Petco Health and Wellness Company, Inc. ($WOOF)

Good day, and welcome to Petco's First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Roxanne Meyer, Vice President, Investor Relations and Treasury. Please go ahead.

Good afternoon, and welcome to Petco's First Quarter Fiscal 2026 Earnings Conference Call. Joining me on the call today are Joel Anderson, Petco's Chief Executive Officer; and Sabrina Simmons, Petco's Chief Financial Officer. In addition to the earnings release, we've posted a slide presentation on our website at ir.petco.com. I'd like to remind everyone that on this call, we will make certain forward-looking statements, which are subject to a number of risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties include those set out in our earnings materials and SEC filings. In addition, on today's call, we will refer to certain non-GAAP financial measures. Reconciliations of these measures can be found in our earnings release, presentation and SEC filings. With that, I'll turn the call over to Joel.

Thanks, Roxanne, and good afternoon, everyone. Thank you for joining us to discuss our first quarter results. Our strong Q1 results provide an encouraging early validation of our Phase III Reach for the Sky strategy. We returned the business to a positive comp for the quarter while expanding our profitability, performing better than our quarterly outlook for both top line and adjusted EBITDA. We were particularly pleased to see the improvement in our consumables business, while our differentiated services business once again delivered strong results and continues to be a growth engine for us. This solid start to the year gives us deep confidence that our growth initiatives are taking hold. It speaks directly to our innovation pipeline, rigorous execution, smarter marketing and most importantly, the advantages of our wholly owned omnichannel ecosystem. In light of our solid first quarter, we are pleased to reaffirm our full year outlook and remain confident in our ability to drive consistent top line results. Sabrina will take you through our financial details shortly. But first, I want to spend some time updating you on the progress we've made across our strategic 4 pillars, which are positioning Petco for long-term profitable growth. Let's begin with our first pillar, compelling product. While we are still in the early innings of evolving our product mix and the flow of our merchandise, we have begun to introduce real newness to our aisles and we are seeing evidence that it is resonating with pet parents. Specifically, you should now see several of our main drive aisle end caps converted to new product and identified with a yellow new logo. From a top line perspective, we saw outperformance in the cat category this quarter. We anticipated the recent spike in demand for cat products. And as a result, we invested to make Petco the destination for cat parents. It was a key contributor to the improved sequential trends we saw in consumables overall. You will see cat newness ramping up even further in Q2 with exciting additions in areas such as furniture, beds and bowls, but also in novelty items such as cat trees. We also continue to lead in the fresh frozen space. During the quarter, we added significant incremental freezer capacity to support the momentum in this category. We hold a distinct advantage in this category driven by the breadth of our offerings, our key brand partnerships and a wide range of price points. We have positioned Petco as a premier destination for pet nutrition, which we believe will serve us well as the pet humanization trend continues to pick up speed. Our expertise in dedicated in-store teams offer a level and type of service that you simply cannot find at grocery stores, big box competitors or online. As a reminder, those that buy fresh food from us make over 4 more trips per year and spend over 50% more annually than drive food-only customers. Further, we experienced strength in seasonal categories. Specifically, in flea and tick, we saw our strongest start of the season in 5 years. While this was partially aided by weather patterns, for Petco, it's an ecosystem story. We capture over-the-counter sales, vet sales and grooming through our flea and tick packages all supported by a cohesive marketing push. In addition, as we previously announced, we launched our new gardening with your pet earlier this quarter. This performed above expectations with live house plants performing well. Looking ahead, we have an exciting pipeline for both Q2 and the back half of the year. In consumables, we are leaning into emerging customer trends like high protein diets as well as new treats for dogs and cats. We've also recently launched several new supplements categories, such as for hip and joint care, liver health and a holistic care line based on the growing trend of health and longevity in the pet space, which we see as an important extension of the humanization trend. In supplies, we are introducing newness across categories, including grooming, toys and collars and leads. Within the Grooming category, we relaunched our own brand Well and Good, which was completed last week. This represents the beginnings of our investment in private label starting to show up in our stores. It includes new formulas without harsh chemicals as well as fresh packaging for our shampoos, conditioners and bans, all supported by marketing. And finally, in June, we'll be rolling out sports inspired collection, celebrating the World Cup and USA soccer. Moving on to our second pillar, services at scale. Simply put, services are an important growth engine of ours. They are a massive point of differentiation and a competitive advantage. Through our wholly owned services model, we own the entire pet journey. And it isn't just about our vet hospitals, which continue to see solid gains in sales productivity, it's also about our clinics, grooming and training. Grooming is a strong annuity business for us and continues to perform well. To build on that momentum, we expanded our care reminders directly into our app late in the first quarter, a highly effective and frankly, obvious way to drive what is already a sticky repeat business even more frequently and consistently. Another call out was the puppy dog package. We began to offer in the first quarter in which a significant number of the customers that came in were new. We will continue to offer this throughout the year. In the second quarter, we are driving excitement with the rollout of our Well and Good grooming products I just referenced as well as a new Disney Stitch grooming package, which includes Senate shampoo and Spritz conditioner teeth-rushing, nailed buffing and a seasonal bandana. Together, these initiatives are intended to ensure that our salons remain a premier destination for pet parents and a highly defendable driver of reoccurring foot traffic. On the vet hospital side, the strong performance we are driving today helps fuel our future expansion plans, which are on track to resume in 2027. We continue to see improving productivity across our footprint and we are on track to optimize about 25 significantly underutilized hospitals this year. Crucial to this effort is our veterinarian team, and we are pleased to share that Doctor Days which is a combination of hiring additional doctors and adding hours per doctor continues to improve. Because of our scale, depth of expertise, unique ecosystem and the flexibility we offer, we believe Petco is an employer of choice for veterinarians and vet techs looking to build long-term careers. As we discussed last quarter, cross-selling continues to be a major and largely untapped opportunity between our clinics and the rest of the store. A great example of this clinical presence driving our broader business is our vet diet category, which performed extremely well this quarter, tying beautifully back into our veterinary ecosystem. Looking ahead, we believe we have several strong catalysts and opportunities in Q2 designed to drive ongoing traffic to our clinics. In mid-April, we launched the new Vetco clinic packages, which offers bundles of services such as routine shots, which we are excited to see gaining early traction. Additionally, to drive traffic and care during National Pet Month in May, we offered free microchips, with the number of pets getting Microchips up 71% versus last year. Looking beyond these near-term drivers, we are incredibly optimistic about the long-term growth opportunity within our wholly owned vet business and the immense value it brings to the Petco ecosystem. Our third pillar is our trusted store experience. The work is underway to build our basket size through better cross-selling and customer engagement. For example, we are now empowering our groomers with customer data to facilitate sales across the entire store. They can see a customer's last food purchase history. This allows our partners to have informed personalized conversations that drive cross-category sales and, importantly, can help enhance customer satisfaction and loyalty over time. In terms of customer engagement, we feel in-store experiences are how we best appeal to our core customer, the passionate explorer. This quarter, we hosted popular events such as Pictures with the Easter Bunny. We continued that effort with weekly store events throughout May to celebrate National pet months, including Mother's Day photos and weekly brand casting events. Finally, our fourth pillar, an integrated omnichannel model. We are pleased with the headway we've made and our ongoing work to improve retail fundamentals in our omnichannel model compared to last year. By removing friction from the online checkout process, we have been seeing improved digital traffic. We achieved sales growth in omnichannel even while lapping the nonproductive, unprofitable sales we were still generating through 1Q last year. Looking ahead, we see ongoing opportunities to increase site speed and optimize shipping windows for our customers. The key call out is BOPUS, which was up strongly year-over-year. This is our differentiation in action, building loyalty through e-commerce but physically bringing the customer into our stores to experience our services, community and the cross-selling opportunities our partners provide. Speaking of loyalty, I'm thrilled to share that we are relaunching our loyalty programs later this quarter, officially branded as Petco Perks. During our pilot phase, our biggest learnings was simplifying, removing friction and making the program distinctly customer-friendly had a massive impact. Petco Perks uniquely leverages our entire ecosystem, spanning both merchandise and services. The program will be heavily focused on personalized offers based on factors like shopping frequency and customer lifetime value, a strategy that successfully drove higher sales and stickiness during our pilot. In conclusion, the first quarter served as an initial proof point of our inflection to growth. While the broader macro environment remains dynamic, we remain hyper focused on controlling what we can control, and our results prove that our self-help strategy is successfully navigating this environment. We are executing on our Phase III Reach for the Sky strategy. While we are pleased with these initial results, we are still in the early innings of what is a long, exciting journey. We have immense opportunity to deliver product newness, capitalize on cross-channel shopping, grow our differentiated services business and provide the most personalized experience possible to the passionate explorer and their pets. I want to take a moment to deeply thank our teams across the organization. your hard work, adaptability, compassion for pets are what make these results possible. Our focus remains firmly on driving sustainable, longer-term top line growth and on delivering shareholder value. As we look ahead, we are pleased with the momentum our initiatives are generating, positioning us to continue to deliver positive comps. I look forward to our second quarter call and sharing with you the continued progress we are making with our Reach for the Sky strategy. With that, I'll turn the call over to Sabrina to take you through the details.

Thank you, Joel. Good afternoon, everyone. As we discussed, our primary goal is to build a stronger retail and financial foundation, which supports our focus on regrowing our top line in Phase III and driving sustainable, profitable growth. As such, we are committed to delivering upon our economic model for the full year in 2026 and are pleased to report that we're off to a solid start. Turning to first quarter results. Net sales were up 0.2% to $1.5 billion. Importantly, the first quarter marked a return to positive comp sales with a 0.7% comp providing evidence that our initiatives across our 4 growth pillars are beginning to take hold. The spread between comp and net sales reflected the 16 net store closures in 2025 and 4 net closures in Q1. We ended the quarter with 1,378 stores in the U.S. Moving on to margin results. First quarter gross profit dollars were $574.4 million, while our gross margin rate expanded 21 basis points to 38.4% as we executed with discipline. Moving on to expenses. For the quarter, SG&A was $549.8 million or 36.7% of net sales, leveraging 34 basis points. The $3.8 million improvement in expenses year-over-year was driven by declines in G&A despite investments in marketing to support our omni-related initiatives. For Q1, our expanded gross margin and expense leverage resulted in operating profit of $24.6 million or a 50.5% improvement versus prior year. Operating margin rate improved 55 basis points year-over-year. Adjusted EBITDA increased $7.9 million or 8.8% year-over-year to $97.3 million and our adjusted EBITDA [indiscernible] balance sheet and cash flow. First quarter ending inventory was down 1.9% year-over-year on top of a 5.2% decline last year. It's worth noting that inventory dollars were down year-over-year even with sales growth of 0.2%, reflecting our ongoing discipline and execution. Our first quarter ending cash balance was $167 million, an increase of approximately $33 million versus the first quarter last year. For the quarter, free cash flow was an outflow of $69 million. While our first quarter cash flow is historically our lowest, we wanted to call out 2 contributing factors. First, capital expenditures increased $10 million versus last year but are in line with the full year guidance we've provided. Second, as planned, inventory investments increased to support our growth, but we are pleased overall that inventory levels remain well controlled. Moving on, total liquidity for the first quarter was $654.4 million, up versus the prior year. For the quarter, total debt was $1.48 billion, down over $100 million compared to Q1 last year. As many of you have heard me state, after completing our opportunistic debt refinancing, we have extended our maturities out to 2031 and achieved a more optimal mix of fixed to floating rate debt which provides us with ample flexibility. Importantly, we remain laser focused on our goal of reducing our leverage ratio to 2x. And now turning to our outlook. While the external environment continues to evolve, our solid foundation enables us to remain agile, and we are well positioned to deliver on our financial commitments this year. Therefore, we are reaffirming our full year sales and adjusted EBITDA outlook. Specifically, we continue to expect net sales of flat to up 1.5% compared to last year as our growth initiatives take hold and build over the course of the year. We continue to expect adjusted EBITDA to be between $415 million and $430 million. Looking out, we wanted to outline some updates to our underlying full year assumptions. First, we now expect fuel prices to remain at approximately current levels for the remainder of the year. Recall that our prior full year outlook assumes higher fuel prices through the first quarter only. Next, our outlook includes the benefit of a tariff refund received in May. The refund represents only a portion of the IEPA tariffs we paid through February 2026. Our full year guidance assumes no additional tariff refunds beyond what we've received to date. Further, our outlook also assumes that the current tariff policies remain for the balance of the year. With regard to other line items, the following assumptions remain unchanged for the full year. Net interest expense, about $125 million; depreciation and amortization, about $200 million; capital expenditures, about $140 million with an ongoing focus on ROIC net store closures between 15 and 20 weighted toward the back half of the year. And finally, we still expect the full year spread between total sales and comp sales to be about 50 basis points that will vary by quarter. Moving on to the second quarter. We are comfortable with current consensus estimates for net sales implying growth of about 0.3% versus the prior year. We expect adjusted EBITDA to be between $110 million and $112 million. As you think about your models, we wanted to flag some considerations to be helpful. First, recall last year's Q2 reflected peak adjusted EBITDA growth including peak gross margin expansion. And last year's second quarter commentary, I flagged an approximate $9 million benefit in SG&A from a semiannual actuarial true-up. This was related to employee optimization work. This year, we do not expect to anniversary this benefit. Finally, on tariffs and higher fuel costs. A simple way to think about these factors is that the tariff refund roughly offset incremental tariffs and higher fuel cost expected in the second quarter, thereby neutralizing 1 another in the quarter. In closing, I want to thank our teams for their dedication and discipline in executing on our transformation this quarter, including a return to positive comparable sales growth. We will now open up the call for your questions.

[Operator Instructions] The first question will come from Michael Lasser with UBS.

When you look across the different categories between consumables, hard goods, services as well as the different species of animals that you serve, where was there a change or an inflection in your market share versus what Peco had been experiencing last year? And how do you see those market share trends continuing to unfold?

Thanks, Michael. I think as you -- as I reflect back on the quarter, I think less about market share a little bit and I think more about the sequential improvements. And we saw improvements in all 3 of those categories, both consumables, supplies and companion animals and services. So I think those are all really good early indicators that the new strategy is taking hold and the customer is reacting positively to it. While we haven't yet started to gain on market share, which is part of lapping the last year, we are really seeing that the market share decline moderate significantly, and that's showing up in the sequential improvements in all 3 areas.

Understood. My follow-up question is on the outlook. You exceeded at least the consensus forecast for the first quarter. you positive like you had anticipated, you are simply reiterating the full year outlook. So is there something that you're seeing currently in the business or have seen as of late that is influencing your conservatism or your decision not to flow through the upside from the first quarter to the full year?

It's Sabrina. And that's a great question. To our own range, we are really pleased that in the first quarter, we beat a couple of million, $3 million at the high end. The environment has continued to evolve, and there's a lot of different new cycles going on. We're super pleased that in the face of that, we are reaffirming our full year guidance and in particular, 1 of the big changes from when we initially laid out that guidance is fuel, right? So we are actually absorbing that second half fuel within our reaffirmation of the full year. So again, we're very pleased that we're able to do that through our discipline.

The next question will come from Kate McShane with Goldman Sachs.

We wanted to ask just with regards any kind of changes within the quarter by the consumer, what you saw across income cohorts? And any kind of consumer behavior with trading down?

Yes. Kate, great question. And I think like every retailer, we're watching the consumer trends closely. I would remind you and everyone on the call for that matter that Petco serves customers across all income demographics. We have a really nice offering from both value all the way to premium brands. And as we look back on the quarter, I would say there was nothing material amongst income demographics that performed differently. It was pretty consistent across all. So in total, we didn't see really any different change in behavior.

And then a follow-up question is just with regards to the pricing environment. I think you have a retailer out there that's talking about getting a little bit more aggressive on pricing. Just how does that influence anything in terms of your strategy or what you're thinking and just kind of in conjunction with that, it sounds like you're going to get a fair amount of tariff refunds here. It will be neutralizing in Q2 as you laid out, but could we see maybe tariff refunds be used for any kind of pricing investment as we get into the back half of the year. .

Yes. I'll start on the pricing piece, Kate. And just say, similar to when we were faced with tariffs last year, we told you all we don't really react on our pricing to any 1 event. So we are always reviewing our pricing architecture. Our lens is always customer first. We're always, of course, reviewing the competition. We make adjustments as necessary, but we're not having plans to do anything in reaction to any event. And then with regard to the tariffs, we are not counting on any further refunds. I think you all know there's a date coming up here in a few days, where there can be some appealing of the whole refund process. So we thought it prudent not to count on any of that. So none of that is in our assumptions. Should it come, fantastic. We can update you on our next quarter call.

The next question will come from Kaumil Gajrawala with Jefferies.

I guess the first thing is your positive comps, your cost structure has changed quite a bit over the sort of recent years. What is the comp level that we should be looking for to allow it to sort of really lever yourself down the P&L?

Yes. Great question, Kaumil The beauty of our model is we don't really need super high comps to make the economic model work. We're talking low-single-digit comps to be able to nicely leverage our SG&A, maintain our healthy margins and drive that operating profit growth. So we're really pleased that we've managed the expense structure such that we can deliver with that low-single-digit profile.

Okay. Got it. And then on these oil prices, and I guess not moving guidance because of the price of oil, by the way, not moving guidance is the right idea. Obviously, it's just been 1 quarter, but -- but the idea of absorbing the cost of oil, is that because of increases from prices from your suppliers? Or is it just a concern about things that are going to come your way over the course of the rest of the quarters?

Yes, mostly I'm addressing the direct cost to our transportation to our supply chain. So it will impact us most directly from our inbound which lags by the way, through our P&L a bit because it first goes into inventory and shows up on the P&L as cost of goods sold when we sell it. But the immediate impact of fuel to our transportation is to our outbound, so our DC to our stores and also our parcel business. So that's the piece that is most direct that we're looking at.

The next question will come from Oliver Wintermantel with Evercore ISI.

Joel, what was the biggest contributor to pushing comps from negative to positive this quarter. Is it improved transactions? Is it mix? Or is it price AUR? If you could give us a little bit more detail on what actually drove the comps positive this quarter.

Yes. I'd rather talk about it first from the strategy side. And then Sabrina can go into the specifics on the mix side of it because what's really important to remind everybody is, and I called this out last quarter, this is largely a self-help year for Petco and what really -- let's just call Q1 a trifecta, right? We delivered positive comps. We improved profitability, while outperforming on the outlook. And so what really drove that is the execution against all 4 of the pillars. And so we saw strengths in all of those. And it's resonating with the customer. And given we're in the early innings of that, I kind of have line of sight to the future, and I'm pretty excited about what's still to come with the rest of our strategy. .

Yes. And from a comp lever perspective, I'd just point out that UPT was quite strong. basket actually improved and the trend in transactions improved, but I would call out that, that remains a really good opportunity for us.

Got it. And on the gross margin side, a similar question there. Could you maybe give us a little bit more detail what drove the gross margins? Was it mix, was it merch margin, something like that? And then as you mentioned, the second quarter is a little bit tougher compares, but I think the third quarter as well. So maybe a gross margin outlook for the year, how we see it. .

Of course, we don't guide forward to gross margin in particular. I did try to be helpful on the second quarter outlook, just to remind that the entire second quarter last year was a bit unusual for the reasons I outlined. With regard to the first quarter, I would say we continue to use every lever at our disposal. So it's back to Phase II never ends retail fundamentals, so negotiating with our vendors making sure we're getting good costing, watching our promotions, our clearance, our markdowns, all of those levels sort of across the board, culminate in delivering on our margin.

The next question will come from Steven Zaccone with Citi.

Joel, you talked about effort that's underway to build the basket size with cross-selling and customer engagement. Curious if you could talk a bit about timing there? Is this something that can build over the next couple of quarters? Is this a multiyear initiative just to get better cross-selling within the store?

Yes. I mean we are just getting started on that, Steven. So it clearly has got tailwinds in front of us. And the biggest reason I called it out, and I think I talked about it a couple of calls before, we used to run services in center of the store. It's separate organizations. And really, as we've dissected the business and look for areas of opportunity. The integration between our services and our center store teams a real opportunity for us, and cross-selling is 1 example. And prior and the example I used is our grooming associates didn't have access or couldn't see a customer's consumables purchases as an example. Why is that important? . Well, a groomer would notice their hair and skin and might see that they should be recommending sensitive skin consumables that that's not what they're using today. And the fact that they couldn't see it, our groomers couldn't be helpful to the customer. So giving them access to that is just 1 great example of certainly a cross-selling opportunity for us, but a way to be really helpful for our customer and the health of their pet. So real opportunity going forward for us.

Okay. Great. The follow-up I had is just on the industry overall. I mean, we're only 1 quarter into the year, but there has been mixed commentary across the pet landscape. As you think about industry growth forecast for '26, how do you think things are playing out versus expectations? You talked about cat outperforming and Fresh & Frozen doing well. But how do you think the year is kind of shaping out relative to expectations from an industry perspective?

Yes. Look, clearly, we're not seeing adoption trends growing at this point with the exception of cat. But I think it's -- I reminded earlier on this call, this is a self-help year for Petco. So we aren't beholden to the industry growing to achieve our objectives for this year. We'll take the tailwinds if they come. But right now, we're really driving our pillars, our Reach for the Sky strategy to make a difference on that.

The next question will come from Steve Forbes with Guggenheim Securities.

I appreciate the comments around optimizing the services business, but curious if you can maybe just take a step back and how do you expand on what you're exactly doing in the 25 underutilized hospitals today, what you're seeing with the customer post sort of those changes? And if there's any way to sort of size up how you see or contextualize the opportunity ahead based on sort of the number of customers today, engaging in services relative to the total pool of customers engaging in the product.

Yes. A lot to unpack there, Steve. So I'll try and answer your question completely. And if I miss anything, come back at me. Look, I think earlier in our vet growth, we were in a phase where we were just trying to hit the number of openings. And the focus and opportunity I saw when I got here was really more on optimization and driving productivity before we start the growth up. Having said that, we're in a much different position today, nearly 300 hospitals. We have 1,400 clinics, meaning we're in all our other stores with vaccination clinics. And so I think it's an asset I didn't fully appreciate before I joined. And we're really now operating at scale, Steven. But having said that, we've got the opportunity to have more flexible schedules. So we've been really good at opening up the schedule. So if a customer needs a bet appointment, we can't make them wait 2 weeks or they'll go somewhere else. The teams have done a really good job changing that, optimizing doctor days, being more flexible with that, opening up more days in the week. And so all of those are really driving the productivity. And with that, that will just serve us better as we start to open up new hospitals, which are still on track for 2027, but really excited about the phase we're in right now for hospitals. Did I capture everything you asked?

Yes. I mean obviously, you can explore for a while. But as we think about the return to that hospital growth in 2027, most of us have sort of the prior maturation expectations of the vet hospital. I'd be curious, just based on sort of the initiatives underway and sort of what you're seeing, if there has been a directional improvement and if we can think about a better ROI or a shorter payback period? Or just any sort of initial thoughts on the conviction behind returning to that hospital growth?

I'll chime in there a little bit and just add that the improvement we've seen in these later year cohorts is significant. So we've learned lessons the tough way when we expanded very quickly in the early 2020s and we've been honing the model ever since. So it's absolutely true that we are improving and shortening that maturity curve in the recent cohorts. I'll also add, though, I just keep emphasizing to everyone, we have a great opportunity with this existing fleet to keep improving the return on those assets, to keep optimizing the fleet. That continues to be a terrific opportunity in addition to future growth. It's not just that like we have these 25, which we are super focused on. and we're done. We keep improving the entire fleet. And so that's a really important opportunity.

Yes, I think that's a great call, Sabrina. And I think all those learnings on both optimizing existing how to improve the productivity of the 25 we're concentrating, all those learnings are going into shortening the ROI curve or improving the ROI curve, I should say, as we start to open new hospitals next year. .

The final question will come from Simeon Gutman with Morgan Stanley.

This is Kyle Pennon on for Simeon Gutman. So your outlook looks to contemplate a slightly stronger earnings profile in the second half of the year. Can you touch on how much of the progression is driven by initiatives you've already outlined contributing versus potentially some incremental margin opportunities that haven't yet been fully realized.

Sure. If you think about our Q1 actual at 97% and the midpoint of our Q2 at 111 and our midpoint for our full year adjusted EBITDA guide, they have sort of break out 49% to 51%, which honestly, from a historical perspective, is very much in line. So what we've guided to is not unusual. And I'm actually very happy to say that because I always like to pull forward as much as we can, the earnings into the first half, so you're not looking at a big hockey stick. So with this guide so far, we've already, in some ways, derisked because we're looking at -- even with all of our initiatives coming in, we're looking at a very balanced year in terms of first half, second half profitability.

Okay. Great. And you highlighted some stronger performance in the cat category and suggested the demand pickup was largely expected. Could you just unpack the underlying drivers there a bit, please?

Yes. When I mean expected, it's -- we saw this trend really improving last year. So the merchants jumped on this already last year. and really got after it in Q1 with newness. And so that really played well with the strong year-over-year sales growth. And as I said in my prepared remarks, we're actually leaning in further with other categories in cat as we haven't seen trend go the other way at all. So we're really excited about cat. And specifically, I just show it to you that we're just getting better at being trend-right as merchants, and they're doing a really good job identifying where we can differentiate, where we should drive newness and cat was a great example. Thank you. And I think, operator, that concludes our call today. And appreciate everyone getting on. As you can tell from Sabrina and I, we are really excited about the early results of our Reach for the Sky strategy and returning back to positive comps while still improving our productivity. Look forward to seeing you all on our Q2 call. Thank you very much, and have a great night.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.