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

Hi, everyone. My name is Oli Wintermantel. I'm with Evercore ISI on the Broadlines & Hardlines team covering Petco, and I have my partner Greg Melich with me, who is heading up our Broadlines & Hardlines team. And Brian LaRose is here with us. Brian brings more than 20 years of financial and digital operational expertise to Petco, having served in senior roles at HP and Deloitte. So thanks very much, Brian, for joining us today.

Yes. No, I'm going to have you introduce me at parties from now on, that was pretty awesome. So thank you.

Very good. So Brian, maybe we start at -- the last time we've heard from you, you talked about the premium consumables segment is still strong. But then you're also seeing some trade down to more of the value segment. Maybe talk a few minutes about what are you seeing in the consumable segment today?

Yes. Thanks for the question, Oliver. I mean, I think relative to the value space, we talked recently about our recent launch of Fancy Feast and getting that back into our assortment. And one of the things I think we recognize in the current environment is that while our premium offerings have continued to perform very well, whether it be our own WholeHearted brand or others that we partner with in that category. There's certainly a number of cohorts we were looking for value and certain different assortments. So we felt it was the right time to sort of expand our assortment back into different value offerings. Early days, but we saw double-digit percentage of customers on the early days of the Fancy Feast reintroduction and the new Petco. I think for us, the good news is that our partners are trained to sort of educate customers on nutrition and move them up the value chain over time, driving purchases of own brands and eventually premium brands. So -- we -- when we look at it, we still believe that the long-term trends of premiumization and humanization are true and here to stay. That said, in an environment like this, you need to make sure that you have the right assortment for all customers.

Got it. And is there -- are you seeing similar trends in the hard goods and supply side as well? Or is that more -- are you seeing different trends there?

Yes. I would say that on the hard goods side, certainly, there's kind of a bifurcation of customers where you have customers who are value seeking, and that leads to a certain trip consolidation. We're taking actions around that. So I think there's certainly a macroeconomic component of the hard goods category. You've seen us in Pet. You've seen us in other industry segments where the consumer is pulling back in certain areas, and certainly, we've experienced that. That said, again, we're not sitting still. We've done a number of things to stimulate it. We have introduced a supply spurt program that we have in place to stimulate some of that behavior. I'll go back to the comment I made on introducing value products even in food, there's a double component of that, where what you're looking to do is stimulate the number of trips or traffic that customers are coming in, which can help you in the consumables area, but also the more traffic you drive, the more opportunity you have to get customers to go into the hard goods category. So the combination of some of the Supplies Perk program, the introduction of value offerings and some pricing actions that we've taken are all meant to drive traffic over time and reaccelerate growth in our goods.

Brian. I just wanted to follow up a little bit on the premiumization because it's been such a long-term trend that you're seeing a value-focused consumer shift that a little bit, how do you think the competitive set may be driving some or any of that, where someone like a Walmart maybe has gotten better at being convenient and then actually carrying some of these premium products. Do you think that's having any sort of influence and sort of making it easier for people to trade down out of certain categories or...

Yes, I don't want to spend too much time talking specifically about a competitor, but what I will say is, from an assortment standpoint, there's not much new there. There are certainly some products that were exclusively at a specialty 3, 4 years ago that moved into mass. That's not new. I think one of the things that you have seen is trip consolidation where whether it be trip consolidation, grocery, or other components outside of Pet that has driven some level of consolidation of value in players like Walmart, which they've spoken openly about on their earnings calls. So for us, that hasn't really been a direct correlation to our premium business, but it is a component of the overall market that we have seen some trip consolidation in competitors like the one that you named.

Thanks, that's all.

And Brian, if you look back during the last big downturn or recession, has the Pet segment -- is that behaving similar to the last downturn? And if you look at it, maybe you can give us a little bit of some color or time frame, how long it took for it to come back? And then lastly there, on this question, what does it do to your margins or your revenues in a downturn?

Yes. I mean let me first -- at the risk of sounding like I'm sucking out, Oliver, I think your launch note talked about the Pet category being resilient even during a downturn. So -- look, we grew last quarter, I think if you go back to the last economic downturn, the Pet segment grew -- on a multiyear period, if you go take a 2008 to 2011, that category grew kind of mid-single digits, and you saw somewhat similar patterns in the hard good categories where you saw that those categories at a macro level and a total market level go negative for a period of time and then ultimately return. I would say that we are not prognosticators on the overall macro environment. We control what we control. And so I don't want to put a definitive time line on it. But I'll go back to some of the things that we've already touched on, Oliver, that consumers are certainly value conscious in this environment and you have seen that bifurcation where 1 cohort is maybe trading up and there's some trip consolidation and trade down. So overall, I'd say that the Pet category remains resilient in this downturn as well as in the last.

Got it. And is there -- I don't think we've seen really additional promotions or aggressive promotions. Is that a risk in this category that -- I don't want to call it a race to the bottom, but if sales slow, especially in one category that some of the players are starting to be a lot more promotional?

I think we made a comment on our earnings call about the promotional environment, so sort of returning to sort of normalized level -- pre-pandemic levels. And certainly, that's been the case. We watch out for all sorts of, I'd say pricing in total. We look at promotional activity with competitors. A lot of -- there is a component of products that are regulated by [ map ]. So there's certainly an element of control over a portion of the market. But we monitor pricing of our competition as well as our own. We monitor pricing and promos across the board. And we take action where we need to. We talked in the last call about adjusting some pricing on our end.

And then looking at a Petco into the active customer count, I think you added about 5 million new customers between 2019 and '22. And the spend per customer is up about 7% over the same time horizon. That said, the second quarter, I think it was the first time that we've seen a slight decline in active customers. Maybe you can talk a little bit about the dynamics there. And then also, what are you seeing in cohort behavior, the cohorts today, maybe the 5 million that you gained versus the ones that you had before pandemic?

Yes. I think you raised a good point, Oliver. I think it's important to kind of zoom out for a second and just make the point that your customers are still up significantly from pre-pandemic levels, even acknowledging that the customer changed last quarter. But we have seen, again, value-seeking behavior, which is why we announced strategic actions like we did on the call to open up our assortment, provide more value, resonating with customers. And we're hopeful that that reaccelerates customer growth, which will translate to both top and bottom line. In terms of cohorts, we continue to see the highest customer churn in our lowest income cohort, which again, leading to our decision to sort of reintroduce more value.

And is there -- when you talk to customers, is there anything that they would say, how did Petco change, right? Is there anything that the customers say differently today versus a few years ago?

I think the biggest thing for me, and it's good that you have Dr. Miller on a panel coming up quite shortly. For those of you listening, I would encourage you to stay for that. Biggest thing for us that's different is, I would say, our vet build-out. I mean if you go back 2, 3 years ago, there were questions about our ability to actually be successful in this market, including we have something called the Wellness Council that is made up of some of the finest minds in the vet industry nationwide, whether that be professors and/or some of the best vet practitioners in the market. When we established that Wellness Council as we were entering in to vet market, quite honestly, some of their feedback is what right do you have to play in the market. They're very protective and respectful of the vets that they serve. And they wanted to know our intent and questioned our ability to go execute. And I think probably investors at that time were curious on our ability to go scale that market. So that was -- you go from starting at 0 in 2018, 2019 to less than 150 vets just a couple of years ago. We think we'll be close to 300 by the end of the year, that's a big deal, that's scale. So I think what's mostly different about how companies think about Petco for us is when we talk about kind of a one-stop shop and having the ability to serve vet customers, grooming customers, food, hard goods customers all in one place. That has changed the perception of Petco. And I would say that the vet build-out has been a success story and kind of a key cog in our ability to kind of change that mindset.

And would you say now that you're adding a little bit more of the value brands to your assortment, is that reacting to the macro environment? Or do you think it's a little bit of a shift in strategy?

I think it's an acknowledgment of the need to have a certain level of assortment in that space, coupled with our intent to do what we control to drive traffic. It's all about traffic and getting back to what are things we can augment in our portfolio to make sure we reach the broadest breadth of customers and get one through each and everyone.

And so we just talked about the growth in spend per customer over the last 2 years. Can you maybe talk a little about the drivers of that growth per customer?

Yes. I think our team -- I'll go back to our team. I think what's unique about our Petco partners is their ability to educate consumers coming through the door. And once you get somebody through the door, having the ability to sort of cross-sell across the broader portfolio. So spend per customer is sort of an output of that. As you know, Oliver, we launched Vital Care Premium a few years ago, again, starting from zero, that's a subscription-based business, where for a monthly fee, you get $15 back in rewards for us. You get discounts on Nutrition, you get free vet visits inside of our clinics that are inside of our 4 walls. You get discounts on grooming. That launch of that subscription business was twofold. One, to get an annuity-based business into our financial construct. The second is to have another on-ramp for us to have different touch points with customers and expand that over time. So really that growth in net spend per customer is getting more and more customers across the different components of our ecosystem and making sure that we have as many on-ramps into that ecosystem as possible, whether that be that customers who are new to food, food customers who are new to grooming, Vital Care Premium customers who are new to all, and we just continue to look for more ways to bring people in.

And I know you just mentioned traffic a little bit. I know you don't report ticket versus traffic. So I'm not going to ask ticket versus traffic. Maybe I'll ask it a little bit different, right? So your growth in services should be a traffic driver into the store, right? I think the consumable space within pets is still relatively strong, but the hard goods side is a little bit weaker. So is it fair to assume that your reported comp today is mostly ticket? But then also services is driving traffic into your store. So maybe bigger picture, if you could talk a little bit about the traffic drivers there.

Yes, you're right. I would acknowledge that ticket or basket was the driver of comps. And I think as inflation a base, we'll see that become maybe less of a factor in the future. On a go-forward basis, we'd expect transactions to increase given the assortment and the pricing actions that we're undertaking as it relates to beyond this year 2024, we'll give more color on 2024 on our year-end call. But I will also come back to your first point on -- yes, services has been a great driver of traffic in the store, not just for services and for basket, but the center store uplift that we get, one of the things I didn't mention in the back commentary before is any time we add a vet into our center store, we typically get in the first year, kind of a mid-single-digit center store lift. So you get a basket lift from services transactions themselves and then the ancillary benefit of that center store upload.

Make a follow up a little bit there on the prior question as well. Like, as you think about growing spend per customer and engaging them as members and to get stickiness. How should we think about the Lowe's store within a store relationship? Is that more of a, just try to get more customers business in areas where you just don't have anything sort of maybe describe a little bit how you're thinking about that initiative as you merchandise it and how it links them with the rest of the base?

Yes, it's a good partnership that I would say is sort of mutually beneficial to both companies. It's a fast way for us to expand into 300 locations that are primarily rural markets by year-end and importantly for us, that kind of 0 capital outlay, it's good for us to have Petco shop-in-shop's featured in such a strong brand like Lowe's. It does give us the ability to require more customers. I mean that's ultimately the end goal. I talked about on-ramps into our ecosystem, this is another way to do that, an on-ramp into the broader Petco ecosystem by more touch points and those touch points happen to be shop-in-shop inside of Lowe's. So I think it's a good model for us. We're happy with the early cohorts with Lowe's, and that's why we expanded the relationship with them.

And is what you have in the store, what we would expect to see in a regular Petco? Or how does it change when you go into a rural market?

Yes. I mean because they're shop-in-shops, you're not going to have the full breadth of assortment that you have in a full scale Petco, right? You have a small footprint inside of a Lowe's. We work directly with them in terms of cultivating that assortment so that it's something that's successful for both parties. But it will -- because it's a shop-in-shop just like you'd see in different segments, whether that be beauty or otherwise, you're going to have a small piece of it and then ideally, you would acquire more customers who then do go online and visit us at petco.com or come inside the store to get the whole assortment.

And just because as a shop-in-shop, the sales that are there, is it your inventory and your sales? Or is it their inventory and their sales?

Yes, you can think of it as a wholesale model. So they kind of own that inventory. So that's how I think about the model.

And the labor, is that your employees? Or is that Lowe's employees?

Primarily Lowe's. There may be select locations where it makes sense for us to have an adjacent Petco partner work there. And then there'll be some locations where we'll have vaccination clinics and that would be Petco labor. So that's our existing model. That's -- we have 1,099 vets, who run our Vetco mobile clinics and certainly for some of those locations, it makes sense for us to have those clinics.

Okay. And how does that compare to your -- the stand-alone more rural stores that you also are opening? I think you have about 10 of them running. So how does that compare to this? Or how does the strategy work together with Lowe's?

Yes, different. I mean I think the similarities would be that any time we see an opportunity that -- where there's an underserved portion of the market that we can get incremental benefit to the company, then we'll take a look at it. But the stand-alone Petco stores are just like our regular Petco stores with broader breadth of assortment that is lined up better with the demographics of that market. So in those stand-alone stores, and again, they are stand-alone Petco locations. They look and feel a little bit different. They have a bit more of that farm and feel appeal to them. We have entered into new components of the market there, whether that be Bovine or Equine. We have multiple different species of chicks at those locations. So it's, again, early days on that one, but we've been -- I think it's just another part of the market that I would view more in terms of an overall kind of store footprint, whereas Lowe's is a good partnership with a great brand that allows both of us to sort of attract new customers.

And is that a strategy to go after a certain customer from trying to get market share from other retailers? Or is that for you, really thinking you -- greenfield where you just get it from mom-and-pops? Or how do you think about the competitive set with these either stand-alone stores or Lowe's?

Yes. Mostly for us, it's -- we always look at things sort of what's incremental to us and whether that comes from mom-and-pop or competition or -- we're ultimately trying to get new customers into Petco. We don't necessarily bifurcate it in that way, Oliver, it's more of just, if we think there's an opportunity with good ROI to get new customers into our ecosystem, then we will make those investments.

Okay. And now because the CFO, we need to ask a lot of the [indiscernible] margin questions. So if you look longer term, right, so the growth in your services business and the growth in e-commerce put some pressure on gross margin. And I understand for the vets, it's really the geographic location where labor sits, so it's EBITDA enhancing, but it put pressure on gross margin. Maybe you can talk a little bit about your longer-term gross margin outlook, how you think about that?

Yes. To the extent that we would comment on any longer-term expectations, I would do that at kind of a future Analyst Day, Oliver. What I can tell you is the dynamics you talked about on gross margin are true. So the services business traditionally has a lower gross margin than company because of the labor component. So not just for vet, even groomers, the cost of labor sits and cost of sales. So you have a different gross margin profile. E-com, the digital business, we've been open about as a lower gross margin than total company, not dissimilar to what you see in a pure-play e-com margin. So for us, we're focused on customers. We're focused on controlling what we control. We talked in the last call about a series of strategic cost initiatives on a multiyear basis where we targeted $150 million of sort of cost actions and gross margin productivity actions over the next several years, those are in flight. In the first year, would expect $40 million of that and then exiting 2025 kind of at that $150 million run rate. So we're focused on what we control, and we're focused on getting customer growth.

And of these $40 million. What is -- can you give us a little bit more detail? Is it mostly in labor? Or how do you get these -- that $40 million now?

Yes. We haven't provided that level of detail, Oliver. We did comment on the call about actions that we have already taken on the corporate workforce side. So certainly, that's a labor component. More broadly, though, there are opportunities over time for us in areas like supply chain, I think our -- while our team has done an exceptional job managing inventory. And if you look at our inventory last quarter, our inventory last quarter dollars were down with increasing sales and improving in-stocks. I mean it doesn't -- that's a pretty good situation. That said, when it comes to efficiency and effectiveness of our supply chain, I think there are opportunities for us to improve there and get extraction value out, there are other productivity enhancements in our services model that we're driving towards and then some other cost of sales actions that we didn't get into too much detail on.

Okay. And then just on the cash flow side, when we look at -- or let's say, a step back before we get there, I think over the last year, the interest costs were a little bit higher than what you -- what we thought about beginning of the year because of the interest rates. Are you now when you look across the Street or where people help people model interest rates. Is that now -- are you happier with where the Street is modeling interest rates today versus maybe a few months ago when Street was a little bit low and you had to guide to higher interest costs?

Yes. Tough for me to comment directly on what a Street number is on interest, Oliver. I would tell you that one of the things we feel good about is that today, roughly 2/3 of our debt is protected in some way through some of the actions that we've taken around hedging instruments. And so -- and we, like you, continue to make sure that we reflect what the current interest rate expectations are.

Okay. Okay. And then now going to the free cash flow side and your leverage. Can you remind us what your leverage ratio is today and what the medium- or longer-term goal is to get to?

Yes. Again, I would say, to the extent we have any updates on an interest leverage ratio, we would do that at some kind of future event. I can tell you what our capital focus is. Our capital priorities remain debt as top of the stack, right? We made a $100 million debt commitment paid down this year, we're well on our way to that as of the date of last earnings. And secondly, making the right investments in the business. So we -- if I look at CapEx, last year, our CapEx was close to $280 million. And certainly, we've guided well below that this year. At the same time, we continue to make sure that we make investments to make sure this business is set up for the mid and long-term. So if we have a high-ROI area of investment, we want to make sure that we can make it but with more balance. And that's why I said we'd start with a capital priority of debt pay down; secondly, reinvesting in the business to enable that from free cash flow, I think our team has done a really good job on working capital. If you look at our working capital metrics over the last 9 months, we have done a really good job of improving our cash conversion side on our working capital metrics, which has enabled us to generate free cash flow to help pay down that debt.

And the reduction in CapEx, is that just moving maybe some expenditure into next year? Or are you cutting back on growth opportunities? Or how -- maybe explain a little bit what the lower CapEx number is entailing?

Some of it is sort of onetime things. We talked a lot in last year's CapEx about investments that we were making in areas like freezer build-outs. So -- we are still really excited about the fresh frozen market and still think there's a lot of capacity for growth there. We wanted to make sure we were well positioned. So last year, we made an investment in freezers to get ourselves in over 1,000 of our locations. So that's a nonrepeatable CapEx number this year, that comes out. Secondly, I think we've done a good job at retiring what I would deem sort of technical debt. There are some areas of IT that are more fundamental and sort of, again, a technical debt component and then there's areas of innovation. So I think our IT team has done a really good job at getting past some of that technical debt, which allows you to kind of pull some CapEx down on a run rate basis? And then third, I'd say, just being more selective, Oliver, on the investments that we make. We're mindful of our- the importance of making progress on our overall debt position. And to do that, we continue to look at every single CapEx dollar we spend as what's the best return we can get for that, whether that be in that investment or against our debt profile.

But the -- I think you said about 50 to 55 vet hospitals per year. That's still a good opening run rate.

For this year, that's what we've committed to, yes.

Yes. And is there any problems finding vets from a labor perspective that it's too tight and that you might not? You could open these 50 or 55, but there's a shortage in vet labor? Or is that not an issue for you this year?

It's -- that has -- that certainly has been a challenge and remains a challenge, but I don't think it's changed. That component of things haven't changed. Our team feels really good about the value proposition that we can provide. And certainly, Dr. Miller can comment on that. But she's involved. So when we actually have a recruiting engine for vets, one of the benefits of having somebody as respected as Dr. Miller on your staff, is that you can actually have them talk to about, if they need to talk to somebody who can tell them directly what it's like to work at Petco and why they should. So we offer something very different. We offer vets the opportunity to come in and practice medicine. If you're an individual vet, and there may be some listing, there are components of your day that are spent on things that are way outside of practicing medicine. You're running payroll and doing scheduling and staffing and dealing with a landlord. For some people that may not be what they want. They may have wanted to get into the industry to practice medicine. We allow them to do that. So we allow them to come in and operate in the clinic that we've put the capital in, we have the equipment, we have the staff, we have the point of sale and the ordering scheduling system. They come in and practice medicine. We think we have a competitive package compensation-wise, that is a combination of salary, bonus, incentives and equity. And then quite frankly, the fact that not only we allow them to practice medicine, but to do so autonomously in a way that is attractive, there are going to be some vets who have something they're looking for. But I think our recruiting team does a good job of identifying the ones that do. And Jason, who runs our services business, Jason Heffelfinger and the team have done a really good job at staffing these hospitals as we build out. There's a long time line to it, Oliver. We know what markets we're strong in, and we know what markets we can be strong in, and there are certain markets that we don't feel good about making the capital investment, we'll wait and we'll leverage the ones that we are strong in. We tend to get better the more density we have in the market. So we have 1 clinic, there's maybe some learnings in that market, the more we get and there are some markets where we have some significant density, the better we do.

Got it. Okay. And then another growth opportunity or initiative from you is the loyalty and membership program. Maybe -- can you talk a little bit about the different approaches, how you want to convert customer to maybe from a free to a paid membership and overall how the Vital Care membership works?

Yes. Thanks for that question. I mean, I get excited about Vital Care. When we launched it, it was truly our effort at consolidating all components of the ecosystem into one. So for those of you not familiar with it, you pay a monthly fee to Petco, which that for new customers, that fee is now $24.99, but if you pay the entire year upfront, you get a discount off of that. For that, you get $15 back per month in instant rewards. So you're automatically recouping a large component of your monthly outlay. Secondly, you get 3 vet visits inside of the -- our 4 walls. So if you come to a Petco Vetco clinic -- Vetco hospital, you get that exam for free. You get discounts on Nutrition, you get discounts on Grooming. So when you do the math out, it sort of pays for itself and then some for us, what's compelling about it is those customers tend to spend 3x as much as kind of a localized customer. So we were approximately 660,000 members today. I think this program will continue to evolve over time. It is today, one offering, right? If you either if you want Vital Care Premier, that's what you get for it. You could see us over time sort of cultivating an offering that has more choices within it, whether it's good, better, best or something like that where you will continue to see this evolve. But it is a growth area that we're excited about. The cohorts have behaved very, very well. Going back, Greg, to one of your questions like in terms of kind of monetizing customers and growing net spend per customer. Vital Care is a good example. Approximately 30% of Vital Care customers are new to food and about 40%-plus of Vital Care Premier customers are new to services. So that's an indication that if you can get people on those on-ramps into the ecosystem, and this is a good program to do that, you can scale them across the other parts of your portfolio.

And is there a -- what is the sign up, the link between sign-ups and a Petco that gets a new vet hospital? I would imagine that because you get some of the perks, free exams and all of that. So that there's a big growth driver is to roll out of vet hospitals. So is that not the case?

That as well as our customers inside of the brick-and-mortar locations, just being very well trained at point of sale to have that as an offering to customers. So they're very good at, I would tell you, I'll give you a true story. I sold one. So one of the things that I do from time to time is I go work in a pet care center for the day. It's a great way for me to actually connect with customers and actually learn about our assortment. And there's no better way to learn about the products we carry than to unload a bunch of new [indiscernible] from the backroom and toss around 50 [indiscernible] dog food. But I was working in a pet care center, and I was challenged by one of our younger 25-year-old Petco partners to sell Vital Care. Because if you go in the backroom of our pet care centers, it's very data-driven. And the general manager every day will actually educate the Petco center partners on what the sales goals are for the day, but also some of the other goals like how many Vital Care do we need to sell? How many of XYZ? Whatever our priorities are as a company that they're driving. So I was challenged by one of our partners to go sell one. And immediately, I see women walking out of our grooming salon with a 56-pound bag of WholeHearted. And I thought they planted her. I thought it was a setup. And so -- because I walked over to her and I just said, "Hey, have you heard about Vital Care, I see you what came out of grooming and you have a bag of food." And I ended up getting her to sign up on the spot. Now that's an easy one. right? That one was a layup for me. There are more difficult ones that our customers -- our partners are well trained to as they identify a customer who may already be without them even knowing it, hitting 2 or 3 or 4 of the components of what Vital Care offers knowing, okay, that's somebody I can actually just have a quick conversation with and engage. And if you engage them in the right manner and you can do the math for them on the spot, you can get them to flip. So yes, hospitals are a big piece of it. But more importantly, just the education and the knowledge that our partners have on the floor to identify customers who might be a good target.

And then another growth opportunity that you always mentioned is this digital in multichannel. How has that changed since the pandemic, there's a big obviously spike in multichannel e-commerce. Today, do you still think there's a big opportunity in digital for Petco?

We do, and I think in twofold, stand-alone as well as what it means for us from an overall customer experience. So I mean, you have seen patterns of behavior since 2020, Oliver we're -- obviously, at some point, everyone kind of went online. And then as brick-and-mortar locations, you'll back up, you had a migration back. But, what really emerged from that was offerings that we have and others for buy online, pick up in store and same-day delivery options. So I think for us, that's where we think digital is a differentiator. If you think about, going back to one of the areas that I talked about before about fresh and frozen. Fresh and frozen has an opportunity of sales -- is significantly large and growing market. If you are ordering a fresh frozen product, the ability for us to deliver at same-day delivery through one of our partners to that end customer on that day at a cost that is very low to us, is an advantage. If you're shipping that fresh frozen product from [ ADC ], it's going to take a significant level more of cost -- more costly packaging to ship that product. So I think for us, we look at digital as, I said twofold, maybe more threefold, stand-alone in terms of our business, what it can do for us from a customer standpoint to get the product to them. And third, kind of the epicenter of how we actually manage customers. So today, I think the last that Jason gave was 70% of our services appointments are being enabled through the app, which 2, 3 years ago wasn't the case. And so the convenience of being able to schedule even services through the app is how we think about digital as an enabler too.

And then one of my last questions, and then Greg -- but if you -- Brian, if you look at Petco over the next few years, what do you think are the bigger risks or opportunities for you?

I start with macro. I mean, macro remains a big uncertainty, and we can't predict when discretionary or broader macro stabilizes, I can tell you, and we've touched on this on the call a bit. We're not standing still. We're controlling what we can, whether it be the cost and productivity initiatives that we talked about or continuing to scale out our vet hospitals, which remains a bright spot. We control what we can, but I think that I'd go back to macro as the biggest one.

And for opportunities, you would say, the roll out of vet hospitals or?

The roll out of our vet hospitals certainly. And I think our efforts to return to customer growth that we've touched on during the call.

If we have time for one more question, Oli, I would -- back in the beginning, Brian, we talked about premiumization as sort of that longer-term trend and some of that's turning this year, I guess, cyclically. I'm wondering if you think that there was too much pricing maybe at the high end? Or what is the price gap for premium for products now versus 5 or 10 years ago? And do you think that might be adding to some of this trade downs that we went so far up, if you will, compared to history that cyclically, we sort of have to come off some. So that -- I just love your view on that, just in -- just regular food, we've had that where there's been a lot of pricing from everything from beverages to human food and we didn't see much price elasticity in the last couple of years, and now we're starting to see it this year. So I'd love to hear your take on that for the pet area.

Yes. I probably can't go back 10 years, Greg, because 10 years ago, I was monitoring component costs of PCs in a very different company. But what I can tell you is, yes, certainly, the industry had pricing increases starting in the back half of '21 through first half of '22 and then abating some after that. I think more broadly, rather than comment on pricing, I'd say you just have a consumer dynamic where people are more mindful and value conscious. We talked in our last call about taking pricing action in the third quarter to make sure that we were lined up the right way and that over time, those pricing actions typically return within the first year. So I think as an industry, we'll continue to monitor the pricing environment. Again, I think you've seen less pricing action happen more recently, and I would expect -- I'll go back to kind of an inflation point, from an inflation standpoint, I think you're seeing that moderate and heading towards kind of a disinflationary environment.

That's great. Thank you.

Brian. It looks like we're up on time. Thank you very much for today and all the best for the rest of the year.

Yes. And good luck to you today. For those of you listening, I know Dr. Miller is on next for Petco, but the rest of the Evercore agenda looks really good with -- you've got some good panelist lined up today that I think can give a pretty broad spectrum of what's happening in pet.

Thanks, Brian. Appreciate it.

All right. Thanks.