Good morning, and welcome to Petco's Second Quarter Fiscal 2021 Earnings Conference Call. All participants are in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. . Please note, today's event is being recorded. I would now like to turn the conference over to Kristy Moser, Vice President and Investor Relations Officer. Kristy, you may begin.

Thanks very much, and welcome, everybody, to Petco's second quarter fiscal 2021 earnings conference call. We are webcasting live over the Internet. To access the call on the Internet, please go to Petco's website at petco.com and follow the links from there. In addition to the earnings release, there is a presentation available for download summarizing our second quarter 2021 results as well as an infographic. On the call today are Mr. Ron Coughlin, Petco's Chairman and Chief Executive Officer; Mr. Mike Nuzzo, Petco's Chief Operating Officer and President of Petco Services; and Mr. Brian LaRose, Petco's newly appointed Chief Financial Officer. In a moment, Ron and Mike will walk you through Petco's recent financial and operating performance for the quarter. But before we begin our remarks, I would like to remind you that in this call, we will make forward-looking statements in regards to our current beliefs, plans and expectations, which are not guarantees of future performance and are subject to a number of risks and uncertainties and other factors that could cause actual results to differ materially from the results and events contemplated by such forward-looking statements. These risks and uncertainties include those set forth in our earnings release as well as with our filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof. Except as required by law, we undertake no obligation to update or revise any of them, whether as a result of new information, future events or otherwise. In addition, today's presentation contains references to non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release and our filings with the Securities and Exchange Commission. During the question-and-answer session of today's call, please limit yourself to one question and one follow-up. Now let me turn it over to Ron.

Thanks, Kristy, and good morning, everyone. Thank you for joining us today. Our incredible team's delivery against purpose-driven performance this quarter has once again exceeded our expectations in terms of both quarterly numbers as well as acceleration of transformative initiatives. We posted record quarterly revenue growth and comp growth of 20% and over 30% on a 2-year stack with strong profit flow-through. Q2 was a quarter that truly highlighted the strength of our unique model with world-class digital capabilities, robust services offerings and a nationwide physical Pet Care Center footprint that provides both a great in-store experience and logistics competitive advantages. Those capabilities are enabling a growing customer base. It is becoming more and more valuable with significant growth in recurring revenue customers, loyalty customers, multichannel customers and premium product and services customers. The category continues to thrive, and within it, according to Nielsen, we are taking share. Our transformation continues to accelerate with the fastest veterinary expansion in history, furthering our digital competitive advantages and expansion of our merchandise differentiation against the competition through powerful owned and exclusive brands. Looking back to a year ago, pundits question whether the behavior shifts related to COVID lockdowns would generate abandonment of physical retail shopping towards digital-only. With reopening at Petco, we now know the story is a very different one. Pet parents have come back to our Pet Care Centers in droves. They've come back to get advice on what's the best food for Ivan the Dobermann. They've come back to get Coco the Maltese groomed. They've come back so that Tango the Tabby can receive high-quality care in one of our vet hospitals or immunizations at our Vetco clinics. And they've come back because their pets just love being in our Pet Care Centers. All of this is driven by…

Thanks, Ron, for the kind words. Good morning, everyone. The first half of 2021 was a great start to the year. Building on the strong business momentum and strategic execution that Ron discussed, I am pleased to share with you how these efforts are translating into strong financial and operational results. Q2 was yet another quarter of record revenue of $1.43 billion, up 19% year-over-year with comparable sales of 20% or 30% on a 2-year stack, reflecting the strategic competitive advantage and the traction on our transformation that Ron outlined. Diving one level deeper for Q2, services and vet revenue was up over 49% and 36% on a 2-year stack that was consistent with the Q1 2-year revenue growth trend. Our veterinary grooming and training businesses continued to show strong momentum. We opened 18 full-service vet hospitals in the quarter, including closing on our second acquisition as we mentioned on our Q1 call and remain on track for 72 total openings this year. Hospital performance continues to outpace expectations with our Petco fully owned and operated units showing the strongest revenue productivity. Consumer demand for grooming and training remains robust. And we continue to see success in recruiting and staff retention across all our services businesses. And even with continued COVID-related safety accommodations, we are well positioned to continue outsized core services and vet sales trends in 2021. Digital revenue grew 14% on a 1-year and 150% on a 2-year basis excluding the sale of Live Aquaria, while digital revenue increased 11% on a 1-year and 138% on a 2-year basis. And brick-and-mortar merchandise revenue was up 17% and 21% on a 2-year stack, reflecting both the stickiness of the return of retail demand and our strategic initiatives. Also on both a 1- and 2-year basis, transactions and average basket…

Thank you so much, Mike and Ron. I am truly honored and humbled to be part of Petco and assume the role of Chief Financial Officer. Working in partnership with Ron, Mike, the rest of the leadership team and our Board over the past year, I have seen firsthand the power of our unique multichannel model. And I could not be more excited about our strategic positioning for the future. Talking about the future, given our strong performance in the first half of the year and our increased confidence in second half performance, we are now expecting the following for full year 2021: total revenue of $5.6 billion to $5.7 billion or a 14% to 16% increase from 2020; adjusted EBITDA between $565 million and $575 million or a 17% to 19% increase from 2020; adjusted EPS between $0.81 and $0.85 based on $80 million of net interest expense, excluding loss on debt extinguishment; 266 million shares outstanding; and an effective tax rate of 26%. And we expect capital expenditures to be near the top end of our original guidance range of between $185 million and $235 million, inclusive of incremental investments in digital, the build-out of our vet hospitals, innovation and enhanced supply chain capacity in response to sales growth. Our guidance raise reflects strong Q2 performance, initial revenue trends in Q3 and mid 20s percent range 2-year comp assumption for the balance of 2021. Our confidence in the performance of our business areas results from the build-out of our services and digital businesses, the positive customer dynamics, our executional excellence and the ongoing strength and resiliency of the pet space. All of these factors point to a strong second half and a phenomenal 2021 for Petco. With that, Ron, Mike and I will now take your questions.

. Today's first question comes from Michael Lasser with UBS.

Ron, in your remarks, you mentioned that you're seeing benefits of both stay-at-home and reopening in your financial performance. At home, probably pet parents are at home with their pets, and they're rewarding their companionship with more treat. So presumably that's helping the consumable business. So A, is that right? And B, where are you seeing the benefits of the reopening? And do you expect that to accelerate over the next several quarters as the reopening continues?

Michael, thanks for the question. Absolutely. So in the stay-at-home, I have this theory that pets helped America psychologically get through this pandemic. And they bonded, and they took better care of their pets. They were more frequent in terms of grooms, more frequent in terms of checkups, et cetera. With reopening, what you see is purchases of collars, purchases of leads, but you also see returns to our Pet Care Centers, which is good for our business because the more our customers omni-channel, the higher revenue we have from them and frankly, the higher margin we have from them. So both sides have been beneficial to us. And I will tell you, I looked at this a couple of days ago, we've seen no correlation between rising COVID penetration and business. If you look at the biggest hotspot today, which is Florida, our Florida business is stronger than overall chain. So we're not seeing a negative impact of COVID penetration.

That's helpful. My follow-up question is on the gross margin. You attributed the degradation to mix and strength in the consumable business. Was there also a piece because of the offers for auto ship or where you're giving 35% off, and recurring orders? It seems like there's a lot of competitive intensity within that element of the pet specialty market, where a lot of players are going after customers on this repeat order activity.

Hey, Michael, it's Brian. Let me start on the second point, and let me circle back to the first point. On the second point, no, actually, we've taken a look at this, and revenue from promotional activity for us is down year-over-year. So the revenue associated with promotional activity is down. Let me go back to the first point then on consumables. We had an exceptional consumables order. It was stronger than we expected, and it was exceptional. And let me just take you back a little bit. We were a little worried about this a couple of years ago, and we did a lot of work on it. We did a lot of work on our customer acquisition, retention strategy, assortment, our strategic focus on own brands, premium and super premium. And then we had the launch of the food perks program recently, which enabled us to pick up more share than we expected. These are sticky, sticky customers that have more frequency in terms of traffic. We feel really good about this dynamic. And that did have some impact on gross margin for us. However, we'll take that all day long because of the customers that we're bringing in. And what I would say is the strength in consumables this quarter was the result of the execution of our strategy. And it didn't mean that supplies had a bad quarter. Supplies had a really strong quarter. Consumables was just stronger. And just as a reminder, last quarter, we said that we expected gross margin to have a modest impact quarter-on-quarter due to some mix dynamics, and that's what played out this quarter. We still see plenty of opportunity to offset mix dynamics on gross margin. We've gotten really, really good at looking at cost efficiencies across our entire model. So we feel good about where we landed the quarter, in line with what we thought and on the back of a super strong consumables quarter.

And our next question today comes from Stephanie Wissink with Jefferies.

It's Blake on for Steph. I just wanted to follow-up on the consumables question. Was that due to a comparison at all in the Q2 last year? And then can you talk about maybe how much that has sustained quarter-to-date? And maybe I don't know if you can give any commentary on the size of the margin. Was that kind of the leading driver of the gross margin decline year-over-year? Or is it more digital or services?

No, it was. So just to so go back to what I just said, the consumables margin impact year-over-year, the biggest driver was consumables growth on gross margin. That was the biggest impact. There was some channel mix dynamic impact year-on-year. However, the biggest driver was consumables growth. When it comes to comp, the only thing I'd take you back to in comp is remember, in Q2 last year, you had a unique quarter with the onset of the pandemic, the beginning of a pet boom and a higher supplies mix last quarter. So I wouldn't take you back to a weak comp in consumables, but rather strength in mix and supplies last year. You flipped that around this year. You had a question in there about what this means for kind of consumables gross margin quarter-to-date. We don't want to talk about quarter-to-date in terms of subcategory. I will tell you that we like what we're seeing so far in the quarter overall. And the trends that we had in Q2 have continued. And then for gross margin on consumables are very good gross margins. They're just supplies in companion animal happen to have better gross margins. And so when we have a mix dynamic that flips around either year-on-year or quarter-on-quarter, it can impact the rate. But we're really happy with the performance this quarter across the category within brick-and-mortar and exceptional performance in consumables.

I would just build, this is Ron. You asked about consumables performance a year ago. When Brian talked about what we're concerned about, we were concerned about some customer leakage on consumables. And we have reversed that. And I think this quarter really shows just how far we've come on that. And that's very good for our business. As he said, it's a very sticky customer. And quite frankly, it's the highest frequency part of being a pet parent. It's good for our business, and it has full enterprise benefits of keeping those customers, bringing consumables customers into franchise.

That's encouraging to hear. I appreciate that. Last one would be on the -- just the pandemic, if you will, the customer cohort over the last year, 1.5 years. Can you talk about that the behavior of that specific cohort and the retention? Any behaviors you want to call out in terms of omni-channel retention and things like that?

Yes. The retention has been equivalent to past cohorts. So that's good. We were worried about it, kind of they came in and went to the retention has been consistent with past cohorts. And they're flowing like past cohorts in terms of -- with reopening, we had a bunch of the new cohort going back into the Pet Care Centers. And again, the more of our customers that are omni-channel customers, the more of our customers that are multichannel customers, the higher-value customer that they are. So we're not seeing significant differentials between -- in the new cohort. The one thing I will say is that the newly acquired customers tend to be more Gen Z and millennials, which means they're bigger into humanization, which means they spend more than prior age groupings.

Our next question today comes from Oliver Wintermantel with Evercore ISI. .

I just had a question also on gross margins with the flow-through for the rest of the year. So it looks like this quarter, consumables were very strong. Do you expect that to continue for the rest of the year? And how should we think about the gross margin performance? Is that magnitude in the second quarter that you expect for the rest of the year? Or should that get better?

Yes. Oliver, I don't want to get into specific gross margin guidance. I'll kind of repeat what we said last quarter, which we expected modest mix impact on gross margin for the balance of the year. Mix is the biggest swing factor on our gross margin, and there are multiple layers of that. There's channel mix. We continue to expect digital and services to scale. Those are our 2 primary strategic investment areas, and we expect those businesses to continue to scale. The second thing I would say is there's mix within the mix as we talked about this quarter. So for the balance of the year, we would not give specific guidance other than to repeat what we said about modest mix impacts for the balance. I would also tell you that look at the guidance that we gave on EBITDA. So our expectations around gross margin are baked into our second half EBITDA guidance. We feel good about the guidance that we just put out there. We raised full year by on the top and on the bottom of 12% flow-through. And our EBITDA reflects our expectations around gross margin.

Got it. And I think, Ron, you said traffic and ticket were balanced for the quarter. Is that -- does that mean it was about half of the comp was traffic, half was ticket. Because I assume consumables, there's more traffic -- it's a bigger traffic driver. So a little bit more detail would be great.

Yes, all the fundamentals are positive. So traffic, basket, AOV, we're pleased with all the fundamentals across the enterprise.

Our next question today comes from Kate McShane at Goldman Sachs.

You had mentioned, Ron, in your prepared remarks about being successful in converting customers to those items that are in stock. I wondered if there was a way to quantify what you might be leaving on the table just with the state of the supply chain, the way it is. Where your biggest out of stocks are? And when you've been able to convert customers, has it been to higher price point items?

Yes. We haven't spent a lot of time looking at what was left on the table, quite frankly. We've been focused on driving our business and driving demand into where we have supply. And I'll be honest, that's been a moving target. This is where the power of our Pet Care Center partners and the digital platform that we've built really comes to bear. It is amazing how influential our Pet Care Center partners are in directing purchase. So if you can't get Royal Canin, there's a great product in Hill’s. If you can't find Taste of the Wild well, Orijen is a similar and great product. And they're able to direct those customers. Our Pet Care Center partners, in particular, but I think our digital approach as well is we start with the best products that we have. And then we work our way down based upon affordability. So there would be an inherent shift towards higher-quality, higher-priced products in that process. But again, I think the proof of the pudding is in the fact that we put up a 20% comp. And a lot of the shortages was in consumables, and Brian just talked about how strong we were in consumables. So it has been really surprising to me how they can direct that demand to where we have supply.

And our next question today comes from Steven Zaccone with Citigroup.

Thanks for taking my question. And congrats to Mike and Brian on the new roles. I was curious if we could start up. Could you just elaborate a little bit more on what you're seeing thus far in the third quarter? I know it's a small period. But what's really driving the increased confidence in the raised second half comp outlook? I know the industry is doing well overall, but when you look at your business, what are some of the main factors that's giving me increased confidence for the back half?

I'll start with 2 comments, and then I'll pass it over to Brian. First, this category is thriving, right? The call for the category for the year is a 9% growth category. And on top of that, we're gaining share. So the category dynamics and the furry annuity that I talked about are there, and they're showing up in the business. For me, July was a major litmus test as is the early Q3 in terms of how we were going to lap H2. We got many questions for you -- from investors and the sell side earlier in the year, are you guys can be able to lap the second half. That was the biggest question that was out there. And if you look at July and if you look at early Q3, the overlap looks pretty similar to H2 in terms of what we need to lap. And we are very pleased with how we're lapping double-digit with double-digit. So I'll stop there, and I'll pass it over to Brian.

Yes. I'll just add on, Steven, and reiterate the confidence that we see in updating our guidance is based on what we saw in the first half and what we're seeing so far in Q3. And to some of the points that you raised, the midpoint of the guidance that we gave, the midpoint in the second half reflects a mid-20s percent 2-year stack, and just a couple of things on quarters 2. I don't want to get into quarterly guidance, but Q4 is typically a little stronger on the top line and bottom line rates than Q3. And we feel good about our ability to deliver that. So in addition to the top line mid-20s, bottom line flow-through looks good. The customers that we picked up in the first half, the consumables growth that we saw in Q2 again, more customers coming in, more traffic, the progress of our vet build-out. So if you look at the vet build-out is on track. We added 18 hospitals in the second quarter. The performance of those hospitals is in line and in fact, ahead of the expectations that we have for the hospitals, the return of the grooming and training business. If you remember last year, that was a business that really got whacked by some of the restrictions throughout the pandemic. And it has bounced back really nicely in the back half of last year and through the first half of this year, and we see runway in the second half. And then the last thing I'd point to you is the progress we've made in recurring revenue. Ron talked about recurring revenue customers and the growth there. Vital Care, although it's early days, it's an important vehicle for us to bring more and more stickiness in terms of recurring. So I would say all those variables add up to what we believe is an important raise and confidence in it.

Just a follow-up on capital allocation. So with debt levels coming down, what do you see as the right level of leverage to operate the business? And how do you kind of rank order the priorities for capital allocation going forward?

Yes. I -- we haven't given a specific target, Steve. What I can tell you, as you know, we're happy with where we exited Q2. We're down at kind of a 2.7 leverage ratio, and we see room to go beyond that. However, I would put that second behind reinvestments in the business. Hopefully, you caught us that we raised our CapEx guidance to the top end of the prior range. So we were at 185 to 235. We moved that to the upper end of that. And that's because we like the ROI that we're seeing on our CapEx investments. Beyond just vet and the build-out in vet, investments in digital, Mike mentioned investments in 2 new supply chain hubs in Dallas and Columbus that we opened this quarter. So we are investing in supply chain to make sure that we keep up ahead of demand. So I'd say investments in the business first, debt pay down second, and we see room to go below 2.7.

Our next question today comes from Lavesh Hemnani with Credit Suisse.

Thanks for taking my questions and congratulations on the new roles. A quick follow-up on just the spend per pet. I mean, I'm just trying to understand, how has that evolved over the last year? And if there is any way to sort of parse out the various components between digital and services, et cetera?

Yes. As I said, our basket is going up. Our AOV is going up. So we feel good about the trends in that space. When we bring in more millennials, we bring in more Gen Zers, the humanization trend is there. And they spend more on their pets. The other thing that's happening is as we shift folks to multichannel, we're over 4 million customers now. We've been double-digit on multichannel growth for 3 quarters in a row. Those customers spend up to 7x more. So in many ways, our whole strategy and our whole model is to drive spend per pet, is to drive share of wallet. And it's working because we get people to use more pieces of our ecosystem, and a great microcosm of that is our Vital Care program. As Brian said, we came above 100,000. And we've had more Vital Care adds every quarter, and we would anticipate that continuing. So when you -- when we get somebody into our Vital Care program, they have between 2.5x and 3x more spend. They have -- roughly 20% of those customers weren't buying food from us before. Now they are. Over 30% of those customers weren't getting services from us. Now they are. So most of the initiatives that we have are all about driving spend per pet, and we're moving that in the right direction.

Got it. One quick question on guidance. This is for you, Brian. So when I look at the EBITDA guidance for the back half, what's baked in for the marketing expense side of piece? I know earlier in the year, there was a big focus on driving customer acquisition. So how do we think about that?

Yes. I'm not going to get into specific guidance, Lavesh, on a line item basis. I can tell you that what you've seen us do in the first half of the year is continue to lean into marketing investments. We continue to like the ROI. We like the customers that we're acquiring through those investments. We've baked in our own marketing plan in the second half. And as long as we continue to see good ROI, which right now is kind of running at 2x plus industry benchmarks, we'll continue to invest. And so we've got investments baked in. I just don't want to get into the specific line item in detail.

And our next question today comes from Chris Bottiglieri with Exane BNP Paribas.

So hoping you could elaborate on the new 2 -- the 2 new supply chain hubs you referenced. Are these full distribution centers or like micro fulfillment centers? Just kind of like some clarity what those are? Then holistically, like how are you thinking about your overall distribution network as you pivot more of the business online? Like do you feel pretty comfortable where you are? And how do you think about the investment over there?

Yes. Chris, thanks for the question. The one distribution center in Dallas is a full distribution center. So we'll be doing both supplies and non-con, which is mainly consumables out of that distribution center in addition to e-comm orders. The distribution center in Columbus is focused on non-con only. And we talked about the strength of the consumables business. So that's obviously good focus point there. We feel really good about where our distribution center network is today. We're investing in some upgraded technology in our Dallas center, which we think will help with productivity there. And so it's really we made some of these decisions back last year. And I think they have really helped us to get ahead of the volume that we're seeing right now.

The thing I would build on what Mike said is our micro distribution center strategy is the Pet Care Center stores, right? And so 87% of our e-commerce orders are fulfilled through our Pet Care Centers, which means we are faster to the customer and lower cost than our online competitors. And we can do things like same-day delivery that they can't do. So in addition to the macro network that he's building out, this micro distribution center strategy is a winner for us.

Got you. That's really helpful. And then just one quick question on the micro center strategy. Can you talk about the DoorDash kind of DashPass program and kind of how that's evolving? Is there a way to frame what percentage of kind of like online sales or ship from there? And then two, it seems like there's been a lot of wage investment in the kind of ride-share industry. Like is your arrangement then more like a fixed cost basis? Do you see that kind of cost pressure? Is there anything you can share there would be helpful?

Yes. I won't get into specifics about the DoorDash arrangement, but I will just tell you that having DoorDash and same-day delivery gives us yet another important tool to deliver to customers however they want it, whenever they want their products. So you combine same-day with focus, with ship from store, it's a very powerful proposition for the customer. And same-day will also be a really, really important dynamic around the fresh and frozen space. So the idea of getting your product not wrapped in all kinds of ice and packets, but actually freshly delivered to you is a really, really important advantage for us when it comes to that same-day delivery fulfillment. So we'll continue to drive that part of the business. Our contract with DoorDash is very attractive and has incentives for our growing volume with it. And we feel just really, really good about how we're setting up for customer distribution going forward.

And our next question today comes from Zach Fadem with Wells Fargo.

Thanks for fitting me in and congrats to Mike and Brian. So can you talk about the segment of your sales that you qualify as repeat or recurring? And how that's been trending as a percent of your total business? And then given the outsized strength in consumables and food you're calling out, is it fair to say there's been softening in more discretionary or bigger ticket items as the impact of stimulus rolled off? Or does that business remain strong as well?

Let me do the second piece of it, we've seen -- quite frankly, we've seen no part of our business that hasn't seen strength. So we haven't seen a fall-off with stimulus roll off on any part of our business. In terms of recurring, what's in recurring is repeat delivery, Vital Care, PupBox and insurance. As I said, our customer base there was up 50%, and the revenue from recurring revenue customers was up 60%. In terms of percent of total, the one number we've said is, it's 50 -- more than 50% of our e-commerce revenue is from recurring revenue customers.

And our next question today comes from Seth Basham with Wedbush Securities.

My question is around the consumable strength that surprised the upside. Did you see that surprise in the stores as well as the online channel?

Yes. Seth, thanks for the question. It's both. I would say that it was pivoted a little bit more, and I believe we mentioned this in the prepared remarks towards brick-and-mortar, but it was holistic across the channels. However, a little bit more in brick-and-mortar, and that was in line with what you saw in the brick-and-mortar total growth of .

Sure. That's what I assumed. But to follow-up on that, in terms of the drivers behind that, you mentioned a few. But how did pricing play into the strength there? Did you guys get any more aggressive on pricing consumables to drive some of that?

No. The only thing that we mentioned in pricing, Seth, is that from some of the cost increases that we saw that we took pricing actions on roughly 20% of SKUs. And the impact of that pricing was nominal in the quarter. And I would tell you that it actually was more than offset by some of the year-over-year impact from stimulus. So we had a bigger impact from stimulus last year than we did by any like benefits this year. So it was more than a push across those 2, but modest impact from pricing, 20% of SKUs. And it wasn't pricing driven in terms of the elasticity on .

And our final question today comes from Justin Kleber with Baird.

It's Justin Kleber. Just wanted to ask kind of a related follow-up to the pandemic cohort question, but more so focusing on new pet parents and any sense for how new pet parents are comping in year 2 as you lap some of the initial spend associated with the new pet. Are those customers still growing? Or do you see them take just a bit of a step back in year 2?

Yes. Great question, Justin. Thanks for it. I'll say a few things. First, we're seeing data that says that we got more than our fair share of new pet owners, which is great. We do a lot of work on -- it's called welcome to the family, amongst other initiatives, to help new pet parents and to capture those customers. So we're seeing signs that we got more than our fair share on new pet customers, which is great for our business. And needless to say, our work in companion animals inherently, they come into our ecosystem. In terms of spend kind of according to the life stage, we've done a bunch of work, a bunch of analytics. There really isn't a difference between year 1 and year 2. But the dynamic is you buy a lot of supplies to set up the crate, collars, leashes in year 1. But then in year 2, not only is the pet larger, so you need new collars, et cetera. But the second thing is the pet eats a lot more. So therefore, the customer probably has more frequency coming back as well. So we don't see a difference in terms of spend per pet in year 1 versus year 2. The only time you really have a difference in spend per pet is in the later age years where health care costs go up. But that's the only difference that we see. Thanks for the question, Justin.

Okay. If I could just ask one last follow-up unrelated on Just Food for Dogs. Ron, just curious how those stores with those pantries are comping relative to the rest of the chain. And then what type of halo effects do you guys see on the rest of the business, just given the trip frequency associated with fresh food?

Yes. It's a great question. We see this category quadrupling. I've said all along, I want to be a market maker in this category, and that's what we're doing. So if you look at our fresh business, fresh frozen was up 50% year-over-year. We believe that we're the #1 retailer of fresh frozen. And our JFFD customers are among our highest spending customers with twice the trip frequency. So not only do we get the JFFD sale, which is obviously a high ring, but the basket that comes along with that higher trip frequency is really, really good for us. We do also have Freshpet and Instinct nationally, but we increased our footprint of JFFD will be in over 700 by the end of the year. So we're highly dedicated to that, and we announced last quarter expansion into the same-day offering there. So one thing I'd add to Mike's earlier comments on frozen is, it -- fresh frozen, it is very difficult to make money on a DC model in fresh frozen. We know it. It's very difficult because you were shipping with -- you think about the cardboard, think about the chilling that you have to put into that box, very difficult to make money. That's why we think that our buy online pickup in store as well as our same-day is an advantage model, particularly in fresh frozen.

And ladies and gentlemen, this concludes today's question-and-answer session. I'd like to turn it back to Ron Coughlin for final remarks.

Thank you. It's an exciting time for Petco. We're delivering purpose-driven performance with strong year-to-date results. Our entire organization is relentlessly executing against our strategic priorities, and we've built an exceptionally unique offering in a market exhibiting incredible growth. Our revised guidance reflects the strength of our unique health and wellness ecosystem that continues to set Petco apart and our confidence in our ability to deliver against our strategic areas like vet, digital, and owned and exclusive brands. And while we're focused on delivering results through operational excellence, we remain steadfast in our mission of saving and improving lives of pets, pet parents and our own Petco partners every single day. Together, we believe that our focus on purpose-driven performance and our unique position will drive results and create long-term value for all of our stakeholders. And we appreciate the confidence that they show in us every single day. Thank you very much.

That concludes Petco's Second Quarter 2021 Earnings Conference Call. Investor Relations will be available after the call if you have any follow-up questions.

Ladies and gentlemen, that concludes today's conference call. Thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.