers hone their strategies like Target around the micro-distribution advantages. And if you add in services like the Best Buys and the [ Altus ] , your 3.0 hand is even stronger. And we see ourselves as leaders in Retail 3.0. We have best-in-class digital, best-in-class brick-and-mortar that we bring together to leverage, but we leverage those as a strategic footprint. There's not many folks that are putting 80% of their digital orders through their pet care centers. 80% plus of our digital orders are going through our pet care centers, faster to the customer and the majority of time, lower cost than DC. Combine this with a scale and growing services offering, and we have advantage versus the mass, the online, the grocers. Combine that with the fact that we make a positive impact in all the communities that we operate in, and our hand is truly, truly unique. And now we're expanding beyond our 4 walls with partners like Lowe's, partners like Rover, the flagship store in SoHo for Reddy. And you'll hear another announcement today in terms of a new pilot that we are testing. So what does that bring us? What does Retail 3.0 bring us? I talked about the competitive advantage in terms of fulfillment. But now we have the data across the whole buying pattern, so it provides us with advantaged data. That data allows us to personalize. In our business, when you personalize, you have healthier pets. When you get healthier pets and you generate healthier pets, you're going to gain share. That allows us to drive the profitable growth, LTV, loyalty and all kinds of goodness. We are on our way to being a leader on Retail 3.0. One of the key drivers of 3.0 and advantages that we have is our scale of services business, $45 billion services market. Within services, vet is our most exciting play. I could not be more fired up about the acquisition of the other half of our Thrive JV. 800 vets and vet techs are now part of the Petco family. If you know anything about vet recruiting, word of mouth is about half the story. We've now almost doubled our footprint of people out there talking about Petco in the vet space. We're able -- at the end of '22, we'll be able to provide vet care in 48 states. That is the broadest footprint of any vet network. We are now operating at scale, and there are very few players operating at scale in the vet space. We have our sights on 900 locations, but it's not just 900 vet hospitals. It's our step-and-repeat model, vet hospital, Just Food For Dog pantry and a Reddy store-in-store, significant uplift. Justin will share that with you. Not many retailers that you can invest in or you cover have that step and repeat of building those and with a proven financial model. We really like vet hospital financials, but we also really like the 4- to 5-point lift that we get in center store merchandise. We take out 2,500 square feet, put it in a hospital, but we still get the lift on merchandise we put in the hospital. We've turned our grooming and training business into a double-digit growth driver. Consistent with our positioning, we launched clean grooming, so we now have human-grade shampoo and conditioners that would make Vidal Sassoon jealous. I also hear that Brian's dog, [ Sandy ], loves her blueberry facials, talk about humanization. We launched online training in COVID, great example of us executing. Training got cut down, we launched online training. My mom's Maltese in San Diego got online trained by our star trainer in Union Square, right? [ Bella ] got -- [ Bella ] in San Diego was trained online by our star trainer in Union Square. We're optimizing our offerings with investments in analytics, in human capital to ensure that we have operational excellence. The other thing is our ability to do digital marketing in a highly fragmented 1- and 2-person type businesses and services is an absolute competitive advantage. And then the last thing on this slide is if you think about a vet business, it drives insurance and it also is a closed loop to Rx. So we have a big advantage in terms of driving Rx business off the back of our vet business. I talked about digging our competitive moats on merchandise. The majority of our portfolio cannot be found at Safeway, it cannot be found in Walmart, cannot be found in Amazon, it cannot be found at Chewy. If a customer wants Friskies or Pup-Peroni, they can go to dollar stores, they can go to supers, they can go to our pet specialty competitors because we're not going to compete for that commoditized, low-margin business. What we're focused on is power owned brands, building power owned brands and putting underneath them differentiated offerings. I spent 13 years at PepsiCo, one of the brand-building academies. I am so impressed with our ability to build brands at Petco. Second, we're going to win in the fresh frozen category. We are already the pet specialty leader in that space as well as the premium and super premium space. Here's my guy Yummy, and Yummy absolutely had 2 years added to his life because of fresh food. It's amazing. He is a Giants fan though, so it's been a tough decade for Yummy, but he does like watching Eli with that brother, I forget his name on Monday nights. All right. And then second -- lastly, exclusive and differentiated. When I came into Petco, the relationships were frayed with our vendors. I spent, like I said, 13 years at PepsiCo selling to retailers and as well as HP selling to the Walmarts of the world, the Amazons of the world and the Best Buys of the world. Our Chief Merchant, by the way, there she is, was a very tough negotiator over at Best Buy. But when I came in, they were frayed, and we have sought to be the best partner for vendors. Why is that important? Because the best partner gets the innovation first, that's why we get those exclusives. The best partner gets more than their fair share of marketing. In tight supply chain times, the best partner gets a little bit extra that helps with that share every quarter. Our strategy is working. We're gaining merchandise share, we're gaining merchandise customers, we're gaining loyalty and our merchandise margins are expanding. So our merchandise and our services are conveyed to customers through our powerful marketing. And we've truly built a powerful marketing flywheel that drives attraction, retention and monetization of customers, and those customers are the highest-value customers in the category. Our return on marketing is 3x industry average, 3x industry average, and it starts with data. We are using data as a competitive advantage. We have built a proprietary database that we called, believe it or not, the Dog House. Katie will talk more about our Dog House, but it provides a significant advantage because we have data from the vet to the groomer, to the trainer, to the merchandise. Think about your dog is diagnosed with a skin issue in our hospital. The groomer knows that dog has a skin issue and uses certain products and certain treatments to make sure it's well taken care of. That same customer goes to center store. We recommend a product for dogs with skin issues. We recommend an OTC for that condition. That data goes across the enterprise. Nobody else can do that. And through our precision marketing, we're able to use that data for our recommendation engine. I talked earlier about personalization. On my app, I got a notification that Yummy -- I haven't bought Yummy dental chews in 6 weeks. So what does that tell me? Number one, that you need to be a better pet parent. But number two, that we now have powerful data that we're customizing to me, right? Ron, you need to buy dental chews for Yummy's teeth, right? And that's where we are in terms of our marketing. And we're leveraging the power of high-touch personal interaction in our stores and personalized in digital. Our app, Darren will talk to you about, it enables pet parents to manage their pet's entire health and wellness routine, uniquely, only we can do this. And finally, through our loyalty and membership programs, we're able to provide pets with the best care, but also provide the most value for Petco. Vital Care will be a key enabler for Petco to be the sole partner for pet parents' health and wellness needs. And we're integrating our loyalty programs, so you'll see us bring Pals perks under the Vital Care umbrella for cohesion, and I'll talk more about that later. So I spoke earlier about being confident in our ability to drive profitable growth, and it's due to the capabilities and the advantages and the initiatives that I shared. So we're setting a target, an aggressive long-term financial target. On the top line, we're going to outgrow the category. And we have confidence that we can do that because of our ecosystem, because of our omnichannel capability, because of our step-and-repeat vet plus, because of our incremental TAM opportunities that we already are making progress on. And from a profit standpoint, our plans will expand adjusted EBITDA margins with those initiatives, with gross margin expansion in each one of our individual businesses and because we are very good at being disciplined on cost, and we have in-flight cost-out efforts that Brian will elaborate on. These together will drive shareholder value. So make no mistake about it, we emerged from COVID stronger. We have millions of new active customers. We have made or leveraged, on a pet care center fulfillment standpoint, an absolute competitive advantage. Our digital business has more than doubled in the last 2 years. We are now operating at scale from a vet standpoint. We have one of the fastest growth trajectories as a business of anybody in the retail universe approaching $6 billion. And our 28,000-plus folks are an absolute competitive advantage. I started, though, talking about purpose-driven performance. So the business is half, and the other half is, do we make a difference? And that motivates us. That is a retention tool for us. Not many companies that you can invest in save 400,000 pet lives a year. Anybody here lose a pet ever? Yes, it's one of the most harrowing times of your life. It's happened to me twice, and it's harrowing. We are the only company through Petco Love Lost where we have facial recognition to help you find your pet, and we reunited 4,000 pets last year. You'll hear about we are the only company with American Humane Certified animal handling. Why? Because we're really good at it. But why did we go to get the certification? Because we care. But we also improved the lives of our partners, double-digit increases in average wage rates in pet care centers and DCs, 200% plus bonuses across the org under the mantra, as the company does better, our people will do better. We invested $12 million in premiums. There has not been one premium increase since I've been CEO of this company. The company has eaten those premium increases so we can help our partners. But a diverse and inclusive culture is also important. I am so proud that 50% of our hires and 50% of our promotions have come from groups of underrepresented employees for the last 2 years. And then we're also positioning ourselves as a leader in sustainability. We removed plastics, removed cardboards, but we are the only company in our space to make a commitment of 50% of our portfolio by 2025 will be sustainable products. We're the only company with that type of commitment. We'll continue to update on our corporate sustainability report across all these measures, but make no mistake about it, we are focused on improving the lives of pets, pet parents and our Petco partners. That is on my wall. Every single day I stare at, we improve the lives of pets, pet parents and Petco partners. Every day I stare at that in my office. So to close, we have a tremendous runway ahead. We play in an incredibly attractive category. Our ecosystem is built to capture that opportunity. We're positioned to lead Retail 3.0, the future of retail. And as we look at a post-pandemic world, we are emerging stronger and more confident in our ability to drive profitable growth. Today, you're going to hear -- I'm so excited for you to hear from just an amazing group of leaders who represent our 28,000 partners who pride themselves on executing no matter what is in front of them. Together, we're Petco strong. And we're now going to drive deeper into the strategies and tactics that will drive our transformation of this category. And let me first start with our COO and President of Services, Mr. Mike Nuzzo.

Oh, wow. Good morning, everybody. It's great to see everybody in person. We -- as you also saw, we've got the marriage of Twixie and Cowboy. Did everybody get that? So it's all good. It's all good. I'm really excited. We have come a long way. In 2017, we had a services business with unhappy partners, subpar operations and no digital integration, zero, zero. Other than that, everything was great. So I'm really excited to share where we are now and where we are going. And along the way, we have gained a lot of fans, including my energetic pup, [ Marlow ], you can see up there, lounging by the pool, of course. Today, she combos her trips to the pet care center for food and treats with a trip to the groomer for a bath and a trip to the vet hospital for her allergies. And incidentally, nobody shared with me how many allergies French bulldogs have. So that was a real wake-up call. Anyway, let's get started. First, I'm honored to be sharing the stage today with Dr. Whitney Miller. I'm amazed every day by Whitney, our vet leadership, our teams and their contributions to the company. Services play a critical role in our Retail 3.0 vision. And make no mistake, our near-term goal is to build the largest and most comprehensive pet services offering in the industry. We have 3 major focus areas that support that goal: one, have the best engine for recruiting, staffing, compensating, onboarding and retaining pet service partners; two, drive synergies with our pet care centers that bring our ecosystem to life for our pet parents; and three, link our services with technology, marketing and membership programs like Vital Care that keep customers coming back because the service experience is the best. So let's start with the market. Ron touched on this a little bit. Pet services are large markets with a combined total spend of over $45 billion a year, virtually all from real, tangible, hands-on pets offerings. And we recently partnered with Rover to provide our members with preferred access to pet sitting and boarding. In addition to size, you've heard us emphasize the following additional elements. Services have some of the highest growth rates in pet, benefiting from the massive increase in pet ownership. And what we see as a clear strategic advantage, the market remains relatively fragmented with small, relatively unsophisticated players. This is where we are uniquely positioned to win with our assets, expertise and scale. So we have differentiated assets, a substantial customer base and a defined growth strategy. In Grooming, we have over 1,300 salons, a record 5,600 groomers, salon growth capacity for years to come, driven by a product innovation engine that continues to wow our 0.5 million perks customers. We have over 1,300 dog trainers. And with the addition of online, we have the most scaled training model in the industry. And of course, vet, now unified under one brand, Vetco Total Care, over 1,000 weekly mobile clinics, 200 full-service hospitals, a hospital expansion and related revenue lift opportunity that is massive. And consistent with Retail 3.0, we have a tight integration with our digital platform. Today, over 50% of our services revenues start with online appointments, many now made on our amazing Petco app that Darren will talk a little bit about. The app acts as a powerful retention tool in and of itself. So let's expand a little bit more on our vet business. I'll walk you through our journey. Vet was already in our DNA. We started with over 10 years of vet experience running a large-scale mobile clinic network. In 2017, we partnered with Thrive and others to start full-service vet hospitals in our pet care centers in a few states. In 2019, we invested in our own capabilities and started opening Petco-owned hospitals. We quickly built an expertise in running hospitals with the addition of talent from every leading company in the space. And we saw that our owned hospitals were outperforming our partner hospitals. In 2020 and 2021, despite the pandemic, we continued to expand both our hospitals and mobile clinics. Today, we offer vet services in 42 states. And by the end of the year, this will grow to 48 states. So I really have to apologize for the Dakotas, we will be out to see you soon. But really, no one will have this nationwide reach. And ultimately, we have a runway for expansion that will result in 900 full-service vet hospitals across our chain. In our vet expansion, the following developments are a massive benefit for us. First, the purchase of the rest of our Thrive joint venture that Ron mentioned, where we are fully integrating 98 hospitals and over 800 vet professional staff. This will require focus in the first half of 2022, but will unify our brand under Vetco Total Care, harmonize our medical approach and give us operating synergies and G&A savings. Second, although our primary strategy is build, we are also seeing early success in small tuck-in hospital acquisitions. Keep in mind, 80% of vet practices are still independently owned. And where we see an opportunity, we can buy a vet practice, bring it into our pet care center and benefit from a mature client base that drives accretion to our model. And finally, what we don't talk much about is we recently took our mobile clinic online staffing platform and expanded it to our full-service vet hospitals. So today, our vets can select flexible work options at hospitals, including dedicated surgery days and weekend shifts. This scaled in-house platform where we engage with over 1,000 vets on a weekly basis is an incremental staffing asset that no one else in the industry has. Now let me turn it over to Dr. Whitney Miller to present more detail on why our vet proposition is so special for both our customers and our partners. Whitney?

Thanks, Mike. It's so great to be here with all of you today. Clearly, Mike and I did not have a conversation before he adopted [ Marlow ] because I definitely would have mentioned the French bulldog risk of allergies. But they make up for it with their cuteness and their personalities. It's really great to be here with you today as Petco's Chief Veterinarian. I have watched my profession evolve in amazing ways over the past 20 years. And leading change in the right direction with Petco's amazing growth in veterinary services is both humbling and incredibly exciting. We have positioned ourselves on the leading edge of general practice medicine and have great momentum. But don't just take it from me. Let's hear from some of our team members in the field. [Presentation]

Also as a mom of 3 kids under 6, Dr. Silva and I talk a lot about that balance. And when I talk to Dr. Massey and Dr. [ Ackerone ], we both talk -- we all talk about how we've worked in so many clinical settings. And we not only have the way that we can practice medicine here, we have the culture that we can believe in. Building on our decade in veterinary services, we are aggressively capitalizing on the vast opportunity to scale our full-service general practices, all to execute on our mission of offering affordable, accessible veterinary care under the philosophy that best medicine is best business. Our state-of-the-art facilities are equipped to give pets the best care possible whenever the pet needs it. We offer lifelong wellness care, advanced surgical care and a full suite of diagnostic capabilities, including innovative technologies such as the PetDx liquid biopsy cancer testing. But we don't just stop there. With long wait times of over 3 months plus to see a lot of specialists in our markets, we're helping our patients get care faster and we're saving lives. We're helping reshape how a full-service corporate practice goes to market. We provide almost every veterinary service of pet needs throughout their lives. And those few times that they might need to see a specialist or seek veterinary emergency services, we are able to either bring traveling specialists into our hospitals or refer them out to another facility for short-term care that will bring them back to us when their treatment is complete. This has only become more important during the pandemic with very long lead times to see specialists and emergency facility wait times that can exceed 12 to 14 hours. I worked emergency for many, many years in Delaware, and the hospital that I worked at would refer a lot to the UPenn emergency hospital in downtown Philadelphia to see specialists or emergency clinicians when needed. My coworkers that still work at that hospital tell me that because of the demand, UPenn has had to cut off accepting emergency patients in many situations. That leaves pets with nowhere to go. And so when we can be there for them, again, we're saving those lives. And just last week, I learned of [ Leo ], a golden retriever who could not get in to see his local specialist. So we brought a traveling board-certified radiologist to him in our Vetco Total Care hospital. Unfortunately, it revealed every pet parent's nightmare, a mass in his abdomen. But we were able to act swiftly, get him into surgery in our hospital and remove the mass. He's now undergoing chemotherapy, and he's going to have good quality time with his family. And as Ron said earlier, it's our ecosystem that can support that. Access is unmatched. We are in the same floor space that our clients already enjoy for their merchandising, training and grooming needs. Vital Care removes any barriers to seeking care and promotes the lifelong wellness of pets. My pup [ Gibbs ], who's a 14-year-old lab like Yummy, has been a Vital Care member since the beginning. And we just got a new kitten a few months ago, and she just joined to take advantage of our new feline benefits. And we see this synergy in the repeat visits of our clients and total lifetime customer value for our veterinary customers. We are the only whole health care provider out there, and veterinarians and paraprofessionals want to be a part of it, too. By allowing our vets autonomous medicine, which is core to our philosophy in our hospitals, we're enabling the best, most personalized care for our patients, all while solving the biggest frustrations that veterinarians have about working in our profession. Our doctors set the right diagnostic and treatment plans for their individual patients, not set protocols and not a strict formulary that puts them into very limited ways to treat their patients. This puts Petco in the driver's seat to layer on our industry-leading compensation benefits, equity offering and total rewards, which is quickly making us the employer of choice in the industry. And we see that with over 93% of our doctors and paraprofessionals recommending us as a great place to work. One such referral is Dr. Jennifer Henderson at our Chicago Clybourn Vetco Total Care. Dr. Henderson is not just a beloved veterinarian in her community where her clients from her previous hospital were calling weeks in advance of our hospital there opening to make sure that they could get in to see her, she's also one of my vet school classmates. Dr. Henderson has not hesitated once when I've asked her how it's going. She says and continues to say it is the best career decision I ever could have made in my life. And this experience is the norm, not the exception. The other factor that veterinarians and paraprofessionals have to know when coming into a network like ours is that we put their voice first. That means having leaders they can identify with and relate to. Veterinarians want to talk to veterinarians. And we have built a world-class veterinary leadership team with both large-scale corporate and independent [ practice ] experience. Our leadership team, including myself, have been in the trenches. My first job out of vet school in a hospital, the owner said, don't worry, I live 2 miles away, you ever need anything, you call me. When I was solo on shift, did he ever answer the phone? No. So I was consulting the book on the shelf and having to figure it out. I know what it's like to run out of things that I need for my patients. I've run out of suture. I've run out of certain syringe sizes. I've run out of meds and had to shift on the fly. And I've worked in another corporate-owned facility where they sent staff home despite heavy caseloads, and the patient care suffered. These pain points are not what our veterinarians experience. They have white glove, dedicated medical support whenever they need it. They have access to a strong, robust formulary where we mitigate any supply chain disruptions before they ever even know about it. And we make sure that every hospital team has the support that they need to provide the best patient care. We also have world-class advisers on our Petco Pet Wellness Council, including the incoming American Veterinary Medical Association President; 2 leading specialty clinicians at the Animal Medical Center here in Manhattan, which is the largest nonprofit animal hospital in the entire world; and a leader of DEI in the profession, among many others. And we are just getting started. We are redefining what a full-service general practice experience can be at scale for our veterinarians, our clients and our paraprofessionals, but most importantly, our patients. Despite headwinds in the profession, our growth and success on one of the fastest vet buildout ever continues. And I want to get back to what's at the heart of it all, our pets. The last time I worked at Vetco clinic just this past weekend, I saw a pet for vaccinations, but also noted in my exam that there was an active ear infection. And I talked to the pet parent, hey, I think you need to go see a full-service vet to make sure we can get this under control. She said, I would love to. I've tried to get in. Wait times in my area can be up to 6 to 8 months to get in. That is not a joke. So I walked her over to our health hub in the PCC, got her an over-the-counter ear remedy to help that ear infection and make sure that pet was okay. And I let her know that we would soon be opening a full-service Vetco Total Care hospital in her area. She was absolutely thrilled. She walked away with the preventative care her pet needed that day, an over-the-counter ear remedy to make sure that, that pet was comfortable and the ear infection didn't get worse, and we're going to have a lifetime client when that hospital opens. This is not just a new business we are building, it is an experience and it is lifelong relationships. We're building the only pet health care access targeted at the 54% of pet parents who want the one-stop shop experience that Ron mentioned. We have national access, as Mike showed, through our full-service hospitals and our Vetco mobile clinics. Our hospitals have experienced clinicians that offer wellness, urgent and sick care, surgical and dental procedures, full suite of diagnostic capabilities and access to specialty and emergency care when necessary. We are here from the day you bring that new love into your life to the day we have to say goodbye and all of the wonderful moments in between. And with that, I'm going to pass it back over to Mike.

Thanks, Dr. Whitney. That was awesome. I would have to tell you that some of my favorite times at the company these days is visiting with our hospital teams. I learn something new every time I do it, and I'm inspired every time I visit. So let's switch gears a little bit. Let's talk numbers, everybody's numbers. Our growing scale in vet is essentially a one-of-a-kind unit growth story. But the beauty is this growth happens within our existing pet care center square footage, so no incremental occupancy cost that further enhances our model. And Ron talked a little bit about this, but the simple math is we add a vet hospital to a pet care center that can reach $1.5 million of mature 4-wall hospital sales, plus a mid-single-digit center store lift, primarily driven by more customer trips with the addition of Rx, fresh, Reddy and other product lines. So in total, we're driving roughly $2 million of added revenue per PCC. You step and repeat this across our footprint. And as we move from 200 locations today to 900 locations, we can drive over $1.7 billion of incremental enterprise revenue. And heck, with the lofty multiples in this space, we're talking well over $5 billion of future total enterprise value for our vet business. So overall, the expansion of vet, including hospitals, clinics, Rx, insurance and related health offerings, is a major contributor to the overall growth of services in our Retail 3.0 vision. Our vet performance has been consistently impressive with AOV increases, with more surgeries, accelerating Rx sales and expanding 4-wall margins. So overall, $1 billion in total vet and services revenue is well within our sights. These are very exciting times for us with so much upside ahead. Thank you very much. And with that, I will turn the floor over to our representative cat owner and amazing Chief Merchant, Amy College.

Thank you, Mike. So hello, everyone. My name is Amy College, and I'm the Chief Merchandising Officer. And I'm excited to spend the next few minutes together as I take you through Petco's merchandising strategy. But before I do that, let me introduce myself. And so first, I'm a proud mom to a cat, so like Mike said, to a cat named [ Jake ], who has been in my family for almost 20 years, and he's a very integral member of our family. And as a bit of a background on my career, I spent 2 decades in various merchandising roles at Best Buy with the last role being Chief Category Officer where I managed half the categories in the company, including home theater, smart home and appliances. And then 2.5 years ago, I joined Petco as the Territory General Manager of the Northeast, where I worked closely with our pet care center partners as they brought our merchandising strategy to life. And it provided us with a direct lens to the needs of our pet parents. And so now as the Chief Merchandising Officer, I'm excited to strengthen our position as the leading provider of health and wellness of millions of pets and pet parents. Today, that means effectively managing rising inflation, working closely with our vendor partners, buying strategically and proactively meeting the needs of our pet parents. Our team is nimble. I have more than 20 years of experience managing through multiple cycles, and we will only continue to enhance our strong positioning. So let's start by walking through our overview of our merchandising strategy. So the total pet merchandise category is $72 billion, projected to grow at a 7% CAGR from '21 to '25. Within the most premium section of consumables, we're projecting double-digit growth during the same time frame. And we intend to continue to take share in this resilient category that's shown remarkable consistency through cycles. But importantly, we are also balanced. We're able to meet the needs across any size wallet. And our merchandising strategy revolves around a 3-pronged approach. It's focused on owned brands, differentiated and exclusive portfolio, and premiumization and humanization. And through this 3-pronged strategy, we're strengthening our positioning and continuing to grow share. And we are well positioned to continue to deliver results as shown by our impressive annual comp growth year-over-year. So as you can see, this strategy started to pay off in 2019 and into early 2020, so which was prior to COVID. And then it further accelerated throughout the pandemic, and we are positioned for additional growth in the years to come. So let's start by taking a look at the first pillar of our strategy, which is our industry-leading owned brands portfolio. So I share Ron's sentiment that Petco is a proven brand builder, and our owned brands insulate us from competitors while generating long-term value. Our key power brands within our owned brands portfolio showcase our ability to play across price segments and meet customer needs, from our mid-range offering in kibble with WholeHearted to our premium offering in supplies with Reddy. Focused on driving innovation, we actually crafted these brands to compete in individual categories. And today, I want to take just a moment to peel back the layer on how we developed an owned brands offering as we are meticulous and we're thoughtful on the products we bring to market. So first, we use insights focusing on the key trends and technology in the human space to inform our innovation priorities. Additionally, we are constantly analyzing our customer data for current insights to proactively understand and anticipate our customers' needs. We pride ourselves on being intentional rather than reactional. And then next, we combine these valuable insights with our robust marketing capability. And over the last 2 years, we've more than doubled our marketing investments around our owned brands. And through our marketing strategies, which you're going to hear more about from Katie later today, we've been able to amplify the power of our owned brands and bring them to market successfully. And one small but meaningful example is what we're doing in So Phresh. So we identified a desire for sustainability in the marketplace as millennials and Gen Z-ers became a larger portion of new pet parents during the pandemic. Let's take a look at how we've taken that insight to create a solution through our So Phresh refill program. [Presentation]

So this is just the beginning of the significant opportunity that we see for cats, and we're excited to expand our cat offerings in the future. So as [ Kelly ] highlighted in the video, the program is a great example of how we're scaling our owned brand offering, all while saving 2 million pounds of plastic. So bringing us back to the strategy, we've seen strong momentum in our owned brands. We continue to grow year-over-year with a higher-margin contribution than mass and national brands. We see an increase in customer spend almost 3x that of an average non-owned brands customer. So owned brands is a highly attractive element of our merchandising strategy, and we continue to see the opportunity to grow. So one of the most interesting opportunities for TAM creation across both owned brands and differentiated assortments is an over-the-counter offering in pet. So building from a $4 billion and growing category, insights show that many pet parents recognize the importance of pet health but don't know where to go for information. Awareness in the category is low, which creates an environment ripe for a leader like Petco to take charge in defining the OTC category, and it creates an opportunity for us to capture share and expand adoption. And this is another example of how we're being intentional. So we're leveraging our customer insights and our owned brand capabilities. So let's take Well & Good for example. Well & Good is an owned brand that we developed to be focused on pet health and wellness. It has holistic grooming, first aid and nutritional supplements that are simple to use and easy to understand. It allows pet parents to break through the category clutter and manage pet health issues before they become a problem. And we are seeing higher customer retention through offerings like supplements because once you begin giving them to your pets, it becomes part of a routine. So combining the market opportunity with the rebranding of Well & Good, we've created the Healthy Habits Hub to simplify the OTC shopping experience for pet parents. And by leveraging the power of our ecosystem, we have started with the full solution in mind around categories like supplements, pet solutions and grooming supplies. And we've positioned it close to our service offerings like grooming within our pet care centers. And our Well & Good products will represent approximately 30% of our product offerings within our Healthy Habits Hub. So we are excited about the opportunity to create an OTC at scale. The rebrand of Well & Good, coupled with the Healthy Habits Hub, showcases our ability to identify unmet needs in the market and proves we can win in the space. So moving to the second pillar of our strategy around our differentiated and exclusive portfolio. So nutrition plays the key role in our differentiated and exclusive portfolio. 3 years ago, we eliminated artificial ingredients, which set our strategy in motion to becoming the leading provider of pet health and wellness. And it actually transformed our positioning in the pet industry. The key to our strategy is that we focus on 3 core product differentiating capabilities, which include nutrition expertise, exclusive partnerships and a leading owned brand portfolio. We also utilized a best brand strategy to form partnerships with some of the most highly regarded food brands in the industry. All of this, including owned and exclusive brands, has enabled us to offer a premium product offering, many of which are not available via mass, grocery or our other online competitors. In addition, we continue to build trust with our pet parents by activating our 25,000-plus Petco partners who are trained to provide health and nutrition solutions based upon each pet's individualized needs. And importantly, in this tight supply environment, they can redirect customers to our owned brands or other substitutes as needed. Our programs, Vital Care and Nutrition Perks, help create and sustain loyalty. So for $19.99 a month, Vital Care allows a pet parent to save across vet exams, grooming and to receive discounts on food and supplies. And all of this can help a pet parent save money and take the best care of their pet. And the Nutrition Perks program is a place where the pet parent receives their eighth bag free within nutrition. So the strategy around differentiated and exclusive portfolio is not only driving results, but it has proven to be sustainable as over 70% of our consumables revenue is not available in the mass market. And all of this has led to 35% new consumables customer growth in the last year and 6 consecutive quarters of share growth. And we've been able to apply what we learned from our differentiated nutrition portfolio into supplies and companion animal as well. So from adoption for your furry friend's senior years, our set of offerings is designed to meet the needs of every pet parent. We are well positioned within the $22 billion supplies market, growing 33% on a 2-year stack. We're driving tangible results, thanks to the power of our ecosystem, which has led to strong customer conversion and retention and supplies. And as the industry leader in companion animals, we are poised to take additional share within the fragmented $2.9 billion market, and that's based on our product portfolio and our key vendor relationships. We're seeing a 12% higher LTV within companion animal parents while growing 35% on a 2-year stack. And we just announced this morning that Petco has been awarded the American Humane Certified Seal of Approval, which validates that animals in Petco pet care centers enjoy excellent attention and care at every step of their journey to their new families. We are the only retailer in the world to have received the certification. And for over 100 years, American Humane has been the leading organization committed to ensuring the safety, welfare and well-being of animals. So following independent on-site audits and observations of Petco and our vendor facilities, Petco was awarded the certification, building upon our industry-leading standards as it further differentiates us as a health and wellness leader. So now let's shift to the third pillar of our merchandising strategy. So we are well positioned to continue to capture the move towards premiumization and humanization. Let's take fresh and frozen, for example, so this is an extremely attractive area where we're seeing strong momentum across brands like Just Food For Dogs, Instinct and Freshpet. The market is set to more than double in size by 2025, and we have grown 46% year-over-year. We achieved 2.6x customer spend. And with more trips to our pet care centers to pick up the fresh food, it's easier to drive higher baskets from these customers. So let's take a moment to hear from one of our pet parents around Just Food For Dogs. [Presentation]

So in terms of what's on the horizon, we're planning to grow Just Food For Dogs to over 1,000 pet care centers and continue the expansion of our offerings as we launch WholeHearted fresh and frozen. We're also elevating the experience for cat pet parents, leading into premiumization through minimally processed foods, which is an opportunity of growth for Petco. And on the back of humanization, we have a fantastic portfolio that's only going to get better as we look to the future. To bring this concept to life, I'm going to walk you through our Reddy offering. So Reddy is one example of how we're extending our presence within the highest value parts of the market. We launched it with the goal to create the first nationally scaled pet fashion and lifestyle brand in the industry, both generating and expanding on the addressable opportunity that was in front of us. So Reddy targets millennials because as we found, the younger pet parents consider their pets as an extension of themselves, their identities and/or their families. And because of that, they're willing to spend more on them. And with over half of the Reddy shopper base considered to be high-income earners, we're well positioned within that demographic. And we're seeing a 2.4x average unit retail versus the rest of suppliers. So now let's take a moment to see how Reddy comes to life. [Presentation]

So as you saw in the video, we have several merchandising approaches when it comes to Reddy as we focus on building this brand. So the first is a flagship approach. We have one Reddy store open in SoHo that's performing above our expectations. The second approach is the shop-in-shop. Today, we have 58. And we're targeting approximately 100 by the end of the fiscal year, which, for those of you who are here with us in person, you'll get to experience in a few moments. And lastly, we have a presence in all of our 1,400-plus pet care centers, with a plan to add end caps and incremental fixtures while expanding our online experience. We are excited to gain further traction and drive incremental share of wallet as we continue to execute on our Reddy strategy. So now let me close by taking us back to where we started. This is a large industry with significant growth opportunities, and we are positioned to meet the needs of all pet parents. Through our 3-pronged strategy, we are confident in our ability to continue to take share and to strengthen our position. And we are focused on building upon our successes. So like in owned brands and in fresh as well as accelerating new initiatives in areas where market size is large, like in Rx and Cat. In owned brands, we have significant upside as we continue to innovate and capitalize on human trends while providing solutions across price segments. In fresh, we've quickly become a market leader and are projected to more than double in size. In Rx, we expect to double our share in this rapidly growing area, which Darren will elaborate on in just a few minutes. And finally, we're focusing on cats where we recognize there's a significant opportunity. Cats live longer. There are more multi-cat households, and they tend to be pickier than dogs. So all of these dynamics have driven us to align our merchandising strategy that capitalizes on the high Cat LTV and innovates within this category. And I know my cat, Jake, would appreciate this, too. So I would now like to pass the mic back to Kristy to lead us into our first showcase.

Thanks so much, Amy. We will now take a quick break, and we'll resume in approximately 15 minutes. When we resume, Darren McDonald, our Chief Innovation and Digital Officer; and Justin Tichy, our Chief Pet Care Center Officer, I got it right this time, will take us through our integrated omnichannel go-to-market strategy. For those of you who are joining us in person, we will now open a few of our showcases, which can take you through our Reddy offering, including a couple of our leaders that you saw on the screen, John Bonawitz, who is our lead designer; and Jason Burris, who leads our Reddy store; as well as our vet showcase where we'll have Dr. Whitney Miller as well as several of our other vet leaders who will take us through that showcase as well. Thanks so much, and we'll be back in just a few moments. [Break]

Our program will resume in just a few minutes. Please find your way back to your seats. Thank you. Our program is about to resume. Please take a moment to silence your phones. Thank you. [Presentation]

Hello, everybody. Enjoyed the showcases? Rousing, yes, very good. Exciting. Yes, I know. Well, I'm Darren MacDonald, I'm Petco's Chief Digital and Innovation Officer. I've been fortunate to work at some pretty cool retail companies in my career. I actually worked just down the street for Barry Diller at IAC, and then was part of the senior team at Jet.com and eventually ran about 1/3 of Walmart.com's business. But today, I'd like to tell you why I'm really excited to be at Petco. I want to start by telling you something you probably didn't know, which is that petco.com grew more e-com share last year than any other online pet retailer. And we were #2 only to Walmart, which was kind of the safe haven during the pandemic over a 2-year period, according to Numerator's Panel Data. That's pretty impressive and very exciting. It means that we grew faster than Chewy, means that we grew faster than Amazon. It means we grew faster than Target. It means we grew faster than PetSmart and a host of other retailers. I'm not only proud of the work that the digital team did, which was great. But I'm also proud of what Petco did because they decided to make a series of investments that allowed us to capture value in ways that we only could. The thing is back in 2017, we were really just a promotionally driven retailer. The site experience wasn't fantastic. And honestly, when I joined the company, I wasn't 100% sure that we were going to make the investments that were required that would allow us to win. And then you look at 2018, and we launched the Petco app, which is a fantastic experience, and you'll see some more about it a little bit later. And they also launched buy online, pick up in store. So those 2 things really together have become the backbone of our omnichannel offering. Then you look to 2019, we launched ship-from-store, and that gave us maximum leverage from our pet care centers and our partners who really are our most valuable asset. And those investments that we made in 2018 and 2019 really allowed us to accelerate through the pandemic. So when it unfolded, we tripled the number of ship-from-store locations. We launched curbside pickup, and we launched same-day delivery. We also enhanced our subscription box business named PupBox, which you see all the way at the back there by launching PupBox stages. So not do we only do puppies, we now do adolescent, we do adult and we do senior boxes. So that's extended the duration of our subscriptions for some of our most valuable customers. It's this foundation that we built that has allowed us to not only exceed through the pandemic, but we're exiting it stronger. So unlike some other retailers, we feel like the capabilities we've built are durable into the future. I think we're now the most -- one of the most capable specialty retailers in the space. So it's these changes and the unique digital and omni capabilities that are what allowed us to grow 127% on a 2-year stack, 127%. It's one of the best amongst all online retailers, certainly in the pet category. The cool thing is that we're one of the few retailers that has been able to drive triple-digit growth while we have enhanced our profitability. We're now a leader in Retail 3.0 and beyond just an omni retailer. It's through our 360-degree ecosystem where we're able to bring together all the things we do around digital convenience and marry it together with the physical needs of a pet parent. It's leading the 70% higher retention of our multichannel customers and 35% higher recurring revenues in 2021. It's pretty impressive performance. And we're investing heavily in innovations to grow both top line and bottom line. So you think about things like our Petco AdWorks program, which we'll talk a little bit more about in a minute, plus Klarna, our buy now pay later, which is helping to lift average checks, we're driving much enhanced profitability. And we continue to transform our Rx business through a vet diet and pharmacy, through our integration with our Vetco clinic and hospitals. We're growing share of wallet in a really meaningful way. We're entering new categories like farm and feed, equine, chicken, a lot of addressable TAM for us to go after. And Justin is going to tell you a lot more about what we're doing in that space a little bit later today. And then finally, we've sourced and built one of the best teams in digital. It's allowed us to do things like launch curbside in 14 days during the pandemic. 14 days, we launched curbside delivery. And the great thing about it is that when you have a great team, people want to join. And so I would say, even despite the great resignation, we're actually getting tons of flow of really high-quality candidates that want to join the company. This slide is really critical for you to understand what makes Petco successful. It's a slide that tells you what customers' preferences are for how they want to shop. So for the 32% of customers that want to shop in-store, and Justin will tell you more about that a little bit later, what our winning strategy is, we think that we've got a great and compelling offering. But if you think about the 29% of customers who want to shop online only, we not only think that we compete with the largest online retailers. We think we go toe-to-toe with them. And I'll tell you more about that later. But the most exciting area for us is the 39% of customers who want to shop in an omnichannel manner. So what they'll do typically is they'll get their phone out. They'll place an online order and then they'll visit a pet care center on their way home from work. It's just part of their shopping journey. And in this area, we think we are the only scale specialty player, the only one. And the reason for that is our online -- our omnichannel competition is just much lower share than us. And honestly, we feel like we're pulling away from them. Here's a little bit about our strategy, and it's really right at the center of it. We're connecting our 360-degree health mission to manage your pet's health and the digital business is right at the center, right at the hub to drive connection to Petco services, Vetco clinics and hospitals; convenience through our unique fulfillment options like BOPUS, same-day delivery or repeat delivery; personalization with data-driven insights that gets smarter as you shop with us; and increased engagement by reinforcing the loyalty value throughout the site and app experiences. And embedded with our strategy, we use data and consumer insights to drive all of our decision-making in ways that our competition simply cannot do. Ron talked a little bit about this. Think about the richness of our data from our vet hospitals, our Vetco clinics, our services, grooming and all of our shopping insights that we bring together, nobody can touch that. So let me illustrate these a little bit more in detail. Through our app or a desktop experience, you can see how quickly and easily you can book a service appointment. We booked more than 1/3 of all service appointments through dot-com. So you think about things like dog training or grooming or vet appointments, all those are growing at 75% year-over-year through our digital experience. It connects customers directly to our pet care centers to get the physical needs of their pet taken care of. And related, our Rx and prescription business, it boomed in FY '21, and we see amazing growth in the years to come. And this is going to be made possible in large part because of the integration that we're doing digitally between our Vetco clinics and our hospitals and our Rx business. So we automatically send a prescription when you walk out of a Vetco clinic to our Rx business. We hit you with a CRM e-mail. We kind of called this our exit through the gift shop strategy. It allows customers to get what they need directly from our pharmacy. So you think about what's going on with other online Rx businesses? They have to go out to Google. They've got to go buy customers from the Internet. We already have an ecosystem of more than 1 million customers who are in our vet care clinics. And all we have to do is offer Rx to them. That's amazing leverage on customer acquisition. We're using best-in-class design practices for our website. It's simple, it's beautiful. If you don't know what your pet wants for food, you can go inside one of our pet care centers. And again, Justin will espouse the virtues of our partners inside of the stores. But if you want to go online, we have a product called the Right Food Finder, which helps select the best food or topper for your animal and their unique needs. And our delivery offerings allow you to get the products you want the way you want them. Think about the structural advantage that we have for buy online, pick up in store, same-day delivery, ship-from-store. It allows us to get the product to our customers faster than our competition. And we know from customer research that these services on their own are winning over customers from Chewy and Amazon who don't offer these things at the same scale that we do. We use data, principally through our golden record or what Ron referenced is called the doghouse and more than 10 million pet profiles to personalize your experience. So whether it's a homepage specific for Yummy or relevant add-to-cart recommendations, we can create a personalized experience for you that drives increases in revenue per visit. And they're big. And when we talk about personalization, I can't help but talk about the more than 8 million care reminders that we send out last year. So if you're one of the customers that has created a pet profile with one of us, we can gently nudge you when it's time for a teeth cleaning or when you're overdue for nutrition or when it's time for their vaccination. It's a simple push notification, just a little nudge that not only leads to better pet health, but it also drives customers back to us to purchase at higher conversion rates than normal app customers. Finally, we drive engagement through our loyalty and membership program. So if you're not a member, that's fine. As you shop, we will clearly show you the ways you can save by enrolling in Pals or Nutrition Perks or Vital Care. And once you sign up, we constantly reinforce the value throughout the shopping journey. Our customers can clearly see the ways that they can save. And in the inflationary environment that we're in right now, these programs are going to be especially valuable. For Petco, these customers -- these programs are driving much higher retention rates, and they're driving much higher net spend per active customer. Now let's watch a quick video to illustrate how the app is a connective thread for Petco and our customers. [Presentation]

As you can see, the Petco app is really the epitome of how our 360-degree strategy comes to life. It's the only app that combines everything that you need to manage the well-being of your animal. All happens from your pocket. It's the one-stop shop for whatever life may throw at them, and it's paid off. So beyond the nearly 100% growth that we've seen in app sales, we know that our app is creating highly engaged customers. They stay with Petco longer and they also spend at higher margins than non-app users. Our weekly active user base grew by 90% last year. And going forward, we're going to be doubling down on our active users even more and improving the experience in key ways such as adding same-day delivery booking windows through our DoorDash partnership. We're moving from one same-day delivery window to 4 same-day delivery windows throughout the day. Think about the value as we get later and later in the day, and we have similar -- we have more opportunities to deliver same-day delivery. Our conversion rates are going to stay elevated throughout the remainder of the day. We're going to be reinforcing Vital Care throughout the checkout experience. We'll be redesigning our booking flows for grooming, training and our Vetco hospitals. And we'll be adding care reminders for new pet types like cats and providing breed-specific product recommendations to personalize the experience. And we're going to be integrating buy now pay later and the Petco AdWorks into the experience. You can think about our business in a very simple way, in a meet and beat structure. When it comes to meet, we want to carry all the assortment that somebody is looking for when they go shopping. And we want to be competitive on price, especially in the head of the assortment. We're going to take profits in the tail. But when it comes to the head of the assortment, we want to be priced competitively. But there are areas where we have distinct advantage relative to the market. Last year, we rolled out same-day delivery with DoorDash. It was a huge win for Petco. For our customers, they got their products a lot faster than they would through a normal ship-from-store or ship from DC, and it actually drove down our costs. And this has created some pretty powerful results. Here's an example. This is one of our competitors fresh and frozen boxes. This liner right here cost about $6. There are 1, 2, 3, 4, 5, 6, 7 freezer bags in there. That's another $2.50. And then between the box -- in the other packing materials, it's probably another $1.25. That's $9.75 to do fresh and frozen. And in that box is enough food for about 2 weeks. This is what we ship in. For 2 of these, it's $1.75. And we deliver through DoorDash, so it's less expensive than shipping through UPS and it gets to the customer even faster. I love this, but I don't think as much as Brian loves this. And let's just say nothing by the way of the environmental impact of the way -- the differences between we ship as well. For an omnichannel customer, BOPUS is right at the heart of how they want to shop. They drive up to our pet care centers. And if they have location services enabled on their phone, all they do is drive up, they pop their trunk and we put the product directly into their trunk for them. It's a great experience. And if you look at same-day delivery, BOPUS, we have 50% lower cost when we ship through our pet care centers, 50% lower cost using our structural advantage. And here's the part that blows my mind. When we make BOPUS and same-day delivery available to our customers, they are choosing it 91% of the time. Our customers love what we can uniquely offer. Our repeat delivery business, it's one of the highest retention rate businesses that we have. And what's great is that later this year, we're actually going to be offering it inside of our pet care centers. And our data suggests that when we do that, we double the spend of our customers, and we do it without taking nearly any revenue or profit out of our pet care centers. Think about the power of getting fresh and frozen on repeat delivery delivered the same day you order it. It's an incredible combination. And as we've discussed, Vital Care is a category innovation and a market leader. And we offer a seamless booking experience for all your service needs. We make taking care of your pet, vet grooming appointments faster and easier in ways that our competitors simply cannot do. And as a fast-growing business, we kept our eyes continuously on improving profits. We'll improve through a combination of vendor activities, basket optimizations and improved shipping costs. I mentioned some of the categories we're going to be expanding into. We also have a burgeoning advertising business called Petco AdWorks. Our vendors are increasingly seeing the value in this program. They're getting high returns on advertising their new products, and it's an exciting innovation for the category. But don't take my word for it. I want to introduce you now to CEO, Reed Howlett from WellPet, which is a leading pet food provider to tell you a little bit more and about why he invests in the Petco AdWorks program. [Presentation]

My name is Reed Howlett, and I'm the CEO at the Wellness company. For the past 15 years, Petco has been a strategic partner of ours. Our presence on petco.com has allowed us both to elevate our shoppers' experiences and increase our Petco sales rate, both in-store and online. We have seen those trends grow at an increasing rate through investing in Petco AdWorks on petco.com. We value our collaborative partnership as we challenge each other to continuously test what drives the shoppers, and in turn, mutually invest in the most effective programs. It is reassuring for a company like wellness pet company to know that Petco is not only reacting to these new trends in consumer behavior, but also actively leading the market when it comes to digital innovation.

Our AOV has continued to grow through innovations like personalization and new payment options like Apple Pay and now Klarna. And we have high confidence that through additional site and app investments that we will continue to grow it through FY '22. Finally, we have a large opportunity to further reduce our shipping costs by driving a larger percentage of our orders through BOPUS and same-day delivery while we reduce splits and optimize zones. So as we balance inventory according to how customers shop, we think that we're going to see massive gains in fulfillment efficiencies. To wrap up, let me start by saying I couldn't be more excited about our commitment to disruptive innovation that has enabled us to gain such a significant piece of the e-commerce market. Now I'd like to end by recapping 3 areas that we're going to be focused on going forward. We've been building a world-class digital experience and it's allowed us to win and will allow us to continue to win by allowing you to manage the pet -- your pets welfare, all from the phone in your pocket. The 91% of customers are choosing same-day delivery and BOPUS when we make it available to them. That statistic blows my mind. We're getting significant leverage against our structural advantages. And this enables us to serve the 39 of customers who want to shop in an omnichannel manner. And we're doing it in ways that our online-only competition can't do. And finally, we are maniacally focused on driving enhanced profitability through category-leading innovations. It's these things that are driving our new customer acquisition, capture greater share of wallet and improving the lifetime value of our customers. And I couldn't be more proud of what Petco has built. And I want to thank you for giving me the time to share our story. So now I'd like to throw it over to the guy who I talk to probably more than my wife, who makes sure that all our BOPUS same-day delivery orders are delivered on time. But first, a quick video on our pet care center transformation. [Presentation]

Hey, good morning, everyone. My name is Justin Tichy. I am super excited to be here today. I realize watching Darren's presentation again, I need to stop following the digital guy. He has got really cool animated slides as well as props, prop hands, things like that. But really, I mean, all of the work that we've done here today, and hopefully, you're hearing this from today's presenters, the work that our dot-com teams and our digital teams have done has been absolutely amazing. What I've been even more impressed with is the infusion with our brick-and-mortar teams on our journey to Retail 3.0. And as you can see and hear from our leaders in the videos and hopefully, the presenters from earlier today, we've had an amazing transformation over the past 3 years together. As some of you may know, I've been in retail roughly about 28 years. And if you saw the slide that Ron had up earlier this morning, I've worked for 3 of some of the largest U.S. retailers in history. And they've been some of the most successful ones in the highest growth times, but I am so excited about what we're building here at Petco. I've never seen this kind of energy. There's been so much growth and passion and excitement from our partners as we've navigated this journey together. We're doing so many amazing things for pets and pet parents across the United States. And Darren referenced earlier, I'm supposed to espouse the virtues of our PCCs, which seems like it sets the bar way high on today's presentations. But today, as Petco's Chief Petcare Center Officer and Board Chair for Petco Love, which you've heard a little bit about today. It's our nonprofit foundation, doing amazing things for pet adoptions and also for the communities that we serve. I'm so proud to stand here today and to share the highlights of this transformational journey and to give you insights into our future around omni and our pet care centers. But first, I just wanted to take a moment to kind of ground you on some of the incredible milestones that we've achieved. Our retail transformational journey began at the tail end of 2018. We accelerated in 2019 and we shifted into high gear in 2020 and 2021. We've had 7 consecutive quarters of positive brick-and-mortar comp growth. We've introduced our Petco pet care centers to 9.1 million new customers over the last 2 years. This came from customer acquisition as well as moving customers across our ecosystem. We've also scaled while driving efficiency at the same time, and we've seen 26% revenue per labor hour increases on a 2-year stack. In 2019, our big bet was transforming our retail workforce with the intent selling skills model. This is huge. When I first started, many of our partners, they were really comfortable talking to pets. But when you put them in front of a human, that was a totally different story. And in fairness to them, if you've never really been taught to sort of integrate, engage, qualify, offer solutions and close, it's intimidating. If you've ever worked on a sales floor, that first time you heard no, you're like, all right, then see you later. Good seeing you. Hopefully you come back. Prior to this launch, we really didn't have any selling model on our floors, which is fine. We built into that. And actually selling, in many cases, I found out was a bad word. And it was told to me, so he started learning as he's coming to a company. It was told to me if you weren't from the pet industry, you probably couldn't be successful when you're at Petco, which I didn't really understand because quite frankly, we were providing great solutions in pet food and various things like that to pet parents. But we jump-started our retail transformation when we launched the intent selling skills model, and it focused primarily on contacting, qualifying, recommending and closing the sale. Plus, we built this on enhanced and focused product and solutions training. And as a result, our well-trained partners maximized guest interactions and accelerated us to achieve a 24% owned brands growth on that same time period. And as Darren alluded to earlier and we had Ron talked about this as well, our synergy across the Petco ecosystem is actually one of our biggest strengths, 80% plus. 80% plus of our online orders are fulfilled in our pet care centers. And lastly, and this is very important, in order to maximize our revenue to profit acceleration, we took an aggressive approach to continuously streamlining our task. I found out there was a lot of task on top of our pet care center partners. We wanted to streamline out that task basically allowing our pet care centers partners to be able to engage more with guests. This is always a very healthy retail hygiene exercise and a great business practice. An example of a task that we took out, we had what was called the blue dot process. And the blue dot process in theory sounded fantastic. If you're a partner, you walk the floor every single week, you'd scan all of your empty items. I put a blue dot on it. Perfect. What I found out quickly and my team, as we started to dig in, we didn't have perpetual inventory. We had a lot of blue dots on the floor, but there was no way to actually update the accounts. So when you think about wasting time and harvesting some of that energy, it was one of the best things we could do to actually pull that process away and start looking for better ways to optimize that. And as a result of many of these task reductions, just like the blue dot process, we actually scrubbed out $29 million of task labor excess, and we're able to reinvest that back into our guest-facing lever and to enable better guest experiences as well as our performance outcomes as we drove into the future. Importantly, these actions that we've taken over the last 2 years not only resulted in stellar financial performance, but also laid the groundwork when you think about our future success and our investments that we put back into our partners as well as the infrastructure that's going to pay dividends for years to come. This work gives me immense confidence when you think about our future. And I know for a fact, we're just getting started. So you might be wondering, how did all this start? How did this transformation kick into high gear? I'm absolutely confident that this momentum started in 2019. Ron and I and the entire executive team worked incredibly hard at flipping the company upside down. You might be wondering what's flipping the company upside down all about. You may have worked for a company before. You might have been involved in a company or heard about a company. And in many cases, it's a lot of like a retail large-scale company where things begin to be pushed down to your line-level employees. Strategy comes straight from the top, all the way onto the shoulders of your workers. And that's not fair because if they're not bought into that, they don't know how to actually drive the strategy forward. There is no mechanism to bring that back up to the top and say, hey, this is working really well. Or hey, you're killing me over here, how can we be better? Our mission as a team was to win the hearts and minds of our partners. So much of this work started to get culminated at our summit in Nashville. This was the first time, it was the tail end of 2019, the first time we were able to bring all of our partners, primarily our general managers and our field leaders together. It has been a couple of years, had a full company meeting to really discuss Petco's vision of the future. We discussed strategy. We engaged in leadership workshops. We shifted into a growth mindset, which is a completely different paradigm from what you're driving for. We reset the bar on what it meant to be a leader at Petco. As an example, we shifted from just a store leader. So if I ran a store, I was just called a store leader, to a general manager. It is simple in nomenclature. But quite frankly, to be a general manager, you've got to drive your business. You have to understand it from the ground up, what's working well and what you can improve upon. And lastly and very importantly, we probably brought some fun back to Petco. Retail, if you've worked in retail, it should be fun. It's like your family, you're at work more often than not. We want to make sure it's fun. So we brought a little bit of fun back into the Summit as well. I want to give you a little snapshot of it. So take a quick look. [Presentation]

All right, 2 things you might have noticed. Less gray hair, that's one. And then two, I was wearing a puppy jacket. The unveil of our shirts around, I'm not confused, we work for you. And that was a staple. We try not to ever have any kind of like company buzzwords or language that was truly something that we're driving for. And as you saw, hopefully, in that video, the short little video there, the energy and Petco Spirit was really infectious. This was absolutely a cornerstone of us unlocking the soul of our culture, which was our partners. Ron mentioned this earlier, our people are differentiators. They show up every day to work to do amazing things for pets and pet parents. As I talked earlier about flipping the company upside down, there's companies out there that truly don't want to hear from their line-level employees. They don't want to know how things are working. That's not us. We drive to differentiate. We believe the passion of our partners sets us apart in the retail world and is our biggest factor for success. So over the last 2 years, we've invested heavily in energizing and empowering our teams, which ultimately allows them to drive better pet parent experiences. We've now invested 1.2 million learning hours to our pet care centers. We have the intent selling model, which I referenced earlier. It's an incredible way when you think about how you drive your business. We knew this was going to be a marathon and not a sprint. For our team to build these proficiencies, we have 25,000 highly trained partners offering whole health solutions. And in the last 18 months, as the world was getting kind of wobbly with supply chain, we have an entire workforce that can mitigate product and supply chain gaps and effectively redirect those pet parents to what they need. When they come in for a solution, if it's out of stock, we can take them with something that's in stock. And while we're doing that, we can actually provide additional solutions as well. And this also included business intelligence investments to enable greater pet care center analytics. We also have new hardware for pet care centers to accelerate their growth. And very importantly, we have strategic omnichannel investments to supercharge the Petco ecosystem that Darren was talking about earlier. One of the biggest foundational elements during a retail transformation was training our general managers and leaders to have an owner's mindset. I referenced that earlier, that owner's mindset is a trigger switch. We need to make sure that they can drive their business. These tech investments were vital in improving the fundamentals as leaders. We shifted from old metrics and printed dashboards to state-of-the-art analytics known as the hub. And the hub was one of the best things we've ever done in this company. When I first joined the team, we'd go in our pet care center visits. You have a small little half circle of your leaders standing there with all of their printed stacks of dashboards or a bunch of handwritten notes on a piece of cardboard or a notebook, and you start talking about what's working well? What do you want to improve upon? And I used to joke it was sort of like Petco scorecard bingo. They'd have their stacks that they'd be flipping through it really quickly. And inevitably, somebody would drop the stack and then we'd spend time picking it up. But that wasn't a helpful exercise. It was more of a memory game, and that's not one we want from our teams. The hub metrics now update daily and weekly, and it allows our leaders to maximize their efforts. They know it's going to work well. They can actually build smart planning strategies that involves their partners, and they can distinguish top and bottom and they can actually improve going forward. Data is no longer stuck at our corporate office. It's in their hands daily and weekly. We also had outdated IT, it is one of my favorites. We had a 23-year-old POS system. I just started the company. I was doing some registered training. I started touching the screen. The young lady looked at me. She was like, what are you doing? I'm trying to run the registers. She's like, it's not touchscreen. So you had outdated technology, 23-year-old POS system. Plus we had iPods as the foundation for our handhelds, pause. We had iPods, if you didn't hear that. iPods were way outdated. Our partners now have updated Smart Tech technology. That's a POS system that's actively involved with the work they're doing. And now we have the adaptable Android-based Zebra devices, which are fantastic for adaptability, accessibility and moving quickly. This allows them to maximize solutions at the moment and then quickly cross-sell any omni solutions or fulfillment right from the palm of their hand. And lastly, our types of communication and learning center training were way outdated. We wanted to make sure we had streamlined monthly and weekly communication that's at the right time for their needs so they can learn and adapt and move quickly. So a quick story on this. Why is this all so important? I've lived -- going back to the 3 major retailers I've worked for. I've lived my entire life in retail with the motto that speed is life. We have successfully now unlocked the passion of our partners. We've supercharged them with selling skills, and we've enhanced their tools and resources for their jobs. I'm absolutely confident that we can launch an initiative at Petco, launching initiative at our corporate level all the way down to our pet care centers, in our 1,433 Petco centers and actually then have feedback back up the pipeline and what's working well and what can we improve on within 24 to 48 hours. That is incredibly fast for a large-scale retailer like Petco. But we've proven this time and time again, whether it be key product launches, communication cascades or most recently with Vital Care 2.0, we move quick. We gain feedback. We accelerate faster. We perform. It just keeps moving in the cycle. Our pet care centers are part of our strategies. They're part of our solutions. They're driving things forward. But don't just listen to me, let's hear what a couple of our key leaders are talking about. [Presentation]

So not only have we been able to win with the hearts and minds of our partners. We've also been able to lock the spirit of our company culture by always doing what's best for pets. And I take it from the lens of prior to being with Petco. Our partners, quite frankly, love this approach. And when I was new to the team, when I was just a customer before I worked for us, it was almost difficult. You'd walk in, there was a big selection of dog food, cat food, treats, toppers, toys, whatever it might be, but it was almost a little bit confusing. You get a little bit overwhelmed. If you've just shopped in a big box retailer, they might just have one counter of things. So it's kind of easy, you're limited in your selection, you pick it up and you walk out. Our teams, our partners. They know that this health and wellness mission that we're on, it's not a company buzz phrase. They live it every single day. I love when I go into our Petco centers, and I'm in there every single week and month. It's exciting to see them. I was in our Porter Ranch store in California the other day, and a guest came in and she had an issue with the dog's rash right around the ear. They ran her into the grooming salon. They talked to the groomer that she typically worked with and then they got her out to the nutrients aisle. They took her through some supplements that helped out the pet. Our partners love this experience. They're passionate about always doing what's best for the pet. And that's really what we live by, and we talk all the time, do what's best for the pet, it will be best for Petco. And this has really come forward. When you think about the business metrics that we look at as a team, our guest metrics are awesome, especially when you think about partner friendliness, partner knowledge and partner helpfulness, we outpaced the industry average. This is where it comes to life. This is where my journey prior to working for Petco truly was a differentiator. All of us that start working at Petco, you typically start improving what you feed your pet. You learn more about the supplements and the nutrients. And going back to what our partners can deliver, that's that whole health solution that we talk about all the time. What's unique that I've learned about the pet business, it is not just about buying and selling products. Our guests, our customers, are caring for a loved furry, feathered or scaly member of their family. We all want to do what's best for pets, but that's where our partners come into the equation. I want to talk about a guest experience that I love this experience. Her name is [ Ann Armstrong ]. We're going to tell you the story about [ Cabo and Chapo ]. [Presentation]

I love this story. This is one of those that you could see time and time again. You can go into almost any one of our pet care centers, and you'll see a guest come in just like Ann wanting to discuss something that's going on with their pets. As I mentioned earlier, you always want to do what's best for your pet. There's no guest that comes in and says they don't want to do something better for their pet. This is where our partners become so important, especially when we're talking about helpfulness, friendliness and knowledge. That is sort of like the glue that holds our team together. So that's why this store becomes so important. And when you think about the [ Cabo and Chapos ] that are out there, you just can't get this type of consistent, meaningful experience online or in just a regular big box player. This is what Petco does. So as you heard Ron, Mike, Dr. Miller, Amy and Darren referenced earlier, Petco truly brings Retail 3.0 to life. We're your partner for pet health and wellness anyway you need it. It starts with our pet care centers. There's so much more than just picking up a bag of dog food, putting it in the customer's cart and hoping that they come back. We're a strategic retail footprint that doubles as a micro distribution center and has differentiated and unique offerings that you heard Amy College talked about earlier. We have well-trained, energized and pet loving partners just like Amy Martin in the video. We have best-in-class digital assets that Darren referenced earlier. And as you heard from Mike Nuzzo and Dr. Miller, we have enhanced and rapidly growing services and vet solutions. Plus, with a solid foundation now built, we're pushing beyond our own 4 walls in areas that we currently serve today. So on this transformational journey, as I mentioned, it's been key to win with both our partners and our guests, but we had to win financially as well. This means growing revenue in an efficient, profitable way, and that's been absolutely what we've accomplished as we've been growing our pet care center productivity, which is driven by our multichannel strategy and our enhanced partner selling cultures. Our goal has been to double the average revenue per store through vet hospitals, services solutions, omni and memberships, all while increasing the share of our premium merch products and our own brands. If you look left to right on this slide, our base store in 2018 compared to our store in 2021, which is right in the center, we're seeing concrete results that would prove the strategy is working. With our step and repeat model that you've heard about today, with our step and repeat model in our locations, we've added an own vet hospital. We're seeing store productivity is already up more than 50% where we were just 3 years ago. On top of this rapidly growing revenue productivity, as you heard earlier, our ability to fill those orders are saving Darren and his team and Petco money. 80% of our online orders, just to stress that again, are fulfilled from our pet care centers. Look at where this boost is coming from, it's clear that our pet care centers are right in the center of everything we do. So as a cornerstone for our future growth and continued acceleration, outside-the-box thinking leads the way to exciting growth opportunities. We know there's key areas across the United States that are being underserved today, especially in pet specialty and especially in areas where Petco currently doesn't have very much market space. We're very excited to announce a test into some of the small town geographies across the United States. Our research has identified 2 dominant needs. There is a high interest in one-stop pet specialty retailers with farm, livestock and companion animal food and supplies. Our customers want convenience in these areas. They want ease of shopping and a location that is well merchandised, clean and organized. They want key services and partners that are friendly, engaged and well-trained. Our market data has identified 14% of the U.S. population lives in rural areas, and that's growing every single week and every single month. This represents roughly a $7 billion TAM opportunity. Our insights have found that there are currently hundreds of potential markets that we could serve in. With our small town pilot, we're confident that Petco could potentially drive an incremental $1.3 billion in revenue. How does that look? Check that out. Completely new and different from a Petco experience. It's the first one that we're looking at right now. It's being built. Our approach beginning in quarter 2 is going to be to open these up in Southern states. We want to open them up, validate to see what's working really well, what we can improve upon, and then we're going to scale the model. Our small town concept will provide a freestanding location in a prime retail node. It's going to be a one-stop shop that's been key to these local customers that will have all their pet and livestock needs with a community and localized fill. We'll have high-quality foods, farm and feed supplies and a companion animal assortment, which is something that's really been needed in these areas. We've noticed that some of the regional players or the bigger box retailers there don't provide that. We're excited to announce the entire assortment will be omni-enabled. Plus, we'll be offering vet clinics, mobile grooming and self-wash stations. You'll be able to learn more about the small town test in the showcase directly following my presentation. So I wanted to take a moment to bring today's pet care center session to a close with a quick story of the beginning. Back in 2018, when Ron and I first started, our partners we found were so eager to be heard and be written into our journey together. During many of our first roundtables, as we hit the road and we were out in all the different markets, we constantly heard an us versus them language that would pop up in these roundtables. When we talk about our corporate teams or our store teams, we heard us versus them over and over. We heard painful experiences of not getting quick solutions or resolutions to problems. A general manager named CJ in one of our roundtables in Phoenix came out to me. He promised me, if we could help him get over his problems faster, if things happen to his pet care center, if we couldn't get it resolved, if we got rid of those problems, if we knocked out those obstacles from his way, he could actually dominate in performance. He could drive to the top of his scorecards. He could take care of his pet parents. He could take care of his partners. We, as a leadership team, quickly realized that the more we listened, the better we performed. Ron and I and my peers have been on an absolute mission to listen, learn and drive change over the years. We quickly landed the expectation back then. We work for our pet care centers. That's the shirt that I was wearing at that national summit. If we're not supporting those that are taking care of our customers every single day, we're failing. We talk all the time about this. We pride ourselves as a leadership team in making it to all 50 states, plus Puerto Rico, to go through roundtables and understand what our teams are going through. And in those roundtables, somebody always bring sweets, local desserts, things like that, sadly for our waistlines, we've loved it. We've been out there working with our pet care center teams, taking care of their needs and understanding what's hurting their business. Our partner passion and commitment to pets and pet parents has never been brighter than it has throughout the pandemic years. When the world was shut down with travel, this is the craziest trip, but I loved it. I rented an RV in the summer of 2020. I covered roughly 12 days worth of travel. It was the Western half of the United States. I went to 20 pet care centers. With every single stop, the passion, the focus and the fun spirit of our team was shining bright. The pandemic actually, and Ron referenced this earlier, has absolutely galvanized our team and our culture. We curve jumped up already accelerating momentum in 2020 and 2021. And now with our acceleration with our Retail 3.0 approach, vet hospital build-out, enhanced selling strategies, partners that are very passionate about what they do and updated systems, we are better positioned than anyone in the pet space. I wanted to bring my story full circle. This just proves out all of the work that everyone is doing together. CJ just shot me a note, very end of 2021, beginning of 2022. He didn't lie. We worked incredibly hard taking care of our part of the bargain knocking out roadblocks, making things easier, making sure that our pet care centers are being supported. CJ actually finished top of this territory. He won a national contest, which we called Epic Achievers. He's actually going to be celebrated in San Diego next month. It proves once again when you do what's right for the partners, when you take care of those roadblocks and obstacles, it allows our general managers to run their business, accelerate their performance, take care of pets and pet parents and partners within their store. CJ keeps proving this out time and time again. So in my closing, my confidence in our future is incredibly bright. It is built on the fact that Petco is absolutely a purpose-driven company. We have 25,000 passionate partners in our pet care centers today. And most importantly, we are Petco strong. Thank you very much. I'm going to throw it back to Kristy.

We will now begin our first Q&A session. As a reminder, this session will be focused on the strategy, market position and operations across our categories and channels. We will have a second Q&A session at the end to cover our financials, membership, customers and marketing. For those of you in the room, please raise your hand if you have a question, and we'll send the mic over to you. And for those of you joining us virtually, please submit your questions in the online portal. And as a reminder, please give your name and who you're with. We kindly request that you keep it to one question and one follow-up. We should have plenty of time for questions. So if you don't get to yours yet, well, please feel free to get back in the queue. So let's get started with questions in the room.

Oli Wintermantel from Evercore ISI. One of your slides showed a 35% revenue -- return revenues. Can you just explain what that is? Is it auto ship? Is it grooming? Is it -- so what was it in?

Recurring.

Recurring revenues. The 35% recurring revenue.

It was just the mix of our revenue that was recurring revenue. So it's inclusive of repeat delivery, top box, insurance and now Vital Care. And we're seeing outsized growth in our recurring revenue. It's an intentional strategy, and you'll see that only accelerate with Vital Care. And one of the things that's great over the last year is we've really accelerated repeat delivery as well. So we could lock those customers in and then we move them across the franchise.

Zach Fadem from Wells Fargo. Can you talk a little bit about e-commerce penetration in the category, how you expect that to trend, how it's trended pre and post pandemic? And what type of lift do you incorporate in your outlook?

So overall category, we've talked about, about 7%. We think e-commerce is going to be growing kind of high teens, low 20s. We've said over the past year that we're going to plan on continuing to take share. So that is our endeavor. We feel like the capabilities that we have enable us to take share and do it in a way that is done in a profitable manner. I mean, 127% over the last 2 years is something we're pretty proud of. And again, I think the capabilities we've built set us up really well for that going forward.

I mean you look at last quarter, it was over 140% 2-year growth. And we've had gross margin expansion. To deliver that type of growth with gross margin expansion in that business is good news for our business.

Steve Zaccone from Citi. Question on the VetCo side of the business. I'm curious for the customers that you've seen come to VetCo hospitals thus far. Where are they coming from? How are you gaining share? Is it convenience? Is it price? And then as you think about the growth from 200 to going to 900, how does the growth trajectory look in terms infilling in existing markets, maybe markets you're not in right now?

Let me tell a story, and then I'll pass it over to Mike. So the 100th opening of our hospitals happened to be in Encinitas, which is California, which is near my house. So I visited for the opening, and I cut the ribbon, I think, if I remember correctly. And I went up to the store manager, and I said, "Hey, how are we doing for forward bookings? We're booked out for 3 months, Ron." And it was all the traffic that came through. And so he is including a bunch of my friends who said we're so happy that we can go to the store we love now for veterinary care.

Yes. There are a lot of really great dynamics at play. If you think about it, when we start, we have an existing Pals base for each of our pet care centers. So it allows us to outreach to those customers before the hospital even opens. The fact that customers coming into the pet care center can see the construction underway. And so we actually hear from our pet care center partners that customers are really excited. They want to know when the hospital opens. I mean there are just such great dynamics that happen even before we get started. And so what we see, you mentioned it. Clearly, customers love the convenience. They love the experience. We've been very focused on being competitively priced in the market. And the fact that the dynamic that we typically see is customers come to the hospital for maybe basic routine. So vaccinations, for example. And then what really drives the maturation is they begin to rely on the hospital for more complicated procedures. And so the growth of surgeries, the growth of diagnostic care really, really drives the maturation of the hospital, which is really great to see. As far as the growth in terms of the number of hospitals, we see a great opportunity to infill in existing markets. And in fact, when we put hospitals in markets where we already have a few hospitals, we see the ramp can often be accelerated because of that. Customers know about us. They know about the VetCO brand. And that credibility factor is just great. I'd also mention, though, where we've entered into new markets and recently, we've entered into the Northeast. We've entered into Chicago. We've seen just an amazing start to those businesses as well. So really excited.

Just want to add on. Because of the traffic, that means our CAC within the vet space is tangibly better than anyone else's, which is why Whitney doesn't have to jam quotas down on the vets, which is why our satisfaction is 94%. So that CAC makes kind of the flywheel work. The last thing that's one, if you know anything about vets, they unfortunately have the highest suicide rate of any profession. So you want to keep these people happy. You don't want to jam them with quotas that the consolidators are jamming them with quotas to pay back the 24x that they're paying for these vet networks. Our model is very different, and a big part of it is because of the CAC and the traffic.

Peter Benedict with Baird. Two questions. So first, on the small town store test. Curious if you can share some of the -- maybe the market stats. What are the size of the markets you're looking to go into? You mentioned a $1.3 billion revenue opportunity. How many stores do you think it takes to get to that number? And how long would it take? And then my second question is around fresh and frozen. The JustFoodForDogs partnership extension you announced earlier is great. Can you maybe frame the square footage you guys are allocating in your stores to fresh and frozen, where that is today and maybe where that could be a few years from now?

Yes. So let me start, and then I'll hand it over to Mike because it actually came out of his team, the original small town or rural, depending whatever you want to call it. It's definitely an incremental opportunity for us, untapped. There's obviously a big player who plays in those markets, but our research says that a pet-focused player is something that customers are looking for. I visited a bunch of these locations over the last 6 months. And in addition to having some of the rural dynamics, you also see Starbucks coming up and the other -- see other high-end retailers. So there's a lot of growth in these markets. But I'll let Mike kind of elaborate on to some of your questions there.

Yes. Thanks, Peter, for the question. We really took 2 big focus areas. And again, I would emphasize this is a test. So we looked at the market dynamics, and we noticed that as you go out from major metro areas, there are many communities where you have populations, 30,000 population towns. And as Ron said, the retail development in these towns has been very significant over the last 10 years. So these -- when we say rural, these are not the rural that maybe you would naturally think about. And so there's a population base. There's a substantial pet spend. And I think Justin mentioned in his presentation, there are hundreds of these locations throughout the United States. And obviously, as more and more people have more remote working opportunities, we see more population movement to these locations.

With higher income.

With higher income. So they make sense for us to take a look at. The second piece of it is, we did extensive customer survey work. And what really came out of it was the customer base in these markets is really -- they're really excited about having a true, premium pet specialty experience, a one-stop shop, as Justin mentioned in the presentation. And so we found that very appealing. And as soon as we started to talk about Petco as a brand, we also saw a lot of affinity for the brand. People even saying, "When are you going to put a Petco in my town?" Like it really just started to organically develop from that. So we're also really excited about the format, and we'll learn about it and you can see a little bit of it in our showcase. But we're doing very similar to everything that we do great in our pet care centers, plus a little bit more.

So I'm very excited. This is not a 1 and 2 pilot. This is a scale pilot. So there will be multiple of the pilot, which kind of, I think, speaks to how much we're leaning in. In terms of JustFoodForDogs, that is a rocket ship with us. But we also, as Amy showed, we have Instinct, and we have Freshpet. And you'll see a broadening. One of the things we love about our updated deal with JustFoodForDogs is we're able to announce that we're going to have a fresh frozen under whole hearted, which I am really, really fired up about to have that under a whole hearted. It will be big. We can also bring in another brand. We also have marketing support. We also extended our brick-and-mortar exclusivity outside of a pre-existing deal in the Bay Area, 92%. Let me repeat, 92% of fresh frozen gets fulfilled through brick-and-mortar for the very reasons that Darren talked about. So that is really good. We have 3 formats. We have kitchens. You can see one in Union Square. We have pantries, and we have runs. We are gravitating towards our pantries. That's roughly, keeping honest here, that's like a 400-square foot execution.

Yes.

Anything to add or...

No. I think you did a great job.

Ted Giletti on for Anna Andreeva at Needham. Two questions. Firstly, what are you seeing in terms of pet ownership this year? We know the data is not necessarily that available. And then the next question is in terms of conversion to multichannel customers, have you been satisfied with the pace of that? And what are you doing differently to drive that penetration this year? We know Vital Care is a big part of that. So have there been any changes to that to help drive that spend and conversion?

Yes. So great questions. On adoptions, we had the $11 million in '20. We had heightened adoptions through '21. That is evened out in '22. We still see probably heightened versus pre-pandemic, but 2020 was the analogy to the baby boom if you look at it from that way. That's also why we are really focused on share of wallet and see a huge opportunity from a share of wallet standpoint. In terms of multichannel, we have double-digit growth in multichannel, so we continue to drive that. And a lot of our presentation was how we drive people across the ecosystem. If you look at the turnaround of the company, whether right or wrong, I decided, let's get each silo healthy. So let's have Justin make sure the brick-and-mortar business is running world class. Let's have Darren run the digital business world class. Mike had already started on services. And then for the last year to 18 months, we've been coming across bringing it all together, whether that is through things like Vital Care, some of the cross-selling that Darren and Justin are talking about. So we're seeing strong growth with lots of upside on that. And Vital Care is the best example. Not to blow my presentation late in a second, but of Vital Care members, 30% weren't getting services with us. 20% weren't having food with us. So it is definitionally driving people across our ecosystem in a multichannel way.

Seth Basham from Wedbush. A question on the digital business and the gross margins of that business. Where are they relative to core now? And where do you expect them to be over time? Will that difference narrow?

I think when Brian comes up a little bit later, we'll get into some of the more of kind of financial-driven questions. But I would tell you, the way I think about the business is we're driving enhanced margins across all those vectors that I described to you, and I think they are real. Certainly, the best way to look at our business, I believe, is kind of on the EBITDA line because we have things like shipping expenses included in our gross margin. But if you look at our AOV, I think we have opportunity as we expand into new categories. I talked about equine. I talked about farm and feed. We're doing things with Klarna. We're doing things to drive improved margin across the business. So I think we have conservatively 5 points that we could get in the next kind of 4 years is what I had up on the slide. I have high conviction on execution against those things. The merchandising stuff, the AOV. We talked about the Petco AdWorks program, which is just taking off right now. And then again, if you think about how the customer is looking to get their products fulfilled, 91% of our customers are choosing BOPUS and same-day delivery. So as we balance the inventory better across our fulfillment network to meet that demand, like we have a large chunk of profit improvement that I think we'll see there, too. So I'm just confident in our ability to go execute against that stuff.

Yes. I would just add that when you talk about AdWorks, this is where this integration between the digital platform and the services become so significant, because I'm sure we'll have services in health and vet related companies interested in the AdWorks program. And again, every year at holiday time, Darren is at the top of my holiday card list because we cannot thank him enough for what he and his team have done for the digital integration with services.

And just as a follow-up, when you think about fulfillment costs for e-commerce relative to buying D.C. versus same-day delivery fulfillment cost, what is that difference now? And do you expect that to change over time?

Well, I...

Maybe pause for a second. It is changing real time with gas. So one of the things we didn't talk about is last mile, right? The less you're dependent on last mile, the more you're at an advantage in a rising gas market. So actually, it's changing real time because of the gas pressures from a competitive standpoint.

Yes. And I'll just build on that to say the leverage that we get out of our Pet Care Centers is meaningful. I mean if you think about the way that pricing happens for a distribution center shipment, it's how big is the product, how fast do you want it, and how many zones are you shipping across. And because we have our pet care centers located closest to the customer, it's actually meaningfully lower. Ron cited the example of the tennis ball versus the bag of dog food. Like that's -- that is a real meaningful contributor to our profit because it just cost us that much less with DoorDash. The piece that I didn't get into my presentation but I will share with you is we just renegotiated that already better fulfillment cost with DoorDash. And we just moved our fees down 12% further. So they were lower than UPS. At times, meaningfully lower. You think about times like Q4 when UPS sort of widely known as implemented surcharges, we were already lower. It just went down even further. So the more that we can push through that channel, I think the more it's going to enhance our profitability.

While the FedEx and UPSs are going up.

Yes. Exactly.

It's Michael Lasser from UBS. My question is on the industry. Ron, prior to the pandemic, while the industry was growing mid-single digits, the profit pool for the industry was under pressure as it was highlighted by intense competition and the shift online. Has the pandemic led to enough change in the composition of the industry, such that it can -- the profit pool can grow equal to the 7% top line growth that's expected? And my second part of that question is, in light of all the cool transformation that Petco has undergone over the last couple of years that have been highlighted by the presentations this morning, is there enough institutional discipline and resistance to prevent indulging in some of the behaviors that the industry has gotten into in the past?

Can you elaborate on your second question? I didn't hear anything after the cool stuff we've done. I'm just kidding. You definitely had behavior resistance. What were you referring to there just on...

It was really promotional. It was really competitive in the past. How do you ensure that all of the distinctions that Petco has created don't result in the company just -- going back to some of the old behaviors in the industry?

Yes, I'm glad you clarified that because in some ways, the answer -- and you guys feel free to chime in. In some ways, the answer is they're correlated. When we made the decision to get out of artificial ingredients in 2018, we got out of things like Pedigree. We got out of things like Friskies, et cetera. That's where the commodity is. The Safeways of the world, the Albertsons of the world, the Dollar Stores of the world are discounting that stuff every single day. So in terms of the profit pool of the category, you probably had countervailing issues, dynamics. You had a premiumization, which has been a decade-wide dynamic. And that's with the customer that we attract. And we've had -- the category, and us, have had about a 10-point swing towards more premium. We believe there's another 10 points of premiumization ahead of us, whether that's fresh frozen, whether that's premium kibbles, like the Origins and Taste of the Wilds. At the low end, the promotion on those types of products has been intense, as you say, but we don't sell those products, right? So we haven't felt that. So I would say probably profit pools and revenue from a category standpoint historically have been similar. That has not been the dynamic for us, our profit pools have increased, particularly as we tap into some of the things like that, et cetera. From the promotional side of the house, it is rational. It has been rational. My son is taking microeconomics right now, and I'm helping him. And supply and demand is a timeless truism, right? And no vendor expected all the new pets. So they have been chasing supply since 2020. That dynamic, I think, will be the case through the end of the year. Again, we continue to believe we're advantaged because we can redirect purchases. So we don't see promotional intensity increasing significantly. And as we said, 70% of our portfolio is either owned, exclusive or map controlled. So we have much less exposure to that type of commoditization.

I would throw on there real quickly. The big unlock, and I referenced it in my presentation, is really our partners, whether it be through vet hospitals or services like grooming and dog training and then the products that Ron is referencing, the engagement piece with our partners keeps that flywheel moving. And now that we're building upon Vital Care 2.0, that Ron will talk about shortly, that flywheel continues to spin, and it's actually growing every single month.

Great. Let's turn it over to Benjamin with questions from the online portal.

Yes. We have one question that's been asked a number of different ways and times by both investors and analysts, and it's simply this: what do you think the market has been missing so far regarding the Petco story and its prospects?

That's my favorite question. So if you look at our performance, it's been pretty much astounding. I've talked about 4 beating raises, 7 consecutive quarters of double-digit growth. And I live by the truism of Buffet, eventually the market understands intrinsic value. That said, if you look at the IPOs of 2021, 80% of them are below their offering price. We are, depending on what the price is, 5% to 8% above our offering price. If you look at 2021, the market is down 15%. We're up, again, depending on where the price, is 5% to 8%. And so I would argue that there has been some recognition in a difficult market of the tremendous job that the team is doing, and we're going to continue executing. And as long as we execute, the market will recognize the value that we're creating.

Great. Benjamin, do you want to give us one more, and we'll wrap up this session.

There was one question, which was from Chris Bottiglieri, which was a build on Peter's question, particularly about rural and asking, could you give a little bit more color on the format? And also, the question specifically was what would you need to see in order to further commit to rolling out these stores more widely?

Yes. So I guess I'll start. As far as the format, and I think you can get a feel for it from the picture that Justin had on the slide, I would emphasize that it's a freestanding model. So one of the barriers to accessing some of these markets in the past was simply that the retail is sometimes very, very inconsistent. And so our ability to find a main on main or just-off main location and literally put a pet care center in a freestanding pet care center, I think, was a real unlock in our thinking related to small town. In terms of the format, I think you see some elements that you may not have seen before from a pet care center. So you could see a place that we're calling the garage and a part of the location that you could see that we call the yard. And so this will be assorted with, for example, rabbit hutches, large dog houses, beating buckets, things that have more of a farm and feed bent to them. And then inside, we will, as we talked about, incorporate farm and feed assortment in addition to all of the other great assortment that we provide in our pet care centers. So again, in terms of what we would need to see in terms of expanding it, we've got some expectations around sales performance and customer build just as you would expect us to have. And we're excited. We're excited to get it open. We're excited to see and learn and go from there.

And I would draw on that real quickly. I mean, my team is very excited to be able to open up this first pilot and really understand what works well. I grew up just outside of Pittsburgh, Pennsylvania, small town, Pennsylvania, which I think we invented [ Earl ]. And it's the right thing to do because honestly, we're going to continue to do what our strategy has really proven its worth with but then add in some of the stuff that Mike is talking about. So it's the great Petco strategy fused with some things that we definitely know are needed in some of these communities.

And Justin has brought in leadership that knows how to operate in those types of markets with relevant experience in those types of markets. I love it because it's a double TAM access for us. It's TAM from a geographic standpoint, and it's TAM from an assortment standpoint. And I think that's -- you'll hear more about that from us today and in the future is about expanding our TAM. We have about $40 billion incremental TAM, and we have instances like Rx, where we're already really starting to crank it up, up 66% last quarter, insurance. And then we have the initiatives like this that are -- we see the TAM, and we're going to go validate it like we did with Rx last year. We said we see the TAM. We said we're going to replatform and then the business came. And this is very much the same. We see the opportunity. We're executing in Q2, and we'll go after it there, and we're very disciplined in how we go after TAM, but we have big TAM opportunities in front of us.

We will now take a brief 15-minute break. For those of you in the room, please check out our digital showcase where you'll see Bob Bennett, who is up on the video, and he can take us through the construction of the digital app as well as Darren and Vinny who are up here on stage. We'll also have Mike Nuzzo and Justin at our showcase for the small town concept. When we resume, Ron will take us through our unique loyalty and membership offering. Thanks so much. [Break]

Welcome back to the stage, Ron Coughlin.

All right. You like the showcases? Pretty cool, right? I'm really excited you get to meet some of the next tier of team members. We have several layers of just great, great people, so really excited. So now I'm going to double-click into Loyalty and Membership. I talked about the silos and coming across the silos, loyalty and membership is a key way we do that. And one of the things that I noticed when I came to Petco was just how strong the loyalty was. 80% of Petco customers were in the Pals program. That means we know what they buy, what services they use, and we know how to reach them. And that is an incredible database, and you're going to see that within Katie's presentation. About 2 years ago, we launched what we call Grooming Perks, and that was intended to be basically a digital punch card. So it's a punch card on the app and you -- as you groom, you get rewards. And that worked really, really well. So we extended it to Food Perks. And today, we have 1.2 members in our Perks programs. Again, really powerful, drove loyalty, drove retention. And then 16 months ago, we launched Vital Care, which really is intended to be the gold standard in membership. We're at 200,000, that accelerated when we launched 2.0, 3 weeks ago in terms of the weekly sign-ups. But the whole idea was comprehensive health for your pet, drive loyalty and drive share of wallet, and I'll double-click into that. But what's really exciting for us now is our ability to move folks -- make sure I get this right. From left to right, right? From pet house, from Perks up to our membership with Vital Care, and I'll talk more about that. The construct of Vital Care was really to be the manifestation of the ecosystem. So we built the ecosystem. It was the big bet that we made almost 4 years ago, now Vital Care brings it and avails a customer of the entire ecosystem. It is a major step forward for the well-being of pets and a major step forward for our business, driving loyalty. I talked about the fact we're picking up the services customer. I talked about the fact that we're picking up food. These members are spending 3x more than an average Petco member, so that whole idea of driving share of wallet is real. So for those of you who aren't familiar with Vital Care, it is a revolutionary new program. It is one of the fundamental ways we're going to change pet parenting. So you look at it, $19.99 a month, you immediately get $15 a month in Petco Pals rewards, so it almost pays for itself from minute 1. Then you get the discounts on the grooming, you get the discounts on the food, and the whole idea is to bring it all together. It was first available for dogs, now it's available for cats. So Jake is a member of Vital Care. And that, actually, a lot of our new sign-ups are coming from cats. And I'm really excited about the vet care for multiple reasons. So they can come in and get free unlimited checkups in our Vetco hospitals, but they can also go to their vet of choice and get compensated for that. So what's really important is the vet community thinks highly of us, and this helps drive traffic for vets, helps drive frequency for vets, which is really, really good. The other thing I love about Vital Care is, we are in inflationary times. Your average customer saves $200 to $300 a year with Vital Care. So if you think about it, we have product offerings at every price tier, but we also now have Vital Care to help through inflationary times. We think of it as healthy pet, healthy budget. Let's take a look at a video of some customers and some partners and what they think of Vital Care. [Presentation]

So it really helps people. That whole idea of us being the one-stop shop partner for pet parents, it really brings that to the fore. Now, from a Petco business standpoint, I talked about the 3x more. 70% more trips over 6 months after they sign up. Not only do you get the Vital Care income, but you get the trips and all, everything that happens with the trips. I talked about 30% new to services earlier, 20% new to food. So it is doing exactly what it was intended to do for our business, which is to drive share of wallet. But I talked about purpose. That's not all we get out of bed to do. So with our star head veterinarian on the photo. 23% upgraded their food, right? So that means they're no longer ingesting artificial ingredients, artificial colors. That means they're upgrading the meats that they're eating. They're upgrading the grains that they're eating. That is good for pets. They're going to grooming more frequently. They're going to vets more frequently. That means pet parents are taking better care of their pets. That, too, was part of our original theory, and it is playing out exactly the way we wanted to. So if you look at now with Vital Care 2.0, we're now turning on the spigot from a marketing standpoint, and Katie will elaborate. But we're bringing to life our 24 million customers in pet care centers. Justin's team is fired up on Vital Care. We're making it easier and easier for them to convert in the aisle. Darren's team is activating on digital touch points, and Katie's marketing team is starting to do some really exciting stuff, and they came up with a campaign called Smart Petconomics. Let's take a look at a couple of spots. [Presentation]

Sometimes you're smart, sometimes you're lucky. In this instance, it's both at the same time. We came up with this idea way before the inflationary times hit, and we're exactly at the right point with the right type of campaign for that. So 2.0 expanded to cats. We bought repeat delivery integration in there. To me, that is the magical mix. Vital Care plus repeat delivery is the gold standard of how you take care of your pet and lock in that recurring revenue. We had an affiliate program with partners like Colgate's, Hill's, Central Garden & Pet as well as rescues around the country to be feeder systems to Vital Care sign-ups. Next, we'll expand to companion animal. If you know anything about companion animal, it's a perfect market for a Vital Care type offering. We'll add in personalization. We'll add in VIP legs to the thing to keep it fresh. We're so enamored with Vital Care that we're going to put all of our loyalty under the Vital Care umbrella. So Pals, Perks will all come to the Vital Care umbrella, which make it more cohesive, but also a much cleaner path for upgrade. On the last earnings call, maybe someone in this room asked me how high is high on Vital Care, and I stick with what I said. The 1 million members is not a matter of if, it's a matter of when, and that is not the end state. But it's not a matter of if, it's a matter of when. And when we do that, that will be worth $400 million to our business alone. So with that, let me turn it over to our marketer, extraordinaire, Ms. Katie Nauman.

Thank you, Ron. Hi. I'm Katie Nauman, Petco's Chief Marketing Officer. I joined Petco 2 years ago, and for me, it was personal because I am the daughter and granddaughter of 2 veterinarians. This was their animal hospital right next door to my grandparents' house, and I grew up just 2 blocks away. Needless to say, caring for pets runs in my blood. At one point, I thought I would join the family business and become a veterinarian too, but I ultimately decided to go into marketing because I am fascinated by the art and the science of what makes a brand meaningful and relevant to the world, and I'm very excited to share some of that Petco art and science with all of you today. Ron talked about how we are leading Retail 3.0, and marketing is a key driver of that. Over the past 2 years, we have transformed into an innovative marketing powerhouse. We take our 360-degree view of the customer that we call the Data Orchestration Guide or the DOG House, and we apply adaptive algorithms using advanced analytics that we call Customer Activation Tools or the CAT Tree. We then acquire, monetize and retain these customers using a precision -- a cutting-edge, precision marketing approach. This is why we've been able to deliver a return on marketing investment that is 2.75x industry average with over $0.5 billion of media-driven revenue in FY '21. This is a 35% increase year-over-year. Now, before we go deeper on how we're winning with customers, let's take a look at the magic behind our marketing with our Chief Data and Analytics Officer. [Presentation]

With our DOG House and CAT Tree at the heart of everything that we do, our secret weapon is our ability to target the highest value customers with the right solution-focused message, where they're consuming information exactly when they need it. Our precision marketing approach is ushering pet parents into a new era of pet care. It's not only good for pets, but it's also good for business. Our approach starts at finding the right customer. Using our wealth of first-party data, we grew our highest value customers based on their historic and future behaviors. We then build out demographic and psychographic profiles, allowing us to create look-alike models so that we can find more consumers who have similar traits. We call our primary target audience Health-Conscious Pet Parents, and they spend 16% more on their pet's care than the average pet parent. They make up a large portion of the category with 29% of total category spend, and we over-index on them. They are extremely committed pet parents. 88% are willing to pay whatever it takes to feed their pet healthy food, and 91% believe it's important to consider their pet's emotions and mental health. What this data tells us is that we are entering into a new era of pet care, one that cares for the whole pet in the same way that it's become common to think about one's whole self in the human health and wellness space. This is the humanization macro trend in action. We saw that the definition of pet health and wellness was ripe for a change, and we are leading the way with a compelling message to pet parents. This past year, we introduced our proprietary industry-leading Whole Health philosophy for pets, which is now the cornerstone of how we talk to pet parents about holistically caring for their furry family members. We are getting pet parents who will do anything for their pets to go beyond the basics and join our revolution for Whole Health. This framework was developed in partnership with our experts on the Petco Pet Wellness Council, and no one in the pet industry has taken such a progressive stance on pet health care. Now, with the differentiated positioning firmly established, we needed a world-class marketing campaign to bring it to life. Let's take a look. [Presentation]

This was the commercial that launched our brand repositioning, showcasing our integrated pet health care ecosystem, and it was recognized as one of the top 30 Ads of 2021 by Ad Age, the premanent trade publication in the marketing industry. Our vendors see our momentum and they want to be a part of it. We co-market with top-tier national brands under the same it's what we'd want if we were pet's platform, making our campaigns more robust and effective. In all, we co-marketed with over 50 vendor partners last year. And because of our analytics capability and strong return on advertising spend, investment from our vendor community has increased 117% over the past 2 years. We've worked with a range of vendor partners including international CPG organizations like Colgate and Nestlé to promote large brands like Hill's Science Diet and Merrick. [Presentation]

We also co-market with up-and-coming ultra-premium brands like the Honest Kitchen, who invest with us because of their confidence in our ability to scale their brand. [Presentation]

When our rebranding campaign hit the market, search interest for Petco and our featured vendor partners was up 146% over the prior quarter, outpacing all of our key competitors. And the global marketing community is taking notice too. We recently won a Cannes Lion in the Health and Wellness category. Now, to put this in perspective and with the sweet 16 starting tomorrow, this is the equivalent of us making to the final 4 in our first year in the turn, we're very proud of this. Now that we know the right message to send to the right customers, we need to reach them in the right places. We know that our health-conscious pet parents have distinct preferences in their media consumption, and so we optimize our media mix to reach them in the places where we know they will be most engaged throughout their customer journey. We start by raising awareness and creating demand in key video channels where we know pet parents like to spend their free time, like prime time television and streaming platforms like Hulu. And when their interest has peaked and we can tell that they're starting their buying journey, we can pick up on those signals. Usually, the first place pet parents go to discover new products and solutions are social networks, Facebook and Instagram in particular. Then once we've created that demand, we capture it with people who we know are ready to buy in that moment. This primarily happens on Google search. We have established one of the deepest relationships with Google in our category, allowing us to own this moment. Given our omni footprint, we show up on Google in more places than our online-only competitors can using ad placements that are designed to drive people to physical locations. And when we drive customers into our pet care centers, our 25,000 passionate partners are right there to help. They are a marketing engine in and of themselves. Steady organic traffic to our very visible pet care centers on top of better margins in AOV means that we can spend less to initially acquire a customer, giving Petco a sustainable CAC advantage. The result, our brand is more top of mind, with 98% awareness contributing to our industry-leading customer acquisition growth. In fiscal year '21, we acquired millions of new customers, resulting in 24 million active customers by the end of the year. Now, once we've acquired a new customer, we onboard them in a highly personalized way, exposing them to everything that Petco offers. And when a pet parent further engages with us, in this case, scheduling a grooming appointment, their 360-degree profile in our DOG House begins to grow. Using the propensity models in our CAT Tree, we can predict and score the next best action for a customer. In this case, the algorithms tell us it's Vital Care, which then triggers a new series of Vital Care communications to this customer's inbox. We have custom-built communications for each of these most common and lucrative journeys, and we continue to nurture customers through paid and owned media channels, moving them into even more categories. Ron talked about how we are growing share of wallet with customers, and this is one of the key ways that we do it. We are good at personalization, with millions of unique messages being sent on a one-to-one basis to parents every year, and this is an area we're going to keep investing in. We're going to take personalization beyond the e-mail inbox, so that no matter where a customer shows up to meet us, whether it's at their mailbox, on their cell phone, on petco.com or in one of our pet care centers, we will be able to deliver personalized care. We are well on our way to world class in this area. I said that this real-time sophistication is helping us usher in a new era of pet health care, and let me show you what I mean. By customer, we track each of these key health care categories, and the data in our DOG House tells us when a pet is overdue in each of them. This then triggers a series of personalized communications to each pet parent celebrating those areas of their pet's health that they're paying a lot of attention to, like those in green, and bringing their awareness to those that they're not, in red. All the while, introducing them to new categories meaning they're never been exposed to or never even considered. For example, every month, we send this personalized whole health report to our pet parents. Hyper-personalized e-mails like this make up 11% of our sends, but comprise 40% of our sales from e-mail, demonstrating why we're going to be doubling down on personalization. Pet parents can find the same information on the dashboard of their Petco app and sent via care reminders to their cell phones. This multi-pronged, real-time precision marketing is helping us drive 130-point increase in retention in our customers' first quarter with us. And as our pets need change, so do our messages to their pet parent. When Charlie turns 9 months old, we are there proactively guiding his parents by educating and recommending products and services that he's going to need as he goes from being a puppy to an adult. And when his environmental surroundings change, like in the spring time when fleas and ticks become more common because the weather is warming up, our pest heat map tool is there to help this pet parents understand what he's going to need and when. This is what a health and wellness company should do, and it's what a winning business should do, and it's what precision marketing can do. Throughout every touch point of communication we have with the customer, we are pairing content and commerce. When pet parents interact with educational tools like this, it not only endears them to Petco as our trusted partner, but it builds their basket, and it creates more data that goes back into the DOG House to further fuel the CAT Tree. I know, firsthand, the power this simple education can have on a pet parent's confidence, and ultimately, their pet's health because I saw my father break down complex topics for his clients every day. And while we can't have a veterinarian walk with every customer that comes through our doors and website and app, we can bring the deep knowledge of our veterinary team to our customers. So I guess, in some ways, I am following in my family's footsteps. Our results speak for themselves. We have grown spend per pet parent year-over-year and increased the number of category -- customers that are shopping more than one category of product or service by 17%. And while this growth is great for business, we're also creating deeper and more meaningful connections with customers because we are showing up with a purpose, a purpose that hits the emotional core of our highest-value customers because their pets are their family. We're going above and beyond what they expect from a traditional retailer and forming an emotional connection that drives loyalty and retention and sets us apart from our more transactional competitors. You can see this in a tweet from one of our pet parents about how we're supporting his dog, Satchel Paige's mental health. Our data and analytics engine is the brain power that allows us to tailor messages to each pet parent. But our care for each pet's individual health care needs is the heart that captures them emotionally. Now, layered on top of all of this is our marketing innovation. We are on the cutting edge and continually innovating to reach customers where and how they want to engage, especially the new Millennial and Gen Z generation of pet parents. From shoppable augmented reality filters and Snapchat to shoppable video ads, we are making it frictionless to purchase products where they want to spend their time on social media. We also frequently partner with well-known celebrities to efficiently extend our reach. Our most recent Facebook Live holiday event was co-hosted by Sarah Hyland and Wells Adams, it reached 5.4 million people and drove an over $10 [indiscernible]. And all of this innovation led to us recently winning Modern Retail's Best Use of Social Media for Commerce award. Now, I started by sharing that my passion lies in the art and the science of marketing, and I hope that you have a new appreciation for how we are bringing the best of both, and the best is yet to come. Our commitment to the whole health of pets will only intensify and our data-driven approach to precision marketing will only keep getting more sophisticated. We will continue to acquire high-value health-conscious pet parents who drive the largest LTV. We will migrate these high-value customers into high-margin categories, and we will double down on our industry-leading capabilities around personalization. We firmly believe that marketing has been and will continue to be a competitive advantage for us, and we are well-positioned for the next phase of our transformation. Petco's investment in marketing has increased 35% year-over-year. And as we have scaled our marketing return on investment, Brian has invested with us. And with that, I'm thrilled to turn it over to our Chief Financial Officer and my friend, Brian LaRose.

Thank you, Katie, and she is indeed following in her family's footsteps. Hi, everyone. I'm Brian LaRose, I'm the company's Chief Financial Officer. And my dad was a firefighter for 40 years, and my mom has been hustling at a dry cleaner for about the same amount of time, so it might be a bridge too far to follow in their footsteps. But I can promise you, I have their work ethic. So now that you've heard more on what makes Petco so unique, I'd like to spend some time talking to you about how the attractive market we play in, our differentiated model and our operational excellence translate into longer-term financial expectations. Let me start with a brief recap of our recent performance. We are coming out of COVID stronger. Our strategic framework designed to capture the momentum that we built and further extend our leadership positioning is working. And 2021 was a record year of revenue and profitability, and I could not be more pleased at how well the team has executed. And that execution was across the strategic priorities that Ron outlined earlier. We've taken share in a large and growing category because we have a unique omnichannel ecosystem, a differentiated portfolio of services and offerings, and what we view as our secret weapon, our Petco partners. Over the course of the year, we've outperformed, delivering consistent growth at the top end of the industry. We're one of the only companies across all of retail to deliver 7 consecutive quarters of double-digit comp growth, and that is truly rare air. We delivered a staggering $5.8 billion of revenue in 2021, well ahead of anyone's expectations when we look back at the IPO, and that's up 18% year-over-year, powered by 19% comp growth and more than $0.5 billion more than our initial expectations to start the year. And demonstrated through that performance, we're executing on our commitments. We've outperformed our guidance on both the top and bottom line for 5 consecutive quarters since the IPO, and we're gaining market share even in a tightened supply chain environment. Now on that, we're working more close than ever with the suppliers and nimbly addressing inflationary and labor pressures. Our focus remains on acquiring and delivering for our customers and guiding them to the best available options for their pets. Our PCC partners, you heard from Justin, are executing, and that is showing up in market share gains, and we're focused on expanding adjusted EBITDA at a faster clip than revenue and expanding adjusted EBITDA margins over time. And we've been delivering against that consistently in 2020 and 2021, driving operating leverage, which includes 22% adjusted EBITDA growth on 18% revenue growth in 2021. And that operating leverage is coming from 2 places, both topline growth and operational excellence. We're driving about $20 million to $30 million a year of cost out initiatives across our business on an annual basis. And those savings can either be reinvested in the business or taken to the bottom line, which allows us to achieve additional operating leverage, while maintaining a lean and nimble organization even while we reinvest in sustained future growth through marketing, infrastructure and our people. And we have a sizable, sustainable runway for growth. We have acquired 24.1 million customers to date, and we had 800,000 net new adds in the last quarter. And importantly, we expect those customers to be a source of sustainable growth for years to come. In fact, one of the things that gives us confidence is that we have the opportunity to grow our share of wallet with the customers we already have, and we have the tools to do so. Our customers are becoming increasingly stickier, more loyal and interested in shopping across multiple channels within our ecosystem. And we're investing in CapEx to fuel growth through proven step and repeat strategies with above-hurdle returns, further scaling our business and ultimately driving shareholder returns. These investments are focused on executing one of the fastest build-outs in history, as Mike talked about earlier, building out our PCCs in areas like Fresh where we continue to scale and invest in our pantries. Further integrating our omnichannel offering and scaling our digital business, enhancing and automating our supply chain to support significant growth, and driving continuous innovation through strategies like Rural that you heard from Justin about. Also, we are poised to reach our target of 900 planned vet hospitals, and further advanced our position in the market through the integration of the Thrive joint venture under one Vetco Total Care business. I not only like the financials of these hospitals, but I love the culture and the people, and believe this acquisition is relatively low risk and a natural fit within the Petco ecosystem. It is very clear we are at scale now in that, and we have plans to get to a significantly higher scale in the coming quarters. Now, focusing in on our topline and bottom line results. We have a proven track record of outperforming the category powered by the strategies that we just discussed, with significant headroom for additional growth. And as we execute on that top and bottom line, we're focusing on high-quality growth and operational execution. Now, Ron and I both came from a business that had 3% margins, 3%. So we sweated the small stuff like the cost of screws. We know how to get cost efficiencies without sacrificing significant growth, and we are doing just that with the tangible results that you're seeing today, enabling consecutive years of adjusted EBITDA growth. And we've done a lot of work on cost out and optimization over the last few years, and we continue to see major opportunities ahead. And that profitable growth is well ahead of revenue growth, demonstrating our ability to drive margin expansion. Key indicators for how Petco is ultimately delivering value for its shareholders. Now before I dive into our long-term financial algorithm, let me just take a few moments and take a step back and remind everyone of the guidance that we gave for FY '22 in our earnings call, 2 weeks ago. As we build on our strong performance from last year and maintain our strong track record of execution, we're confident in our ability to continue to grow and take share. And in 2022, we expect to deliver net revenue of $6.15 billion to $6.25 billion. And while you'll hear shortly on a raise on our long-term algorithm for 2022 against the year that had significant stimulus impacts, we're guiding to a 6% to 8% increase on the topline, and we plan on continuing to perform with and above the category. On the bottom line, adjusted EBITDA between $630 million and $645 million, a 7% to 9% increase from 2021. Adjusted EPS between $0.97 and $1 per share on $76 million of net interest expense, excluding the loss on debt extinguishment, 267 million shares outstanding and an effective tax rate of 26%. And CapEx in the range of $275 million to $325 million range, inclusive of the areas that I mentioned earlier. We're confident in our guidance, which reflects the strength of our unique health and wellness ecosystem that continues to set Petco apart. And we're also confident in our ability to deliver against our strategic priorities like vet, digital, owned and exclusive brands. And our guidance also demonstrates our significant cost discipline as we continue our cost-saving programs that are already in flight, and then I'll double click on in a little bit. We're guided by 4 primary financial priorities. The ecosystem that you've heard about today is driving outsized growth relative to the market. We are driving efficiency out of our business, and optimizing operational performance is key, while consistently investing for future growth. Third, we're strengthening our balance sheet and executing on opportunities to strengthen further free cash flow expansion and working capital optimization. And today, we're outlining a disciplined capital allocation program that focuses on organic growth. Today, we're providing a new long-term framework for our financial performance. We're confident in our momentum and excited to share with you today this new financial framework. On the topline, we expect high single-digit revenue growth. Adjusted EBITDA growth on the bottom line that grows faster than revenue. Low double-digit adjusted EPS growth, and a net leverage ratio of less than 1.9x. Now, let me point out that this is a tangible positive change to the long-term model that we laid out at the time of the IPO, where we called for, at that time, revenue in the mid-single digits and adjusted EBITDA in the high single digits. Now let me walk you through an illustrative example of how this long-term algo works. If you look at the chart on the left, roughly half of the revenue growth from '20 to '21 was market-driven. You heard Ron talk about the growth of the market being roughly 9% last year, so roughly half the growth, about 9%. The other half was market share gains across PCCs, digital and services, half our growth from market share gains. That is execution. Now if you move to the middle and kind of play that tape forward through 2025, we see category growth growing at a CAGR of about 7%, which translates to about $1.75 billion of cumulative growth over that time horizon. If you then apply a range of share growth which, by the way, is less than the share growth we experienced last year, it means $650 million to $950 million of incremental revenue growth, getting you to that long-term algo of high single digits. Now, that share gain will be driven from areas like RD, app usage, food and loyalty programs and, in particular, Vital Care, which has the greatest lift of all of our strategic levers. We are in a strong category, and we have the tools to get after share of wallet. Now as we're coming out of COVID stronger and executing on our strategic framework, we have several levers to drive this above topline growth. First, as demonstrated by the last several quarters of performance, we expect to continue to take share. As we extend our competitive advantages, we're leading and taking share across our PCCs and digital channels, and we see upside through our unique positioning. Coming back to the strategies that Ron outlined, these strategies manifest in profitable growth. As you saw from Mike and Dr. Miller, we are winning in the vet and services space, and that business will continue to scale profitably. Third, we expect to continue to grow our mix from premium products while offering -- while providing offerings for all cohorts, thus deepening our competitive moat through our exclusive and differentiated merchandise offering. Fourth, leveraging our technology and the power of the -- our 360-degree offering to build share of wallet. We have a robust customer base, sticky loyalty programs and the ability to drive customer LTV. And while LTV isn't a metric that we guide by, it is a significant measure as we strive to improve through our multichannel ecosystem, and we have ample opportunity to do so. And last, we are relentless in our focus on executing with excellence, and it is not just financial. Whether it's removing artificial ingredients, building out our vets, launching Vital Care, when we commit to a strategy, we execute, driving operating leverage and margin dollar expansion. We're confident in our momentum and our ability to deliver, and I will tell you we have a strategy to win and to deliver profitable growth, while reinvesting and navigating through short-term financial headwinds. While there are cost pressures in the environment across retail, and pet is no exception, our team is executing extremely well. We remain steadfast in our inventory management through a dynamic cost and supply environment, and we have great relationships with our vendors which allow us line of sight to manage cost inputs, and we will remain nimble in our approach. We expect to continue the mix shift towards services and digital and see a lot of opportunity in those businesses. And just a quick reminder that within services, labor sits up in cost of sales. And so while gross margin is lower relative to enterprise gross margin, really, that's just P&L geography. The digital business provides us with scale and enormous cost leverage. And as you've heard today, over 80% of our digital orders are fulfilled through our PCCs. Both services and digital have attractive EBITDA and provide us a nice runway for profitable growth, and we have a long list of tailwinds on top of that. Owned brands expansion. You heard from Amy earlier today about expanding our position within the most profitable segment in the category. Pet Care Center productivity, as Justin went through, through our proven step and repeat playbook, we are significantly expanding revenue, while leveraging our PCC cost footprint to drive the digital business. And we're growing spend per pet and expanding lifetime value across our businesses, including digital, services and consumables. Within the business units, as the vet business matures, we've been pleased with the 4-wall EBITDA growth that they generate, validating, once again, that step and repeat playbook. And we will continue to optimize our digital fulfillment and enhance services pricing, both of which are strategic levers for us. And lastly, as I mentioned, we have specific programs in flight to identify and execute on $20 million to $30 million of planned cost-out items on an annual basis. Now, let me unpack that on those savings a little bit. Our focus is on programmatic execution of operating excellence to drive out these cost efficiencies. And you can see a few of the major areas here on the board that we're targeting, but let me give you one specific example. So within customer service, we are consolidating technologies onto a single pane of glass which will drive down case times and improve consistency, which not only leads to a better experience, but cost efficiencies which can either be taken to the bank or reinvested back into the business. And it's just one example of an end-to-end approach for continuous cost management, which not only enables a nimble and lean organization, but provides operating leverage as well as reinvestment to lean back into that flywheel of growth where we see those opportunities with returns well above our hurdle rate. Now, shifting to capital allocation, we think about this in 2 ways. Number one, near term. Number two, once we reach our target leverage ratio. So in the near term, our primary focus will be on reinvestment back into the business to drive organic growth, and I'll double-click on these strategic investments on the next page. But at a high level, they take the form primarily in vet hospital build-outs and store center optimization, digital expansion and supply chain enhancements. Second, we will continue to pay down our debt working toward a 1.9x or less net leverage ratio by the exit of 2023, powered by both adjusted EBITDA expansion and net debt reduction. And last, we will continue to evaluate complementary tuck-in acquisitions like what you've seen from us in the vet space. On that point, we remain highly selective, ensuring that not only the returns have a healthy IRR well above our hurdle rates, but that strategically and culturally, these acquisitions are good fits for Petco's purpose-driven performance. Then longer term, once we reach our target net leverage ratio, that shifts slightly. So we will remain focused first on organic growth and reinvesting into the core business to enable above-market growth long into the future. And we have a long funnel of organic attractive investment opportunities to keep feeding that flywheel. Next, our focus will be on returning capital to shareholders at such point that we have excess cash after our organic investments. And while we'll evaluate the environment at that time with our Board, our current expectations would be that, that return is primarily in the form of share repurchases. As I've said before, we will continue to evaluate inorganic growth opportunities both strategically and opportunistically. And last, we remain committed to maintaining a strong balance sheet with a net leverage ratio of at least 1.9x or less. Although going forward, we would expect that leverage ratio over time to reduce by growing adjusted EBITDA. We practiced disciplined capital investments focused on high-quality returns in addition to growth, and we continue to prioritize those investments in the core which we expect to be up from 2021. These are steady, predictable, low-risk CapEx investments with very high return, and they're primarily in those areas I've spoken about. Vet build-outs and PCC remodels, primarily the expansion of our fresh capabilities, both of which are in that step and repeat playbook that we keep talking about. In the middle, we remain focused on supply chain and digital, where we continue to invest in scaling our capabilities. In supply chain, we're not only investing to support the significant growth that we see in the business, but we're reducing freight lanes and introducing automation to improve efficiency in our DCs, driving down cost per pick and reducing split shifts. In digital, we've rebuilt the core infrastructure of our business, and we're now focused on investing and driving the 360-degree pet experience through digital with personalization, driving engagement. In total, these investments are also up from last year, reflecting our appetite of investing in the customer experience. And we'll also devote incremental investments towards innovation. For example, we're investing in the exciting Rural test that Justin outlined earlier, and the expansion of Vital Care that Ron spoke about. Both of these capital initiatives are in early phases, but we're optimistic that they will be great growth opportunities into the future. In total, we really like the return on these investments, which handily clear our hurdle rates. And as long as we continue to see that, we will continue to invest in these buckets of initiatives. I'm smiling a bit because those are my boys. That's Speedy and Snapper, which, by the way, is what happens when you let a 5-year-old name the pets. They are just 2 of the millions of pets in the Petco family. Those 2 guys, along with my 2 cats and my amazing dog, Sandy, give us the confidence in our long-term guidance. Our long-term guidance, which is based on reinvestment in our business and reflects our confidence in the strength of Petco's unique ecosystem, and our optimism and its ability to attract and retain health-conscious pet parents. The TAM is big, and we're taking more than our fair share. And nobody has the breadth of offerings that we have at scale. Our model is truly resonating with pet parents, as you can see in the millions of new pet parents that we've attracted over the last year. And we have proven our ability to operate with excellence time and time again as we continue adjusted EBITDA growth outpacing strong topline growth. And all of this could not be possible without the experienced leadership team, many of whom you were able to hear from today, and our amazing Petco partners who go out there and get it done day after day after day. And I would just say it's been quite a year. We've made much progress in repositioning this business, and we have come out of COVID stronger than ever. As we look ahead, we are proud to be leading the future of Retail 3.0, as we continue to deliver long-term profitable growth and strong shareholder returns. And with that, I'll turn it over to Kristy, who will take us into the next Q&A.

We will now move into our final Q&A of the day. [Operator Instructions] And with that, let's start with questions in the room.

Oliver Wintermantel, Evercore ISI. Brian, for your outlook on margins, we know that the gross margin was under pressure the last few quarters because of the growth of digital, but then also vet and the strong sales of consumables. In your long-term outlook, what -- how do you see gross margins progressing from here?

Yes. Thanks for the question, Oliver. We haven't guided gross margin long term. I will start with saying that we are focused on expanding EBITDA margins. We did it in '20, we did it in '21, we've guided to do so in 2022, and that's where our focus is. We expect vet and digital to be growth businesses ahead of the long-term CAGR of 7%. As I mentioned in my remarks, if you think about the services business, that is a very attractive EBITDA in that business. Core services are right on top of enterprise gross margin. That EBITDA will be better at maturity. It will be 20%, well ahead of enterprise EBITDA. So we're happy with the growth in those businesses, and we're happy with the growth in the digital business. So we're going to keep focusing on the bottom line.

I would just build on that. If we are myopically focused on gross margin, we will make the wrong decisions. Services is neutral to the EBITDA line. We want to grow our service business. It is a competitive moat. We want to do that. And if you look at consumables, consumables has a better LTV than supplies. We want to drive consumables. So we will manage gross margin. I think you saw us show up in Q4 with strong gross margin, but to be myopically focused on gross margin would be the wrong thing for our business. But we will continue to drive EBITDA margin expansion while investing in the business.

John Heinbockel, Guggenheim. So maybe 2 parts, first for Katie. Can you talk about the visibility you have into wallet share, right? With your various cohorts, particularly pet parents? And maybe thinking about consumables as part of that, right? Because obviously, the share with services is very low. But maybe you could talk about that. And then maybe as a second part of that, when you think about the 1/3 of your growth that will come from market share gains, right? Wallet share. How do you think sort of break that out into new customers versus existing? And in particular, right, it would seem that the health-focused pet parents could drive a substantial part of that third growth over the next couple of years?

Yes. So I'll start with your first question. So spend per pet parent is up year-over-year, and that's because of great programs like we -- like our revenue programs like Vital Care, Repeat Delivery, Insurance, PupBox. And -- a lot of what we shared today, right, we're acquiring customers at a multiple of our online competitor, key online competitor, and then we're migrating those customers into higher margin categories and getting more of their share of wallet using our data analytics engine, precision marketing and then really tapping into those loyalty programs. Anything else you want to add?

Yes. I would add that you continue to see Millennials and Gen Z adopting new pets, right? That is an upward push. If I kind of time down this, right? When we did our IPO, we talked about a 4% spend per pet annual increase. That was before Millennials and Gen Zers completely jumped into the pool. And so in the Rover now, some of the stuff Rover put out yesterday, talked about how much the intent is for them to continue buying and actually putting off having babies. So you look at that, that's further pushing that spend per pet increase. And then you add on to that the fact that we tend to take even the highest end of that segment, and we think we have significant upside on spend per pet. But we're going to continue to drive acquisitions at the same time. And as we talked about earlier, because we can move our investment between digital and brick-and-mortar, we're able to get a lower CAC than competition, especially when consumers are moving towards brick-and-mortar.

Zack Fadem, Wells Fargo. Can we drill down on the high single-digit top line and break down your expectations across stores, e-com and services, and compare your growth to the underlying category growth?

So I probably won't give you the granularity that you want, Zack, but let me start. So 7% in total, will we expect services in digital to grow faster? You heard Darren in his comments talk about the category expectations for digital being kind of high teens, low 20s, and we expect to gain share. Mike showed slides in his pitch with vet at a $35 billion TAM growing at 6% and $10 billion in the remainder of services growing at 15%, we expect to gain share. I mean that number of 6%, we're -- look, we're adding vets. We gave you the number we're going to add this year, kind of 20% to 25% in the first half, back to a 70% run rate in the second half. That's incrementality above and beyond the category. So both of those will grow above that category, which would imply that PCCs would be a little less than that 7%.

Steve Zaccone from Citi again. Ron, I was just curious for your thoughts on macro backdrop, how you see the pet industry doing if we potentially face a recession. And it seems like inflationary pressures, like you've been able to pass that on to the consumer, but what's your outlook for that for the balance of the year, maybe over the next couple of years?

Yes. For the second part of that, to date, we only know what we know. To date, the pricing has been able to pass through. And as we said on earnings, we have not seen an aggregate decline in units, which is kind of what you want to see. And I think this macro trend of premiumization is going to continue. Could it be muted to some degree in an inflationary environment? Sure. But I don't think that, that trend is going to decline because of who's adopting the new pets, right? The mix of new pets is going towards Gen Zs and millennials, which have higher spend. So that is a positive for us. In terms of the macro environment, we're not seeing that drive less adoptions. I think Kristin from Zoetis has a great line that people are spending more time with more pets, and we don't see that declining. And one of the things that she talks about is the more time they spend, the more time they notice things. They notice they need to get groomed. They notice they need to go to the vet, or they remember that they need to go to the vet. So the underlying dynamics are strong. And to the extent inflation impacts the industry, that's why we have things like WholeHearted as a more of a midrange great product, that's why we have things like Vital Care so that people can find ways to offset cost pressures. So we think we're well positioned through it. But none of us have ever been through an inflationary environment like this, but we feel we're well positioned. The other thing I will come back to is, from a competitive standpoint, not doing as much last mile as our key online competitor gives us a competitive advantage. And our PCC leverage gives us a competitive advantage from a cost to fulfill standpoint.

Peter Benedict at Baird. One for Brian, maybe one for you, Ron. Brian, you talked about EBITDA growing faster than sales. I think about last year, a gap was like 400 basis points, albeit you're growing your revenue at high teens rate. How do we think about that gap maybe in a high single-digit revenue growth rate? Is it maybe half that? Is it 200 basis points? Just trying to get a sense for how much faster you think EBITDA can grow over this time frame? And then for Ron, maybe how long do you think it takes to get to 1 million Vital Care members? You talked about a clear path to upgrade. I mean, you laid it out nicely what you've got in terms of your loyalty. Can you maybe expand on that? What -- how are you going to incent these people to kind of make that move?

Yes, I'll take the first one, and then Ron can take Vital Care. So it will grow faster, John (sic) [ Peter ], that's about as far as I'll go. But I'll tell you this, we have confidence in our cost-out initiatives. And we're very good at this stuff. We see a lot of opportunity to do more. At the same time, I want to balance what we're doing in the short term for the long term. There are -- if you look at the slide Katie showed, marketing investment up 35% year-over-year this past year. That was a purposeful reinvestment back into the business to go acquire customers and expand share of wallet. We will continue to look at this business, both in delivering on our commitments, but also reinvesting for future growth. And so that will be that balancing act in terms of how much spread that is. So we gave guidance this year on 6% to 8% top, 7% to 9% bottom based on what we knew at the time we gave that guidance. We reaffirmed that guidance today, but we continue to look for opportunities to expand.

And on Vital Care, we had Vital Care 1.0, which is more of an internal, and now we have Vital Care 2.0. We really didn't turn on the marketing spigot because we knew we were continuing to refine Vital Care. We're now doing that. We're now outbounding to the 24 million customers. Justin's team is now converting in the aisle. We didn't have the ability -- if you go to a CVS, they'll ask you at the point of sale, do you want to get into their loyalty program? We didn't have the ability to do that at the register. We now are building that. So as I said earlier, we've had a tangible acceleration in sign-ups since launching Vital Care 2.0. You saw some of the marketing that we have now turned on that was not turned on, on 1.0. So I would anticipate and we're seeing an acceleration in sign-ups, but we're not going to provide an exact date on that. But we're going to get there. We're going to get there.

[indiscernible] on for Anna Andreeva at Needham. We had two questions. One, just on the EBITDA growth targets, do you expect that to be driven both by cost leverage and gross margin gains? And if we could just dig in on that a little bit. And then the other question is, I think CapEx is edged up as a percentage of sales, and it's roughly 5% guide for the year. How should we think about CapEx as a percentage of sales as there are some investments ahead?

Yes. On the first point, the way I'll answer is this way. We expect to expand gross margins within each of our business segments, so within services, within vet, within digital, within the PCCs. So we will look across our businesses to expand gross margin. In terms of total bottom line operating leverage, it will be across cost-out initiatives, across cost of sales and OpEx as well as continued top line growth. Going to CapEx, we -- if you go back 2 years, 2020 was sort of a false baseline on CapEx because we had a pause, like a lot of companies did at the onset of the pandemic, where there wasn't a lot of cash going out the door. So we did $239 million in 2021. Midpoint of the guidance for next year is $300 million. We have a lot of opportunities that have really good returns. So we're balancing our CapEx investment with our long term -- our 24-month goal to exit '23 at a 1.9 or less net debt ratio. So -- but within that $300 million, it's the same buckets of initiatives, a little bit more of it. And we just continue to like the returns, which are well above our hurdle rate that we set.

You can look at it from a financial standpoint. You can also look at it as a TAM opportunity, right? $40 billion incremental TAM that we're going after. So we're continuing to drive share in our current TAM. But we have $40 billion of incremental TAM that we have line of sight to. So this business has tremendous growth opportunities, and we want to go after them.

Liz Suzuki, Bank of America. Just on the leverage ratio target, why is 1.9 the right number? And what do you think would cause that to flex in a given year, if there was an opportunity to either accelerate investments or expand that in a given year, but end up kind of back at the 1.9 in the long term?

Yes, it's a great question, Liz. We did a lot of work on this, both internally and with some advisers to see what that right number is. We feel good about it. I think 1.9 gets you in the right balance of a comfortable leverage ratio with perhaps some movement on the credit agency side. I think there's a trigger at some point where that has some movement, that's beneficial to us. So we want to get to the point where we see some movement there. But we also know that there does come a point where we are optimized, and it makes more sense to actually return cash to shareholders. All the work we've done suggests that a little bit below 2 is about that right number, with some flex, one way or another, depending on how the environment materializes.

And we wanted to put a -- I don't want to say a line in the sand, but a marker out there. We've gotten a lot of questions from investors. Okay, we understand you're investing in your business. We understand you're paying down debt, that's the right thing to do. But when could we start modeling in some returning cash to shareholders? So we wanted to make sure that we were clear that, that is not -- that is on the horizon.

It's Michael Lasser. Two questions. My first is your model is based on the category -- assuming the category grows 7%, and you'll do better than. That if the category only grows 3% to 4%, you still do better than that. So you grow 5% to 6%, so you have similar market share. Would you grow operating margins in that scenario?

We expect to continue to grow operating margin. I'll just start with that statement. Number two, on your statement, if you think about the chart I showed, the middle part of that chart showed that $1.75 billion of the revenue growth from, now through '25, came from the market, $650 million to $950 million share gain. That share gain that we put in that model is less than what we've been gaining. So if the category happens to flex a little bit, we have no appetite to continue to slow down our pace of share gain. That's the way I'd answer it, Michael.

Yes. The other thing I'd say is, I mean, look at the team around you, right, this is an experienced team. We're operators. We've been in boom markets. We've been in slow markets. We know how to respond. We respond every single day. But this is a group of operators who've been in some of the best companies in the world. We know how to operate.

My follow-up question is on the vet opportunity. It looks like as you fully build out the hospitals over the next few years, you'll get to a market share that might be half of what you have in consumables and supplies, somewhere in the 3% to 4% range versus supplies and consumables more in like the 6% to 7% range. Why would that be? Why wouldn't it be closer?

Well, I mean, I can start with that. We have -- we are -- we still have 900 as our goal, Michael. So if you're talking about in the next couple of years, we'll continue to scale beyond that. So we're not going to get to 900 in 2 years, 3 years, right? We're balancing the CapEx investments that we need to make across the whole business with what we're doing for vet. We also want to be responsible and make sure that as we build out these vets, that we attract the right talent in terms of the DVMs into that vet practice, to be able to build the book and get to that maturity level of that 5-year model as fast as possible. So that from a market share standpoint, I look at the slide Mike put up there and says that 900, that's $1.7 billion of enterprise revenue at maturity. That's a big deal.

Yes. And that doesn't mean that we get to 900, and we sit on our hands, and the vet team isn't doing anything. I mean there's all kinds of models you can run. You can start getting into the emergency business. There's a lot of other things you can do when you get there. But at 70 a year, we have a long runway to go to get there. And then as we get closer to that 900, we'll look at additional models that we can do. I mean, we're running vet clinics in other -- we had our first one, I think, it was 3 weeks ago in a Lowe's parking lot. So there's all kinds of additional TAM opportunities we can do for vet. It doesn't stop there, but it's far enough out that we don't have to kind of project that out from a formal standpoint at this point.

I would say, look, the purchase of the remaining 50% of Thrive is validation on our conviction in the model. When we started to build our own hospitals, and Mike touched on this, we saw the performance of our owned hospitals perform better than those hospitals through the joint venture. So those -- we took those hospitals back in. They're already part of our infrastructure, getting them under Vetco Total Care under one umbrella, one brand, not only gives us leverage in the vet model, but we think gives us an incremental lift across those 98 hospitals that are already in our pet care centers.

Great. We'll now turn it over to Benjamin with some questions from our online portal.

Thanks, Kristy. We have two questions. The first question is for Brian, and it comes from Etienne at Galliant. He asked to confirm, is the new EPS long-term guide lower than the initial guidance that is low double digits versus mid to high teens?

No, sorry, let me clarify that. So when we initially did the IPO, we gave a net income number that was not an adjusted net income number. This is adjusted EPS, so which we disclose quarterly in our financial statements to adjust for a normalized tax rate and a few other items. So in total, across the board, the guidance we gave today long term on every line item is higher than what we gave in the IPO, meaningfully so.

And the second question is more general, comes from Alex at Empire Financial Research. And he asks, can you discuss any issues or challenges in the supply chain, particularly when it comes to national brands versus compared to owned or exclusive brands?

Yes, I'll start, and then maybe you want to get a mic to Mike. So there is not one single vendor that -- so I think there's going to be 11 million new pets in 2020 and heightened pets in 2021. So all the vendors in the industry are playing catch-up to that. They're playing catch-up from their manufacturing capability. They're playing catch-up from a supply chain -- upwind supply chain. That said, our supply chain team has done a great job. Our vendor relationships have served us well. When you look at the growth, 18% growth for the year, 14% on the quarter. We are delivering serious growth in the face of some of these shortages. And in terms of the here and now, our shipments are actually increasing week-on-week as we speak.

Yes. That was well said. I think that in addition, obviously, having a strong own brands portfolio gives us more control of that supply chain, which is obviously really critical to us. And that incorporates everything, from the manufacturing process to the team involved in importing product, that has just done an amazing job, ensuring we've got capacity, we've got some really good economics on that import product. And then also, on the domestic side, we've made some meaningful investments in our distribution centers. So we've talked about the opening of Dallas. We've talked about some automation that we've added. So I think all of these things speak well to the team's efforts around supply chain in general.

Great. Well, that concludes our Q&A session. I really appreciate everybody's great questions. And at this point, I'll turn it over to Ron to conclude us with loyalty and membership -- or sorry, to conclude the day.

So thank you for your questions. Thank you for your engagement. I spoke earlier about our confidence in delivering profitable growth. I shared this chart. It starts with a strong category. It's complemented by competitive advantages and strong initiatives that are proven growth drivers for us and culminates with our people. That's what gives us confidence in the algorithm that Brian shared, that is a raise on the top and on the bottom line. We will continue to drive against this. That said, I talked at the beginning about purpose-driven performance. So let me just talk about purpose. It is what gives us meaning. As I said, improving pet lives is on my wall. I look at it every single day. And we've truly become a purpose-driven company. So I want to share a story. So Justin talked about getting to all 50 states. The last one was Puerto Rico. We were supposed to go to Puerto Rico, COVID spiked, and we had to back out of going to Puerto Rico. And I felt guilty about this for a year, 1.5 years. We're going to get to Puerto Rico. So we go to Puerto Rico. And on the way, Susanne Kogut, I don't know where she is, back there, our patron saint of Petco Love, said, "Hey, Ron, I want you to go to this rescue." So we show up at this rescue. It was unbelievable. It was an old school, and there was this woman who was the Mother Teresa of pets in Puerto Rico. And this thing was in need of a lot of help. And here, she was taking animals off the street, all through this old school. Sometimes she had crates, sometimes they were just in classrooms running wild. She clearly needed support. It was Christmas time. Let me take a -- take a look at this video. [Presentation]

That was -- honestly, it brings tears to my eyes right now. That was one of the most meaningful moments of my Petco time so far. And it doesn't stop there. So any time there's need, we try to jump in. So we just finalized giving $1 million to Ukrainian pets in need. You've all seen the photos of what's going on there, a lot of pets being abandoned, a lot of pets and pet parents needing support. And Petco Love jumped in. Even though our mission is U.S.-based, we decided to jump in and be helpful there. But it goes beyond folks who are in the Ukraine or folks in Puerto Rico, this is personal for me. So my dog is named Yummy. He is the love of my life, in our life. That's my twins. Here is a super cute photo of Yummy. And 2 years ago, 2.5 years ago, Yummy was diagnosed with cancer. And he was diagnosed at the Petco Hospital, and I was successful in getting him treated. And Yummy came home as a cancer survivor, which we felt really, really great about. So at that same time, I met a gentleman who was moving from -- with Illumina, who had done human blood work over to pet. And he came in and he said, "I want to do this work, but I don't have enough money." Petco invested in him to do the world's first verifiable blood test for cancer detection. So I've gotten Yummy tested ever since then. Well, Yummy clear, clear, clear, and then the last test, he came back with cancer. And it was early detected, early enough, and it's a type of cancer that metastasizes quick, but we got it close enough. Because of the money that Petco invested, Yummy gets more years, I get more years with Yummy. So I want to introduce you to Yummy. Come here, Yummy. Come on, Yummy. Here I am. Come here, Yummy. Come on. Come on. He doesn't want to come up. So he can run around. You see Yummy there. Come on. Come on. Come on, Yummy. Come on. He doesn't like stairs. But meet my Yummy, a double cancer survivor. And the only reason he is a double cancer survivor is because of Petco. And you think about that happen for me, it's happening for people. He's a little excited, sorry. Anyway, we make meaningful differences in people's lives at the same time we execute with excellence. So I want to close by saying thank you for being here. We really appreciate the time. Your time is valuable. And again, for those of you who invest in us, we appreciate your trust in us. We work every day to make sure we're increasing the value of your investment. Thank you very much, and back over to Kristy. Come on, Yummy.

Thank you, guys, again for joining us today. That concludes the content for the day. For those of you in the room, we'll wrap up now with a couple of our showcases before we head into lunch. First will be our Vital Care session, where you get to meet with Jenny Wolski, who's kind of our leader behind it. Hi, this is Australia. And then we will also have the opening of our JFFD showcase, where we get into fresh and frozen. And you can meet some leaders over there as well, as well as take a sample home if you've got a dog that might be hungry. And then we'll also have Petco Love, where you can actually go and interact with some of the adoptable pets, like Australia, right there in the back. Thanks so much, and have a great day.