Prepared remarks
Good afternoon, and welcome to the Petco Third Quarter 2025 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Tina Romani, Head of Investor Relations and Treasury. Please go ahead.
Good afternoon, and thank you for joining Petco's Third Quarter 2025 Earnings Conference Call. In addition to the earnings release, there is a presentation available to download on our website at ir.petco.com. On the call with me today are Joel Anderson, Petco's Chief Executive Officer; and Sabrina Simmons, Petco's Chief Financial Officer. Before we begin, 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, let me turn it over to Joel.
Thanks, Tina, and good afternoon, everyone. Thank you for joining us to discuss our third quarter results. I’m pleased to share that we delivered another profitable quarter in line with our plan. We've continued to strengthen our operating model, improved retail fundamentals, and positioned Petco for sustainable, profitable growth over the long term. We delivered sales in line with our outlook and significantly improved our profitability, increasing operating income over the last year by over $25 million, generating $99 million in adjusted EBITDA and more than $60 million in free cash flow. I want to thank our teams across the organization for their dedication, focus, and execution on our transformation initiatives, which are continuing to gain traction as reflected in our profitability and cash flow improvements in Q3 and year-to-date. You’ve heard me talk about the importance of culture, which will continue to be a key theme of our transformation. When I joined Petco, we had a strong culture centered around pets first. The passion of our 30,000 partners was one of the many things that attracted me to join. Over the past nine months, our collective leadership team has been building on that culture in two ways. First, by reinstilling retail fundamental discipline, which has driven increased financial rigor and accountability. This is a testament to how the organization has embraced new working methods and strengthened operating principles, contributing significantly to our results. Second, we are fostering a culture that is focused on winning. Last month, I had the chance to spend time with our support center and store leaders at our Leadership Summit. Together, we aligned on our future values for a reimagined Petco and what that means for our customers, as well as our plans to execute on our One Petco Way vision. We are currently in Phase 2 of our transformation, which focuses on improving profitability and strengthening our foundation for growth. Our success to date has fundamentally changed our approach, enabling us to continuously identify future opportunities that will unlock long-term value. At the same time, we are strategically shifting resources toward Phase 3, which is centered on a return to growth now that our bottom line has meaningfully improved. Last quarter, I outlined the four pillars that support Petco's return to growth. First, delivering compelling product and merchandise differentiation; second, providing a trusted store experience; third, succeeding with integrated services at scale; and finally, offering our customers a seamless omni experience. Let me give you more specific details on each pillar. Starting with compelling product and merchandise differentiation, I view this in two categories. On the consumable side, we have improved shopability with higher in-stock availability; our customers rely on us to have everyday go-to products. We have better integrated assortment planning, and our merchandising teams have enhanced the in-store and online experience. On the discretionary side, we’re focused on introducing a steady stream of new and seasonal products in 2026 that complement our core assortment with trend-driven buys. Previously, there was a passive approach, which is not aspirational for shopping, and that’s changing. Looking ahead, we see significant potential to shift our merchandise perspective from just meeting needs to also addressing wants by revamping our offerings and surprising customers with new ideas for their pets. A great example is the success of our online pilot; our new My Human product line was expanded into over 200 stores. This milestone underscores our team's focus and ability to capitalize on trending impulse purchases. Next, regarding the trusted store experience, Joe Venezia, our Chief Revenue Officer who joined us about a year ago, leads our operations and services team. Since he joined, he has concentrated on simplifying store operations, standardizing processes across our fleet, and reducing operational costs. He is now shifting his focus to revenue-driving KPIs, including increasing transaction sizes, driving sales contests, and enhancing customer interactions. With our dedicated partners, strong customer engagement, and a full suite of services, we can create a unique experience that pet parents can’t find anywhere else. Our store partners are a unique differentiator for Petco. We benefit from long-time, passionate, and knowledgeable partners dedicated to serving pets and pet parents. Our current opportunity lies in streamlining store operations to allow our associates to interact more effectively with customers and leverage their expertise, improving these areas will help drive sales growth in 2026. Now, moving on to services at scale, our nationwide wholly owned services business remains our fastest-growing category and offers a competitive advantage due to its in-person nature, high barriers to entry, and difficulty to replicate. A complete ecosystem of grooming, owned hospitals, clinics, and center of store services can only be found at Petco. I’m particularly excited about the opportunities with our existing assets, which can be viewed in three ways: improving utilization through increased staffing and appointment availability; enhancing engagement to boost digital capabilities; and integrating services with center of store offerings. I’m pleased to report that we are ahead of our veterinarian hiring goals set at the beginning of the year, with record-high retention. We also promoted two long-time leaders to chief veterinarians, reinforcing our commitment to expanding our veterinary business. At the same time, we are cultivating a culture of team development, top talent recruitment, and execution of our strategic veterinary initiatives, all essential for increasing hospital utilization. Moreover, we are expanding access to care by strategically adding hours during peak demand and making appointments easier to schedule. We’re standardizing processes across our fleet to ensure in-store follow-up bookings. Additionally, we are increasing efficiency through our refined grooming apprenticeship model, which opens up appointment availability and boosts volume. Lastly, we are enhancing online appointment scheduling to provide better coverage and flexibility for our customers. Clearly, Q3 has been both busy and productive for our services business. Let’s discuss the potential for improving integration between services and the store, as this opportunity may not be well recognized. Historically, Petco operations were managed in a siloed manner, which was a missed opportunity. There’s considerable value to be gained from better integrating our store and service experiences. For example, our veterinarians previously didn’t have access to customer purchase data, but we’re working to change that. By 2026, our veterinarians will be able to review purchase history and make informed dietary recommendations based on overall pet health and specific needs. We will also enable them to direct customers to recommended products in-store or suggest assistance from a store associate. This example illustrates how enhancing integration between services and stores can lead to better outcomes for pets and improved experiences for our customers. Finally, let’s move to our last pillar, seamless omni integration. Supporting everything I previously mentioned are improved digital capabilities, a more compelling membership offering, and a smooth transition from digital to store experience for customers wherever they engage. I’m happy to report that we’re on track with our improvements, and in fact, we are beginning to implement some changes in Q4 of this year. For instance, we are changing how we buy media, starting with better targeting and bidding strategies that we expect will enhance our marketing efficiency as we continue to bolster Petco's tagline, Where the Pets Go. I’m pleased with the progress of our membership program, and we will begin live testing and piloting the program this quarter in a select number of districts. Our focus on these four pillars will drive our growth, which we still expect to see in 2026. In closing, as you can discern from my tone, this has been a productive quarter at Petco, and I’m pleased with the progress we continue to make on the commitments I outlined earlier this year. With each passing quarter, we become better at celebrating exceptional pet experiences, executing our strategies, and meeting our promises, both internally and externally. The initiatives planned for the fourth quarter will advance the Petco transformation, and I look forward to sharing updates with you in March. Ahead of the Thanksgiving holiday, I want to take a moment to express my gratitude for our partners, who prioritize pets every day and truly represent who we are and what we stand for. Our Petco Love foundation illustrates our long-standing commitment to saving lives, having found loving homes for over 7 million pets, enhancing animal welfare. With that, I’ll turn the call over to Sabrina to walk you through the specifics of our third quarter results and outlook for the remainder of the year. Sabrina?
Thank you, Joel. Good afternoon, everyone. In the third quarter, Petco once again delivered against our commitments while building a stronger foundation from which to grow. As we've discussed all year, strengthening the health of Petco's economic model has been our top priority. I'm pleased with our progress, as demonstrated in our expanding gross margin, expense leverage, and operating margin expansion, not only in the quarter but year-to-date. In line with our outlook, which reflects our decision to move away from unprofitable sales. Net sales were down 3.1%, with comp sales down 2.2%. As a reminder, the difference between total sales and comp is driven by the 25 net store closures in 2024 and the additional nine net store closures year-to-date. We ended the quarter with 1,389 stores in the U.S. Gross margin expanded approximately 75 basis points to 38.9%. Similar to the first half, gross margin expansion was primarily driven by a more disciplined approach to average unit retail and average unit cost, including stronger guardrails and more disciplined processes to effectively manage our pricing and promotional strategies. It's important to note that in this quarter, tariffs began to more meaningfully impact our cost of goods sold. Moving to SG&A. For the quarter, SG&A decreased $32 million below last year and leveraged 97 basis points. As we've discussed previously, our shift in mindset and increase in rigor around expense management is evident in our results. Savings were achieved across the board and especially in G&A areas. Notably, marketing spend was about flat year-over-year. Our expanded gross margin and expense leverage resulted in operating margin expansion of over 170 basis points. Adjusted EBITDA increased 21% or $17 million to $99 million and adjusted EBITDA margin expanded nearly 140 basis points to 6.7% of sales. Moving to the balance sheet and cash flow. Q3 ending inventory was down 10.5% while achieving higher in-stocks for our customers. We continue to manage inventory with discipline, which is one of the drivers of our improving cash profile. Free cash flow for the quarter was $61 million, and year-to-date was $71 million. Both the quarter and year-to-date were significantly above the prior year. Notably, year-to-date cash flow from operations has nearly doubled versus the prior year to $161 million. We ended the quarter with a cash balance of $237 million and total liquidity of $733 million including the availability on our undrawn revolver. And now turning to our outlook for the full year. We are once again raising our adjusted EBITDA outlook for 2025. We now expect adjusted EBITDA to be between $395 million and $397 million, an increase of roughly 18% year-over-year at the midpoint. For the full year, given we are entering the last quarter, we are narrowing our range for net sales and now expect net sales to be down between 2.5% and 2.8%. For the fourth quarter, we expect net sales to be down low single digits versus the prior year as we continue to execute on the initiatives we've outlined. We expect adjusted EBITDA to be between $93 million and $95 million. It's important to note that the impact of tariffs is sequentially more meaningful in Q4. Additionally, the significant progress we've made year-to-date against strengthening our economic model and improving our earnings profile has provided us the option to begin selectively investing behind the business where it may make sense as part of our ongoing efforts to set the stage for Phase 3, a return to profitable sales growth. With regard to other guidance items. For the full year, we expect depreciation to be about $200 million, net interest expense of approximately $125 million, about 20 net store closures, and $125 million to $130 million of capital expenditures with a greater focus on ROIC. In closing, as Joel discussed, we're in a period of significant change, and I want to extend my deepest appreciation to all of our teams for embracing that change to deliver better outcomes for all of our stakeholders. With that, we welcome your questions.
Questions and answers
The first question will come from Simeon Gutman with Morgan Stanley.
I found your comments about the wants intriguing. Could you explain the current mix of wants versus needs in the business? It might be a stretch, but I'm curious about your vision. I have a feeling that the wants might not be purely wants. Considering your background, there may be some unique merchandising aspects that relate to wants. I'm interested in how you can outline this and possibly elaborate on it a bit more.
Thanks, Simeon. That's a great question. Traditionally, consumables are fundamentally a needs-based business, which makes up the bulk of what we do. However, I believe there are aspects that can be perceived more as wants. For instance, in 2025, our dog food segment will revolve around a significant reset happening mid-year. We plan to adapt our approach by aligning the rollout of new innovations and flavors from our vendor partners with their schedules rather than our own. This shift will help create a sense of discovery for customers and enhance the perception of wants rather than just needs. Historically, we haven't done well in this area, but I see an opportunity to encourage exploration throughout our store, including in consumables, beyond just the supplies business. When we connect in March, we can delve into this further. Sorry for interrupting you, Simeon.
No, I interrupted you. My follow-up is related to your comments about integrating store functions. You mentioned the distinction between wants and needs, and there was a mention of potential forward investment. The business is approaching the point of overcoming challenging comparisons and seems to be naturally trending back to positive growth. What specific factors or priorities should we focus on to drive the top line, or is there something we haven't discussed yet?
I don't believe it's something you've already heard. We plan to approach 2026 similarly to how we handled 2025, focusing on the top line as we previously addressed the bottom line. In 2024, we introduced strategies to improve our bottom line and implemented those in 2025. Now, we are applying the same methodology to drive top line growth. I mentioned four key pillars, supported by various building blocks that I discussed today. We intend to execute these plans with the same commitment and discipline. It's not just about hoping for success; we have a comprehensive strategy around those four pillars, each with its own set of building blocks. I'm genuinely enthusiastic about all four areas. I hinted at some initiatives we are already testing in Q4, and while all of them are gaining traction, the implementation timelines vary. The teams are focused, and we have a solid plan in place.
Next question will come from Oliver Wintermantel with Evercore ISI.
Joel, what is the realistic timeline for comp stabilization? And which categories or customer behaviors would represent the biggest swing factors there?
I’m not going to discuss 2026 on this call, but you can expect guidance for Q1 and an outlook for the full year in March. I can confirm that all four pillars I mentioned are gaining traction, and I anticipate they will all contribute to the comp in 2026. We will outline the timing for you in the March call.
Got it. That makes sense. And then just on the free cash flow side, strong improvements there year-to-date and in the quarter. But how much of the Q3 working capital improvement is sustainable, and what financial or operational levels continue to support the cash generation for next year?
Yes. I mean, I think we view cash flow and all of its levers as continuous improvement. So we certainly are focused on continuing on this path of generating strong free cash. The principal lever of core solver is net earnings. So we're going to continue to focus on our bottom line and growing net earnings. We'll continue to focus on inventory discipline. We're not done. We've made huge strides this year. in terms of rationalizing our SKUs and reducing our inventory compared to our sales which is fantastic. But I wouldn't say we're best-in-class in turns yet. We still have a lot of opportunity, so we'll be looking at that lever as well as all of our other levers to continue delivering on strong cash generation.
Question will come from Michael Lasser with UBS.
Can you size the magnitude of the potential investments that you would make in what form those are going to come in, whether it's labor, marketing or promotions? And are those investments necessary as you look to 2026 in order to drive top line growth?
I'll begin with the general framework, and then Joel can share his thoughts regarding each area. We are pleased that we have achieved significant profit improvement through Q3, which gives us the option to consider investments that could enhance our performance not only in Q4 but also in the future. We are considering various options, including marketing and labor, and we will continue to evaluate promotions to implement them effectively while ensuring they provide value to our customers and remain responsible in managing our margin expansion. Joel, would you like to add anything?
Yes, Sabrina, I think you made a good point. When I consider the four pillars we've outlined, I believe none of them for 2026 require significant changes from our current approach regarding cash or operational expenses. We're simply selling through our existing merchandise and purchasing new items, which represents a steady flow change. I don't anticipate any major shifts in investment for 2026 compared to our current run rate.
I guess the question and the critical point is can Petco experience the same magnitude of the improvement in the profitability while reversing what seems like some market share losses this year and be on that path next year?
Yes. If I'm hearing you, Michael, and I might want you to repeat the question, but we for sure, believe that investments are going to be necessary. Our whole focus and what I talked about all year long in terms of the economic model we're pursuing is delivering leverage on expenses. But as you know, if sales improve, you increase operating expenses and still deliver leverage. So we're very aware that we need to make some investments. That's why we're talking about in Q4, we may make some of those investments in advance of entering the new year because we've been able to bank so much profitability and leverage. And we will measure our success in meeting our goals and expanding margin and delivering expense leverage on a full year basis. That's another thing we always said, we never said every single quarter in the same way. It's on a full year basis. So that's why we've given ourselves the option because we know that the next phase will require investment and we are prepared to stand behind that in a responsible way that still delivers on our full year goal to deliver the model.
Sabrina, could I just clarify? If we look at what the embedded EBITDA margin is in the fourth quarter versus what Petco has experienced over the last couple of quarters. It looks like the pace of improvement is going to moderate. Should we think about the magnitude of the potential investment, the option for investing would be the difference between what Petco has achieved over the last couple of quarters and what's implied in the fourth quarter? Is that how we should think about quantifying that potential investment?
I think that's a fair framework, Michael. I would add that as we look to Q4, we need to consider the impact of tariffs on gross margin. It's not a huge factor, and we're fortunate to be in a retail sector with fewer tariffs, but it does play a role. The second factor is the investment we are discussing and how much we decide to make and manage in the fourth quarter. So yes, your statement is generally accurate.
Next question will come from Kendall Toscano with Bank of America Global Research.
Hopefully, you can hear me okay. I was just wondering if you could talk more about the impact of tariffs during the quarter. I know you mentioned they became more meaningful in 3Q but maybe not as much as you're expecting for the fourth quarter. But just curious what you saw in terms of COGS impact, if any, and then in maybe some categories where there was tariff impact on price? What did you see in terms of consumer elasticity?
Yes. Thanks, Kendall. Just to go back to your statement. So the first time we saw a tariff impact flow through our P&L through cost of goods sold in any meaningful way is the third quarter because the second quarter has de minimis amounts of that. We had it on our balance sheet, we had an inventory buy but it wasn't flowing through COGS yet. The third quarter is the first quarter of that. And my only point was, in the fourth quarter, it becomes a bit more meaningful. So it's just a reminder that sequentially the tariff headwind is a bit more meaningful. But again, in the broad spectrum of things, it's a very manageable number which we've managed all year and have been revising guidance upward in the face of it. So I think that hopefully helps frame it up. We also know that it's mostly in the private label supplies area, as we've said in the past. So hopefully, that helps frame it up, too.
Got it. That's helpful. And then my other question was just in terms of some self-inflicted headwinds in the Services segment as you've deprioritized that program ahead of the planned relaunch. Just curious, as you're now getting closer to relaunching that in 2026, and it sounds like maybe starting to pilot it in the fourth quarter, what kind of tailwind would you expect to see on same-store sales growth or, I guess, just services growth?
I think you mean our membership program?
Yes, that's what's I meant.
Yes, that's what combined with services in the way we report services and others. So probably, Joel, if you want to start with the membership program and...
Yes, our paid membership is part of that. However, the key takeaway is that we are progressing with our new membership program. In the fourth quarter, we have started live end-to-end testing in several markets, and we haven't encountered any significant issues, only minor ones at most. This is a positive indicator for us. We plan to expand testing to additional markets and launch new marketing efforts, aiming for a full rollout in 2026 across our entire fleet. Overall, membership is developing well and is crucial for our growth anticipated to begin in 2026.
Yes. And since you raised it, Kendall, on the services piece, I think you can see that, that continues to be not only a strategically important area for us but it's also an area of nice growth and continues to be.
Next question will come from Kate McShane with Goldman Sachs.
We wanted to ask a little bit more of a higher level question. Just your view on where you think the industry is now from a digestion standpoint where you think the industry can grow in 2026 if we do return to growth in '26 for the industry? And just what you may have been seeing out of the competitive set this most recent quarter as some of these higher tariff costs and prices have come through?
Overall, the competitive landscape has remained relatively unchanged since last quarter. However, consumers appear to be more cautious lately. Factors such as tariffs, political tensions, and high interest rates have impacted their economic outlook. In terms of the pet industry, growth has been stable and flat. We've made promising strides on our digital front, which will be crucial for our growth next year. Our services business is already expanding, and that sector is growing in the pet industry. We will also build on the progress we've made in our digital enhancements. Overall, the market remains stable.
Question will come from Chris Bottiglieri with BNP Paribas.
The first question I have is regarding the improvement in our free cash flow profile. How do you prioritize the use of that cash? Will it be focused on paying down debt or reaccelerating veterinary practices? I'm interested in your thoughts on this for the next few years.
Yes. Our first priority would always be to invest in our business to sustain growth going forward. So that's definitely the priority. That said, we go back to our statement that we have a lot of assets on our books already that really are ramping up now, vet hospitals predominantly the #1 on the list that are already on our books that we are ramping up for better returns. So we don't have to make big capital investments in those, and we, in fact, you'll hear us talk about more in the Q4 call, Chris, we have a set of those that where we're going to focus on bringing utilization up in 2026 as well without any large capital investments. So I view this as really great news because it provides a nice path for return improvement while not having to invest a lot of capital in it. So of course, though, we'll be looking at pockets and areas as we move forward and we finalize what kind of remodel prototype we want to land on how we'll start to bring those into our system. But there's no huge big capital spend necessary on the horizon, likely to increase some in '26, but no big, enormous dramatic change overall in profile because we have these assets in our books where we're increasing utilization. Now beyond that, beyond that priority to first invest in our business, the second, of course, is we are always looking, as I stated, on the first call when I talk to you guys, we want to bring down our leverage on an absolute basis. We also want to bring down our ratio. We're doing a terrific job with the growth and profitability of bringing down the ratio. So it's quite remarkable. We started the year at over 4x debt to EBITDA. And if we hit the midpoint of our new guidance, we should be below 3.5x net debt to EBITDA. So quite a bit of progress. And indeed, we'll look to opportunities to even potentially do some opportunistic debt pay down.
Got it. That's very helpful. I noticed your gross margins were down 20 basis points on the product line. Is that mainly due to the tariff headwind you mentioned, or is the elasticity offsetting the price increase and contributing to additional challenges? I'm just curious about how those tariff headwinds are impacting your situation.
I have our merch margins expanded both in our products and services.
Sorry, I meant quarter-on-quarter, not year-on-year.
Oh, quarter-on-quarter, sure. Yes, I would say that is primarily a little bit of tariff headwind coming in. Year-on-year, though, we are up in both products and services.
Next question will come from Steve Forbes with Guggenheim Securities.
Joel, you spoke about services in stores coming together. And I guess my question is, can you help us frame up sort of how you guys see that opportunity internally, whether it be how spending per customer sort of evolves as they engage in services, if they're a store-only customer or vice versa? Like any way to sort of talk about how like the net sales per customer evolves as they broaden their engagement across the store?
Yes. I believe that any successful physical retailer needs to identify its unique strengths and what sets it apart from competitors. Our services certainly stand out as one of those strengths. We've developed our grooming, hospitals, vet clinics, dog walking, and dog training services in a way that is difficult for other pet retailers to replicate. This is an area where we have focused our efforts the most, and we've made significant strides with improving the use of our existing assets and customer engagement. What you're referring to is how we integrate services with our product offerings in the store. As I look ahead to 2026, it's crucial for us to combine this with a membership program that enhances our understanding of our customer profiles—such as how many are using our services, how many engage with both services and products, and whether they're shopping in-store or online. By analyzing all these factors, we begin to see distinct customer profiles emerge. We find that the more we enhance our service offerings, the greater the positive impact on our overall business, as these services are not easily replicated by others. We've made considerable progress in this area and are pleased with the results. You can expect us to continue discussing this as we move forward toward 2026.
And then maybe if I just do a quick follow-up on that. Is there any way to set the baseline here on just sort of what percentage of your customers today actually buy services or any sort of baseline KPI that we can sort of begin to track as we think about your progression in the business?
Yes. Look, I think at this point in time, I'm not going to get into the specifics on it at that level of detail. I mean, I think the baseline KPI to track as we look into the future, it will be transactions overall and then let us manage it at the different elements we have to serve up to the customer. But services will definitely be a key component to it, Steve, as we keep growing.
Last question will come from Zack Fadem with Wells Fargo.
Is there a way to quantify the impact of moving away from less profitable sales and deemphasizing the member program in Q3. As it seems like you expect your Q4 comp to step down a bit more. I'm curious to what extent you're expecting those items to also impact Q4?
Yes. I'll start by noting that the implied guidance for Q4 is quite broad, so our results could fall anywhere within that range. Throughout this year, we have consistently emphasized our primary focus on expanding our margins, moving away from unprofitable sales, and building a strong foundation for sales growth starting in 2026. Joel, feel free to take it from here if you'd like.
Yes, I think Sabrina, you really captured it. I'd like to add that the impact we’re seeing is our pet EBITDA market share is growing. Although sales are down, EBITDA is increasing. We have done well in distinguishing between one-time sales transactions, which I refer to as empty calories, and customers with whom we aim to build long-term relationships to increase lifetime value. This trend has been consistent over the quarters, with sales down in low single digits while the bottom line continues to improve. As time goes on, we get better at identifying and eliminating those less valuable sales. By adding a membership program and a more strategic approach to media buying, we anticipate improvements in both top line and bottom line performance.
Thanks, Joel. And then just to level set as we look ahead to 2026, I mean the expectation is to return to sales growth. I'm curious how generally you would frame broader category performance in dog and cat food, supplies, services, et cetera, and then how you would layer in the impact of both your initiatives? And then net store opening and closings to kind of get to that total sales growth?
It's still early to provide specific details for 2026. However, based on our published information, consumables and supplies have been declining this year while services are growing. We anticipate a revival in consumables and supplies moving forward. I need to clarify what I presented today regarding the four pillars and how they will lead to growth, and when that might happen next year. A lot of progress is being made internally that isn't visible yet. We need to piece it all together to help you understand your projections. As I've mentioned in previous questions, we are approaching 2026 similarly to how we approached 2025, by outlining strategies and then executing them. The team continues to improve with each passing quarter.
Yes. And Zack, just to emphasize what Joel is saying, for sure, I think your thinking is in line with ours, where you always look at what's your base sales build, then we layer on all the many initiatives, which Joel has been outlining and we'll continue to get more granular as we go into '26 but we have all of those building blocks on top of that base, and they layer on throughout the year. So what you can count on is it's a gradual ramp. And then the last thing I'll say as a little bit of a preview is we would expect fewer net closures in 2026 than we had in 2025. And again, the 2025 expectation is about 20 net store closures.
This concludes our question-and-answer session. I would like to turn the conference back over to Tina Romani for any closing remarks.
Perfect. Thanks so much, Joel and Sabrina, and thanks, everyone, for your time. That concludes our call, and we hope everyone has a wonderful holiday.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.