What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-03-24 compared with 2021-04-05 · 142 added, 137 removed, 66 unchanged (81% of the section changed)

We are a beloved brand in the U.S.

pet care industry with more than 55 years of service to pets and the people who love and care for them.

Since our founding in 1965, we have been developing new standards in pet care, delivering comprehensive wellness solutions through our products and services, and creating communities that deepen the pet and pet-parent bond.

Over the last three years, we have transformed the business from a successful traditional retailer to a disruptive, fully-integrated, digital-focused provider of pet health and wellness offerings.

We revamped our leadership team and invested over $375 million to build out leading capabilities across e-commerce and digital, owned brands, data analytics, and a full suite of on-site services including veterinary care.

Our go-to-market strategy is powered by a multi-channel platform that integrates our digital presence with our nationwide physical network.

Our e-commerce site and personalized mobile app serve as a hub for pet parents to manage their pets’ health, wellness, and merchandise needs, while enabling them to shop wherever, whenever, and however they want.

By leveraging our extensive physical network consisting of approximately 1,454 pet care centers located within three miles of 53% of our customers, we are able to offer our comprehensive product and service offering in a localized manner with a meaningful last-mile advantage over our competition.

Through our connected platform, we serve our customers in a differentiated manner by offering the convenience of ship-from-store, buy online and pick up in store (“BOPUS”), curbside pick-up, and same day delivery.

Multi-channel customers, who spend between 3x to 7x more with us compared to single-channel customers, increased by double-digits in 2020.

Through our multi-channel platform, we provide a comprehensive offering of differentiated products and services that fulfill all the health and wellness needs of pet parents and their pets.

Our product offering leverages our owned brand portfolio and partnerships with premium third-party brands to deliver high quality food that avoids artificial ingredients, complemented by a wide variety of premium pet care supplies.

We augment this product offering with a broad suite of professional services, including grooming as well as in-store and online training.

Our service offering is further enhanced by a rapidly expanding, affordable veterinary service platform, which includes full-service veterinary hospitals, Vetco clinics, and tele-veterinarian services.

In addition, we are increasingly linking our offerings with subscription programs such as membership and pet health insurance that create deeper engagement with our customers and with our Pals Rewards loyalty program members specifically, which members accounted for approximately 80% of transactions in fiscal 2020.

At the end of 2020, we launched our Vital Care membership program, the industry’s first broad-scale, comprehensive membership program covering items including vaccinations, grooming services, and merchandise discounts.

Building on more than 55 years of service focused on providing solutions for pets and the people who love and care for them, in recent years, we have transformed our business from a successful yet traditional retailer to a disruptive, fully-integrated, omnichannel provider of holistic pet health and wellness offerings, including premium products, services, and veterinary care.

Through our integrated ecosystem, we provide our over 24 million total active customers with a comprehensive offering of differentiated products and services to fulfill their pets’ health and wellness needs through our more than 1,500 pet care centers in the U.S., Mexico and Puerto Rico, our digital channel, and our flexible fulfillment options.

Our product offering leverages a broad, carefully curated assortment of owned and exclusive merchandise and partnerships with premium third-party brands to provide customers with high quality nutrition without artificial ingredients, complemented by a wide variety of premium pet care supplies and companion animals.

While we offer pet parents a full spectrum of product choices within our high standards of nutrition and quality, our assortment is weighted towards premium products to address the needs of the growing number of health-conscious pet parents.

We integrate this differentiated product offering with our services business in order to build on the foundation of treating the whole pet, including their physical, mental and social well-being.

Our service offering includes a broad suite of pet health services, including veterinary care, grooming, and training.

This offering is further enhanced by a rapidly expanding, high quality, accessible, comprehensive veterinary care platform.

Leveraging our decade of experience in Vetco mobile clinics, which we operate approximately 1,000 of on a weekly basis, we are rapidly expanding our full service, general practice veterinary hospitals complemented by tele-health capabilities.

As of January 29, 2022, we operated 197 full service veterinary hospitals with planned expansion to approximately 900 hospitals over time.

Our multichannel, go-to-market strategy integrates our strong digital assets with our nationwide physical footprint to meet the needs of pet parents who are looking for a single source for all their pet’s needs.

Our e-commerce site and personalized mobile app serve as hubs for pet parents to manage their pets’ health, wellness, and merchandise needs, while enabling them to shop wherever, whenever, and however they want.

By leveraging our extensive physical network of 1,433 pet care centers across the U.S.

and Puerto Rico, we are able to offer our comprehensive product and service offering in a localized manner with a meaningful last-mile advantage over much of our competition.

Through our connected platform, we serve our customers in a differentiated manner by offering the convenience of buy online and pick up in store (“BOPUS”), curbside pick-up, same day delivery and ship from store.

In addition to providing differentiated products and services, our over 24,000 knowledgeable, passionate partners provide important high-quality advice to our customers in our pet care centers.

The full value of our health and wellness ecosystem is realized for customers through our Vital Care membership program.

From the nutrition and supplies pets need each day, to the services that keep them at optimal health, Vital Care makes it easier and more affordable for pet parents to care for their pet’s whole health all in one place.

Vital Care memberships are at the top of our integrated loyalty programs, followed by our perks program that provides rewards for frequent purchasing, and our Pals Rewards loyalty program, whose members accounted for approximately 80% of transactions in fiscal 2021.

Industry Dynamics

pet care industry serves more than 72 million households with pets and represented a total addressable market of $97 billion in 2020.

Since 2008, the industry has grown at a 5% compound annual growth rate (“CAGR”), driven by steady, predictable growth in the underlying pet population coupled with strong tailwinds associated with pet humanization.

Due to the essential, consumable nature of pet care, the industry has demonstrated resilience across economic cycles, as evidenced by the strong industry performance, growing at a CAGR of 6% during the Great Recession from 2008 to 2010.

In addition, as a result of the COVID-19 pandemic, the industry has experienced a significant increase in demand that is expected to be a tailwind for years to come.

In 2020, U.S.

households welcomed over 3 million incremental new pets and drove continued heightened adoption activity.

According to Packaged Facts, the number of households with pets in the United States increased by approximately 4% in 2020, creating an estimated $4 billion in incremental annual demand for pet care products.

Given the long-term, recurring demand for pet care products and services, which is expected to continue to grow in response to the pet humanization trend, this step function increase in the pet population represents a meaningful acceleration in total industry growth from 5% historically to 7% through 2024, according to Packaged Facts and company internal estimates.

pet care industry is large and growing, serving millions of households with pets, and represented a total addressable market of $119 billion in 2021.

Since 2008, the industry has exhibited steady growth driven by an increase in the underlying pet population coupled with strong tailwinds associated with pet humanization.

Due to the essential, repeat nature of pet care, the industry has demonstrated resilience across economic cycles, as evidenced by the strong industry performance during the Great Recession from 2008 to 2010.

In addition, as a result of the COVID-19 pandemic, the industry experienced a significant increase in household pets and therefore demand, which is expected to be a tailwind for years to come.

In fiscal 2020 and fiscal 2021, U.S.

households welcomed millions of incremental new pets into their homes that will need to be fed, groomed, vaccinated, and treated during their lives.

Importantly, the majority of these new pet parents came from Millennial and Gen Z generations, who typically spend more on their pets.

Given the larger pet population and expected continued pet humanization and premiumization trends, pet category growth in the U.S is expected to maintain a 7% compound annual growth rate (“CAGR”) through 2024, slightly down from the unusually elevated 9% growth levels during the pandemic, according to Packaged Facts and company internal estimates.

With respect to our business, we are strategically focused on growing our presence in three of the fastest-growing areas of the market:

and veterinary care, which are projected to grow at 11%, 14%, and 9% CAGRs, respectively, from 2020 to 2024.

As pet care demand continues to grow, we believe we are well-positioned to capture an outsized portion of the growing market as a fully-integrated, comprehensive pet care provider in the industry.

veterinary care;

and services.

As pet care demand continues to grow, we believe we are well-positioned to expand our total addressable market through new offerings, and to capture an outsized portion of the growing market as a fully-integrated, comprehensive pet care provider.

Our owned and exclusive merchandise is unique relative to other large players in the category , driving competitive insulation and focusing on the highest growth categories within the p et industry , like f resh and f rozen , as well as premium nutrition and supplies more broadly.

The services categories we participate in within the U.S.

are highly fragmented.

As consumer expectations around customer experience, convenience, and technology evolve, we believe that we have a competitive advantage versus our competition given the integrated digital experience that we provide our customers, including online booking and customized care reminders.

We believe that we have built deep competitive “moats” through the breadth and depth of assortment of premium health and wellness products, services, and veterinary care that we offer across an integrated omnichannel platform, though we do compete with various peers in individual categories, including both large and small pet specialty retailers, as well as mass and grocery retailers to a lesser extent.

Our Transformation

Over the past three years we have invested over $375 million to support our innovation and business transformation strategies to become the health and wellness company for pets and pet parents with the capabilities to serve customers when and how they choose to shop.

These investments include:

digital and e-commerce integration and expansion;

data analytical capabilities;

veterinary services;

marketing and advertising;

and our owned brands.

Our transformation actions were focused on the following major initiatives and investments:

Assembled a Next Generation Leadership Team to Drive Transformation .

Two years ago, we hired Ron Coughlin, who previously ran HP’s $33 billion Personal Systems business as Division President and, prior to that, had a successful career in senior executive roles at PepsiCo and experience with businesses in transition.

As Chief Executive Officer, he made multiple senior management hires and changes, adding digital and technology, consumer-packaged goods, marketing, and best-in-class retail experience to the leadership team.

These executives bring experience from leading companies, including Best Buy, Walmart, Jet.com, Target, Bank of America, Williams Sonoma, and HP, among others.

This highly qualified leadership team has implemented significant operational and cultural change to our business, including a substantial acceleration of our digital capabilities, optimizing the effectiveness of pet care center partners through training, enhanced analytic tools and communication, step changed marketing and customer engagement return on investment, launching a veterinary hospital network, and supporting the scaling of our pet health and wellness offerings.

Built Leading E-Commerce and Digital Capabilities that Leverage our Physical Network .

With pet parents increasingly engaging online, we aggressively invested to create a superior e-commerce and app experience to succeed in the market, improving the speed, navigation, personalization, and services access of our website and app.

We focused on optimizing site merchandising, market-based pricing, convenient order delivery within two days, and digital sales conversion rate to successfully attract and retain customers, all of which have experienced noticeable growth since the fourth quarter of 2019.

We launched a repeat delivery service, which has the highest-rated customer satisfaction in the industry, and provides a revenue stream that increased 13% in fiscal 2019 and 43% in fiscal 2020.

To further differentiate and create scale advantages, we leveraged our physical network to roll out key capabilities, including ship-from-store, which grew to over 720 enabled locations as of January 30, 2021, BOPUS, which grew over 225% during fiscal 2020, curbside pick-up, and same day delivery that allow us to meet our customers anywhere they want to shop and provide a significant last-mile fulfilment advantage versus our competition, driven by our distributed inventory and proximity to customers.

These efforts have resulted in total e-commerce sales growth of 33% in fiscal 2019 and 103% in fiscal 2020.

Reinvented Grooming and Training, and Launched a Full-Service Veterinary Hospital Network .

Pet services represent the most personalized, sticky, high-touch part of the market, which is critical as we focus on acquiring and retaining high-value customers.

In grooming, we invested in digital integration, marketing, staff compensation, and other operational improvements, which have resulted in the acquisition of new customers and an increase in groomer retention.

Our transformation over the past four years into the health and wellness company for pets and pet parents has been driven by the relentless execution of our team of channel and category experts with best-in-class experience from Fortune 100 companies, combined with deep experience in retail led by our CEO and Chairman, Ron Coughlin.

Our highly qualified leadership team has implemented significant operational and cultural changes in our business, including a substantial acceleration of our digital capabilities, optimizing the effectiveness of pet care center partners through training, enhanced analytics tools and communications, step changing marketing and customer engagement return on investment, launching an owned veterinary hospital network, and scaling our pet health and wellness offerings.

Specifically, we have:

Built Leading Omnichannel Capabilities that Leverage our Physical Network .

Following decades of the rise of mega retailers and digital migration, we’ve entered a new era of retail, what we call “Retail 3.0”, with consumers seeking fully integrated physical retail and omnichannel digital offerings, brought together with sticky services and enhanced by continuous innovation and an exceptional customer experience.

Through that lens, we have developed a data-driven go-to-market platform consisting of robust digital capabilities and a strategic physical network of pet care centers woven together by a singular view of the customer.

Our implementation of Retail 3.0 was catalyzed by the COVID-19 pandemic as pet parents became increasingly comfortable with digital interaction, coupled with a tangible return of retail traffic in early 2021 as consumers demonstrated that physical interaction was a critical way in which they want to interact with their retailer too .

Through strategic investments, we’ve rebuilt our digital experience from the ground up beginning with relaunching our e-commerce platform and building an app with one of the highest utilization rates in the category, driving increasing spend per pet.

We invested in improving the speed, navigation, personalization, and services access of our website and app to drive traffic and engagement.

We focused on optimizing site merchandising, dynamic pricing capabilities, and leveraging advanced analytics and precision marketing to drive customer acquisition, monetization, and retention.

Further differentiating our business and creating scale advantages, we leverage our physical footprint as micro-distribution centers for our digital orders, including BOPUS, curbside pickup, same day delivery, and ship from store.

Nearly all of our 1,433 pet care centers in the U.S.

and Puerto Rico offer grooming and training services, while approximately 1,000 offer Vetco mobile clinics, and 197 offer full-service veterinary hospitals.

We also operate 108 locations in Mexico through our joint venture with Grupo Gigante.

Launched a Full-Service Veterinary Hospital Network, and Reinvented Grooming and Training .

Pet services represent the most personalized, sticky, high-touch part of the pet market.

In addition to acting as a profitable driver of new customer acquisition, we believe our differentiated service platform helps deepen our competitive moats by promoting customer retention, driving physical visit frequency and digital engagement, increasing share of wallet, and building long-term loyalty.

In veterinary services, we are creating a new paradigm in the industry with integrated owned hospitals under the Vetco Total Care brand.

In fiscal 2017, we embarked on one of the fastest veterinary hospital build-outs in the industry to address the growing need for high quality, accessible pet healthcare consistent with our mission to improve the lives of pets and pet parents.

As of the end of fiscal 2021, we offered full-service veterinary care in 197 pet care centers.

By integrating these veterinary hospitals into existing pet care centers, we benefit from significant

structural advantages compared to stand-alone veterinary care providers , including lower cost of acquisition and additional basket opportunities, driving both incremental service and merchandise sales, and further unlocking the large and growing prescription food and drug total addressable market .

We believe t his veterinary model enhances customer lifetime value , drives retention , and delivers long-term value to our stakeholders .

In grooming, we have invested in digital integration, marketing, staff compensation, and other operational improvements, which have resulted in the acquisition of new customers and an increase in groomer retention.

In training, we have led with innovation, and in fiscal 2021 we launched online training classes that can be conducted at home.

In fiscal 2017, we embarked on one of the fastest veterinary hospital build-outs in the industry and today offer full-service veterinary care at 125 pet care centers, driving both incremental service and merchandise sales, and unlocking the prescription food addressable market.

As a result of this reinvention, we have grown our services sales at a CAGR of 8% between fiscal 2018 and fiscal 2020.

Created a Highly Differentiated Owned and Exclusive Product Offering .

We offer a highly differentiated owned and exclusive product assortment that engenders strong customer loyalty.

We focused on three core product differentiating capabilities:

nutritional expertise, exclusive partnerships, and a leading owned brand platform.

We offer a highly differentiated owned and exclusive product assortment that engenders strong customer loyalty and repeat purchasing.

We have focused on three core product differentiating capabilities:

nutritional expertise;

exclusive partnerships;

and a leading owned brand platform.

As a testament to our commitment to pet health and wellness, in May 2019 we made the decision to pivot away from dog and cat food and treats that contain artificial ingredients, making us the only major national retailer in the industry to take a stand against artificial ingredients in dog and cat food.

We utilized a best brands strategy to form new partnerships with some of the most highly regarded premium food brands in the industry, such as Just Food For Dogs.

We utilized a best brands strategy to form new partnerships with some of the most highly regarded premium food brands in the industry, such as JustFoodForDogs, with whom we expanded our partnership with in March 2022.

In 2019, we leveraged our established owned brand platform and capabilities to launch Reddy, a fashion-driven supplies brand, to complement WholeHearted, our premium food brand.

We have grown our owned brand sales at a CAGR of 13% between fiscal 2018 and fiscal 2020, and during fiscal 2020, our owned brands generated sales of $1.2 billion, or approximately 27% of total product sales.

The combination of our differentiated food and supplies strategy, including owned and exclusive brands, has enabled us to offer a premium product offering, many of which are not available via online or mass competitors.

We have grown our owned brand sales at a double digit CAGR between fiscal 2018 and fiscal 2021.

In fiscal 2021, we generated approximately 27% of our product sales from owned brands—such as WholeHearted, Reddy, and Well & Good.

This not only enhances our merchandise mix, but also helps the Petco ecosystem attract and retain customers, and offers an enhanced margin profile.

The combination of our food and supplies strategy, including owned and exclusive brands, has enabled us to offer a premium assortment of products, many of which are not available via online, mass or grocery competitors.

Implemented a Performance Culture Led by Data Analytics .

Our differentiated singular view of the customer across products, services, and channels, in combination with insights from our Pals Rewards loyalty database, provides access to a robust wealth of data.

We implemented new capabilities to leverage these data to inform strategic and tactical decision-making across our organization, and ultimately drive higher customer engagement and lifetime value.

We created a singular view of our customer to drive everything from marketing decisions and innovation of new products and services to how we operate our pet care centers.

In our pet care centers, we have pushed data down to our pet care center General Managers and field leadership teams through advanced sales reporting to enhance decision-making.

Our singular view of the customer across products, services, and channels, in combination with insights from our loyalty programs, online purchasing and more, provides us with access to some of the richest data in the pet category.

By investing in talent and data analytics capabilities, over the past two years, we’ve turned analytics and data science into a competitive advantage, including advanced capabilities in dynamic pricing, inventory optimization, merchandising, personalization, and precision marketing.

With the tools to capture purchase, search, services utilization, as well as customer and pet demographics and preferences and more, we generate a 360-degree view of customer that serves as the foundation of our data ecosystem.

To enhance decision-making, we implemented new capabilities to leverage this data in our pet care centers, making it available in near real time for our pet care center general managers and field leadership teams through advanced sales reporting.

We developed a user-friendly, action-focused dashboard (HUB), which enables our managers to track performance across multiple dimensions, identify opportunities, and execute strategies to drive incremental sales.

We also simplified the key metrics that we utilize to track performance and aligned incentives against those metrics by rolling out a revamped incentive structure across our field organization.

For more information regarding our transformative investments, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Innovation and Transformation.”

Our Comprehensive Offering

Product Offering

We offer a comprehensive product offering consisting of over 58,000 products across pet food, supplies, and companion animals available through our physical and online channels.

In fiscal 2020, 51% of our product sales comprised non-discretionary consumable products, such as food and supplements, which feature high purchase frequency over the life of a pet and sticky characteristics due to a strong desire for pet parents to avoid switching food brands.

In addition, in fiscal 2020, we generated 27% of our product sales from owned brands—such as WholeHearted, Reddy, and Well & Good.

This represents a much higher percentage of our merchandise mix compared to our online competitors, helps the Petco ecosystem attract and retain customers, and also offers us an enhanced margin profile.

Service Offering

We offer a fully-integrated comprehensive service offering that includes professional grooming, training and veterinary services.

Unlike some other consumer purchases, the services we offer for pet parents are essential, recurring, and high frequency in nature.

In addition to acting as a profitable driver of new customer acquisition, our service platform helps retain customers, drive physical visit frequency and digital engagement, and build long-term loyalty.

During fiscal 2020, our services represented approximately 8.2% of sales.

Multi-Channel Platform

We have developed a data-driven go-to-market platform consisting of robust digital capabilities and a strategic physical network of pet care centers woven together by a singular view of the customer.

Digital Capabilities

Our digital capabilities have created a seamless multi-channel experience for our customers who, after downloading the app, spend increasingly more with us as they take advantage of more features offered on our digital platforms.

With repeat delivery, BOPUS, same day delivery, and curbside pick-up capabilities, we have transformed our vast network of pet care centers to double as micro distribution centers, allowing guests to receive products more quickly and conveniently than pet-oriented online-only competitors who offer no option for same day shipping.

These capabilities seamlessly link our digital presence with our physical network, which positions us to more effectively serve our customers.

Physical Network

We operate approximately 1,454 pet care centers across the United States and Puerto Rico.

Our Petco locations average approximately 13,000 square feet and typically carry 10,000 core SKUs, with nearly all offering grooming and training services, 1,030 offering Vetco clinics, and 125 offering full-service veterinary hospitals.

We also operate 96 locations in Mexico through our joint venture with Grupo Gigante.

We also simplified the key metrics that we utilize to track performance and align incentives against those metrics by rolling out a revamped incentive structure across our field organization.

Marketing and Advertising

Over the last two years, we have completely overhauled our marketing and media strategy as we established ourselves as a true health and wellness company.

The rebirth began with the announcement of Petco’s commitment to eliminate food and treats with artificial ingredients, followed by the removal of human-operated or bark-activated shock collars from our shelves and increased advocacy for, and provision of, free introductory positive dog training classes.

We then built a world-class performance marketing capability that has meaningfully accelerated our e-Commerce business growth and positively impacted pet care center sales.

This focused investment translated into an over $70 million increase in advertising spend in fiscal 2020 compared to fiscal 2019, and overall advertising expenses, net of cooperative advertising reimbursements, of $168.4 million in fiscal 2020.

Over the last two years, we have significantly elevated our marketing and media strategy as we established ourselves as the health and wellness company in the pet category.

This repositioning started with making our offering more health and wellness-focused by eliminating certain food and treats with artificial ingredients, the removal of human-operated and bark-activated shock collars from our shelves in favor of free introductory positive reinforcement dog training classes, and the removal of traditional rawhide products from our shelves.

With our new brand positioning and 360-degree data ecosystem, we use precision marketing to drive customer acquisition, monetization and retention across our business.

This has enabled market share gains across brick and mortar and digital.

Human Capital

3 unchanged sentences

Our partners are primarily employed on an at-will basis and are compensated through base salary and incentive programs.

We strive to make Petco a diverse and inclusive workplace and to provide opportunities for our partners to grow and develop in their careers.

We offer competitive compensation and benefits programs, as well as a range of health and wellness offerings, and a partner resource group platform to enable partners to build connections among themselves and their communities.

We strive for our partners to grow and develop in their careers, and offer competitive compensation and benefits programs, inventive compensation, as well as a range of health and wellness offerings.

None of our employees are represented by labor unions or covered by collective bargaining agreements.

We consider our relationship with our employees to be good.

Diversity and Inclusion

Our employees are our partners and we strive to create an environment that embraces diverse backgrounds and perspectives.

Our commitment to fostering a diverse, equitable, and inclusive environment is key to our mission of improving the lives of pets, pet parents, and the Petco partners who work for us.

This commitment begins at the top, where our CEO sets annual people goals related to achieving long term workforce diversity, equity, and inclusion outcomes.

Progress on our people goals is tracked and reviewed regularly with our executive team and our board of directors.

We are committed to creating a culture where partners feel as if they can achieve their career goals through ongoing growth and development opportunities, and fair and transparent performance management and promotion processes.

So that our partners feel valued and heard, we gather and respond to our partners’ feedback, including, but not limited to, anonymous, periodic, formal, partner engagement surveys, round table sessions, and one-on-one interactions.

Based on the feedback received, leaders review and create action plans in an effort to drive meaningful changes in our business.

In addition, all Petco leaders participate in diversity, equity, and inclusion training aimed at building respect in the workplace .

Partner Communities

We believe that building and supporting connections between our employees and our communities creates a more fulfilling and enjoyable workplace experience.

We have continued to expand our partner resource groups, which enable partners to build connections among themselves and their communities, as well as our diversity, inclusion and belonging programs to encourage partners to bring their “whole selves” to work.

Petco currently has seven Partner Resource Groups that are foundational to our culture of inclusion and belonging.

Our current partner-led Partner Resource Groups are:

Ability at Petco;

Black at Petco;

LGBTQ+ at Petco;

Pan Asian American at Petco;

Petcontigo (Latinx) at Petco;

Military and Veterans at Petco;

and Women at Petco.

In partnership with our Diversity, Equity, and Inclusion team, these seven groups facilitate engagement activities to increase cultural competencies, educate partners on issues facing affinity group members, and deepen our workplace connections.

Health and Safety

The health, safety, and overall well-being of our partners is our top priority.

Since the onset of the COVID-19 pandemic, we have been focused on protecting and supporting our partners, as well as the people and pets in our pet care centers and the communities we serve.

We have awarded more than $26 million in additional COVID-19 related payment and appreciation bonuses for our partners.

In addition, the Petco Partner Assistance Fund has provided approximately $1.3 million in financial support to more than 1,300 Petco partners who suffered a hardship related to COVID-19.

We have also provided additional days of paid time off to all partners to support those directly affected by COVID-19 for reasons such as:

partner infections;

self-quarantines;

living with or caring for someone at high risk or related dependent care challenges;

and wellness days.

Once vaccines became available, we announced that all partners who provide confirmation of vaccination will receive a one-time $75 payment, and we will make a $25 donation to the Petco Partner Assistance Fund .

We also support scheduling flexibility for vaccination appointments.

The health, safety, and overall well-being of our partners is a top priority.

We are focused on protecting and supporting our partners, as well as the people and pets in our pet care centers and the communities we serve.

The Petco Partner Assistance Fund has provided over $1.8 million in financial support to nearly 1,700 Petco partners who suffered a hardship, including related to COVID-19, severe weather events, and natural disasters.

We have also provided additional days of paid time off to all partners to support those directly affected by COVID-19 for reasons such as partner infections, self-quarantines, living with or caring for someone at high risk or related dependent care challenges, and wellness days.

Once vaccines became available, all partners who provided confirmation of vaccination received a one-time $75 payment, along with a $25 donation made to the Petco Partner Assistance Fund by us .

We have also offered weekly $1,000 raffles to promote vaccination, and support scheduling flexibility for vaccination appointments.

Throughout the pandemic, we have taken proactive, precautionary steps to ensure we continue to meet or exceed local, state, and federal regulations as well as recommended health and safety guidelines from the CDC.

This includes social distancing, rigorous cleaning and sanitizing protocols, requiring facial coverings for both our partners and customers shopping in our pet care centers, health screening and temperature checks before shifts, and providing ample sanitizer, masks, gloves, acrylic barriers, and more across all Petco locations.

This has included social distancing, rigorous cleaning and sanitizing protocols, requiring facial coverings for both our partners and customers shopping in our pet care centers, health screening and temperature checks before shifts, and providing ample sanitizer, masks, gloves, acrylic barriers, and more across all Petco locations.

We have continued to evolve our practices in line with applicable regulations and guidance .

Compensation and Benefits

1 unchanged sentence

In addition to base cash compensation, we offer our partners a mix of annual bonuses, restricted stock units, various incentive plans, an Employee Stock Purchase Plan, a 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, and a range of employee assistance programs.

Partners experienced no increase in their 2020 and 2021 healthcare benefit premiums.

Partners experienced no increase in their 2020, 2021 or 2022 healthcare benefit premiums.

In addition, we offer a range of webinars, trainings, and subscriptions to support our partners’ total wellbeing.

Finally, in 2021, our Pet Care Center partners average wages grew by over 7%.

Talent Development

We invest significant resources to attract, develop, and retain top talent.

Over the past two years, we streamlined methods for setting executional priorities, provided comprehensive sales training, and developed store-level sales marketing capabilities.

In fiscal 2020, we are proud to have promoted over 2,750 partners into growth opportunities.

Partner Communities

We believe that building and supporting connections between our employees and our communities creates a more fulfilling and enjoyable workplace experience.

We have continued to expand our Partner Resource Groups and our Diversity, Inclusion and Belonging programs to encourage partners to bring their “whole selves” to work .

Distribution Network

We operate five primary and three regional distribution centers located in various parts of the United States that handle almost all distribution for our company.

Our ship-from-store, BOPUS, and curbside programs enhance our distribution network, allowing us to more quickly and cost effectively serve our customers.

During fiscal 2020, over 80% of digital orders (including BOPUS, same day delivery and ship-from-store) were fulfilled by pet care centers, which has allowed us to deliver product more quickly and cost-effectively than we otherwise could by using traditional distribution center fulfillment.

Any relationships we have with third-party logistics providers are governed by non-exclusive agreements that do not obligate us to minimum volume or fees, and such agreements may be terminated by either party on 90 days’ prior written notice.

Vendor and Veterinarian Arrangements

In recent years, we have streamlined methods for setting executional priorities, provided comprehensive sales training, and developed store-level sales marketing capabilities.

In fiscal 2021, we are proud to have provided more than 500,000 hours of training across our pet care center partners.

In addition, approximately 47% of open General Manager and District General Managers positions were filled with internal promotions.

We currently operate six primary and two regional distribution centers located in various parts of the United States that handle almost all distribution for our company, and we plan to include at least one more primary distribution center in fiscal 2022.

Our ship-from-store, BOPUS, and curbside programs enhance our distribution network, affording us the opportunity to more quickly and cost effectively serve our customers.

During fiscal 2021, over 82% of our digital orders (including BOPUS, same day delivery and ship-from-store) were fulfilled by pet care centers.

The majority of relationships we have with third-party domestic transportation and logistics providers are governed by non-exclusive agreements that do not obligate us to minimum volume or fees, and such agreements may generally be terminated by either party on 45 days’ prior written notice.

Vendor Arrangements

We purchase merchandise from over 750 vendors.

In fiscal 2020, our top vendors represented approximately 5% of annual sales, and no single vendor accounted for more than 5% of our sales.

In fiscal 2021, our top 10 vendors represented approximately 30% of our annual sales, and no single vendor accounted for more than 6% of our sales.

In addition, we only sell the products we carry directly to consumers and primarily purchase our products directly from our vendors rather than through third-party distributors.

As such, we do not rely on third-party distributors to conduct our business.

We onboard our vendors using a standardized process to confirm their adherence to our standards, policies, and procedures, including those relating to legal compliance, standard payment terms, and product quality.

As such, we do not materially rely on third-party distributors to conduct our business.

We onboard our vendors using a standardized process to confirm their adherence to our applicable standards, policies, and procedures, including those relating to legal compliance, human rights, standard payment terms, and product quality.

These relationships are typically governed by our standard vendor terms and conditions, under which we submit purchase orders to our vendors specifying the types, quantities, and agreed prices for merchandise that we intend to purchase from them.

1 unchanged sentence

Our terms and conditions do not have a set term but allow us to terminate the relationship for convenience at any time upon written notice to the vendor.

Our vendors may terminate the relationship on 90-days’ written notice but are obligated to perform any purchase order accepted prior to such notice.

Our full-service veterinary hospitals are either operated by us or by third-party veterinary services partners with whom we have long-term contractual relationships.

In the hospitals that are operated by our third-party veterinary services partners, we generally provide facilities, equipment, and customer relations management support, while the veterinary services partners provide staffing and run the day-to-day operations of the hospital.

The veterinary service partners pay us a royalty based on hospital sales and a license fee to use our space and equipment.

Either party can terminate the contractual relationship upon 180-days’ written notice or, as applicable, upon a breach of the contract by us or a violation of the standard operating procedures by the veterinary service partner.

Our Vetco clinics are staffed by Vetco personnel, some of whom are independent contractor veterinarians.

Petco Foundation

At the Petco Foundation, a separately incorporated 501(c)(3) nonprofit organization supported both by contributions from us and contributions from our customers and community partners, we believe that every animal deserves to live its best life.

Since 1999, the Petco Foundation has invested more than $290 million in lifesaving animal welfare work to make that happen.

With our more than 4,000 animal welfare partners, we inspire and empower communities to make a difference by investing in adoption and medical care programs, spay/neuter services, pet cancer research, service and therapy animals, and numerous other lifesaving initiatives.

Through the Think Adoption First program, the Petco Foundation partners with our pet care centers and animal welfare organizations across the country to increase pet adoptions.

To date, we have helped more than 6.5 million pets find their new loving families.

Our vendors may terminate the relationship on 90-days’ written notice but are obligated to fulfill or perform any purchase order accepted prior to such notice.

Petco Love, formerly the Petco Foundation, is a nonprofit organization that is changing lives by making communities and pet families healthier, stronger, and closer.

It is a separately incorporated 501(c)(3) nonprofit organization supported both by contributions from us and contributions from Petco customers and community partners.

Since its founding in 1999, Petco Love has inspired and empowered animal welfare organizations to make a difference, investing more than $330 million in adoption and medical care programs, spay/neuter services, pet cancer research, service and therapy animals, and numerous other lifesaving initiatives.

Through the Think Adoption First program, Petco Love partners with our pet care centers and animal welfare organizations across the country to increase pet adoptions helping more than 6.5 million pets to date find their new loving families.

In April 2021, Petco Love launched Petco Love Lost, a searchable database that uses facial recognition technology to help reunite lost pets with their families should they ever go missing.

To date, nearly 2,000 animal welfare organizations and pet industry partners across the U.S.

have adopted the platform, and Petco Love Lost has helped return approximately 4,000 pets to their loving homes.

In August 2021, Petco Love announced a significant partnership with Merck to make over one million lifesaving vaccines available to pets for free, and over 500,000 were distributed by the end of fiscal 2021.

Petco Love is working with community-based animal welfare partners across the country to distribute these much-needed vaccinations in under-resourced communities, something we believe gives all pets the best chance to live long and healthy lives.

Our Trademarks and Other Intellectual Property

1 unchanged sentence

We own a number of trademarks that have been registered, or for which registration applications are pending, in the United States and certain foreign jurisdictions.

These trademarks include Bond & Co., Good 2 Go, Good Lovin’, Harmony, Imagitarium, Leaps & Bounds, Pals Rewards, Petco, PetCoach, PupBox, Reddy, Ruff & Mews, So Phresh, Vetco, Well & Good, WholeHearted, and You & Me.

These trademarks include Bond & Co., EveryYay, Good 2 Go, Good Lovin’, Harmony, Imagitarium, Leaps & Bounds, Pals Rewards, Petco, Petco Love, PetCoach, PupBox, Reddy, Ruff & Mews, So Phresh, Vetco, Well & Good, WholeHearted, You & Me, and Youly.

The current registrations of these trademarks are effective for varying periods of time and may be renewed periodically, provided that we, as the registered owner, or our licensees where applicable, comply with all applicable renewal requirements including, where necessary, the continued use of the trademarks in connection with similar goods.

We expect to pursue additional trademark registrations to the extent we believe they would be beneficial and cost-effective.

In addition to trademark protection, we own numerous domain names, including www.petco.com.

In addition to trademark protection, we own numerous domain names, including petco.com.

We also enter into, and rely on, confidentiality and proprietary rights agreements with our employees, consultants, contractors and business partners to protect our trade secrets, proprietary technology, and other confidential information.

5 unchanged sentences

Department of Agriculture (the “USDA”), the Drug Enforcement Administration (the “DEA”), and by various other federal, state, local, and foreign authorities regarding the processing, packaging, storage, distribution, advertising, labeling, and import of our products, including food safety standards.

Please read “Risk Factors—Risks Related to Our Business—Our operations are subject to extensive governmental regulation, and we may incur material liabilities under, or costs in order to comply with, existing or future laws and regulation.

For more information, please read “Risk Factors—Risks Related to Legal and Regulatory Matters—Our operations are subject to extensive governmental regulation, and we may incur material liabilities under, or costs in order to comply with, existing or future laws and regulation.

Our failure to comply with such laws and regulations may result in enforcements, recalls, and other adverse actions that could disrupt our operations and adversely affect our financial results.”

8 unchanged sentences

Most states also enforce their own labeling regulations, many of which are based on model definitions and guidelines developed by the Association of American Feed Control Officials (the “AAFCO”).

The AAFCO is a voluntary, non-governmental membership association of local, state, and federal agencies that are charged with regulation of the sale and distribution of animal feed, including pet foods.

AAFCO is a voluntary, non-governmental membership association of local, state, and federal agencies that are charged with regulation of the sale and distribution of animal feed, including pet foods.

The degree of oversight of the implementation of these regulations varies by state, but typically includes a state review and approval of each product label as a condition of sale in that state.

1 unchanged sentence

For example, pet food products that are labeled or marketed with claims that may suggest that they are intended to treat or prevent disease in pets would potentially meet the statutory definitions of both a food and a drug.

The FDA has issued guidance regarding products that provide nutrients in support of an animal’s daily nutrient needs but which are also labeled as being

intended for use to diagnose, cure, mitigate, treat, or prevent disease, thereby meeting the statutory definitions of both a food and a drug.

The FDA has issued guidance regarding products that provide nutrients in support of an animal’s daily nutrient needs but which are also labeled as being intended for use to diagnose, cure, mitigate, treat, or prevent disease, thereby meeting the statutory definitions of both a food and a drug.

Under Section 423 of the FFDCA, the FDA may require the recall of an animal feed product if there is a reasonable probability that the product is adulterated or misbranded and the use of or exposure to the product will cause serious adverse health consequences or death.

9 unchanged sentences

Available Information

Our website address is www.petco.com , and our investor relations website is ir.petco.com .

We promptly make available on our investor relations website, free of charge, the reports that we file or furnish with the SEC, corporate governance information (including our Code of Business Conduct and Ethics) and select press releases.

Our website address is petco.com , and our investor relations website is ir.petco.com .

We promptly make available on our investor relations website, free of charge, the reports that we file or furnish with the U.S.

Securities and Exchange Commission (“SEC”), corporate governance information (including our Code of Business Conduct and Ethics and Principles of Corporate Governance) and select press releases.

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13(a), 14, and 15(d) of the Exchange Act.

The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding Petco and other issuers that file electronically with the SEC.

The SEC maintains a website at sec.gov that contains reports, proxy and information statements and other information regarding Petco and other issuers that file electronically with the SEC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business