管理層發言
Good day. And welcome to Peter's First Quarter 26 Earnings Conference Call. All participants will be in a listen-only mode. Today's earnings call will last 45 minutes, including remarks from management followed by a Q&A session. We ask that you please limit yourself to one question and one follow-up. To ask a question, you may press *, then 1 on your telephone keypad. To withdraw your question, please press * and then 2. Please note this event is being recorded. I would now like to turn the conference over to Roxanne Felice Meyer, Vice President, Investor Relations and Treasury. Please go ahead.
Good afternoon, and welcome to Petco's first quarter fiscal 2026 Earnings Conference Call. Joining me on the call today are Joel D. Anderson, Petco's Chief Executive Officer, and Sabrina Louise Simmons, Petco's Chief Financial Officer. In addition to their earnings release, we have posted a slide presentation on our website at ir.petco.com. I would like to remind everyone that on this call we will make certain forward-looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties include those set out in our earnings materials and SEC filings. In addition, on today's call we will refer to certain non-GAAP financial measures. Reconciliations of these measures can be found in our earnings release, presentation, and SEC filings. With that, I will turn the call over to Joel.
Thanks, Roxanne, and good afternoon, everyone. Thank you for joining us to discuss our first quarter results. Our strong Q1 results provide an encouraging early validation of our Phase 3 "reach for the sky" strategy. We returned the business to a positive comp for the quarter while expanding our profitability, performing better than our quarterly outlook for both top line and adjusted EBITDA. We were particularly pleased to see the improvement in our consumables business, while our differentiated services business once again delivered strong results and continues to be a growth engine for us. This solid start to the year gives us deep confidence that our growth initiatives are taking hold. It speaks directly to our innovation pipeline, rigorous execution, smarter marketing, and most importantly, the advantages of our wholly owned omnichannel ecosystem. In light of our solid first quarter, we are pleased to reaffirm our full year outlook and remain confident in our ability to drive consistent top line results. Sabrina will take you through our financial details shortly. But first, I want to spend some time updating you on the progress we have made across our strategic four pillars, which are positioning Petco for long-term profitable growth. Let's begin with our first pillar: compelling product. While we are still in the early innings of evolving our product mix and the flow of our merchandise, we have begun to introduce real newness to our aisles, and we are seeing evidence that it is resonating with pet parents. Specifically, you should now see several of our main drive aisle end caps converted to new product and identified with a yellow "new" logo. From a top line perspective, we saw outperformance in the cat category this quarter. We anticipated the recent spike in demand for cat products, and as a result, we invested to make Petco the destination for cat parents. It was a key contributor to the improved sequential trends we saw in consumables overall. You will see cat newness ramping up even further in Q2 with exciting additions in areas such as furniture, beds, and bowls, but also in novelty items such as cat trees. We also continue to lead the fresh-frozen space. During the quarter, we added significant incremental freezer capacity to support the momentum in this category. We hold a distinct advantage in this category driven by the breadth of our offerings, our key brand partnerships, and a wide range of price points. We have positioned Petco as a premier destination for pet nutrition, which we believe will serve us well as the pet humanization trend continues to pick up speed. Our expertise and dedicated in-store teams offer a level and type of service that you simply cannot find at grocery stores, big box competitors, or online. As a reminder, those that buy fresh food from us make over four more trips per year and spend over 50% more annually than dry-food-only customers. Further, we experienced strength in seasonal categories. Specifically, in flea and tick, we saw our strongest start of the season in five years. While this was partially aided by weather patterns, for Petco, it is an ecosystem story. We capture over-the-counter sales, vet sales, and grooming through our flea and tick packages, all supported by a cohesive marketing push. In addition, as we previously announced, we launched our new "Gardening With Your Pet" earlier this quarter. This performed above expectations with live house plants performing well. Looking ahead, we have an exciting pipeline for both Q2 and the back half of the year. In consumables, we are leaning into emerging customer trends like high-protein diets as well as new treats for dogs and cats. We have also recently launched several new supplement categories, such as for hip and joint care, liver health, and a holistic care line based on the growing trend of health and longevity in the pet space, which we see as an important extension of the humanization trend. In supplies, we are introducing newness across categories including grooming, toys, and collars and leashes. Within the grooming category, we relaunched our own brand Well+Good, which was completed last week. This represents the beginnings of our investment in private label starting to show up in our stores. It includes new formulas without harsh chemicals as well as fresh packaging for our shampoos, conditioners, and balms, all supported by marketing. And finally, in June, we will be rolling out sports-inspired collections celebrating the World Cup and USA Soccer. Moving on to our second pillar, services at scale. Simply put, services are an important growth engine of ours. They are a massive point of differentiation and a competitive advantage. Through our wholly owned services model, we own the entire pet journey. It is not just about our vet hospitals, which continue to see solid gains in sales and productivity; it is also about our clinics, grooming, and training. Grooming is a strong annuity business for us and continues to perform well. To build on that momentum, we expanded our care reminders directly into our app late in the first quarter — a highly effective and frankly obvious way to drive what is already a sticky repeat business even more frequently and consistently. Another callout was the puppy dog package we began to offer in the first quarter, where a significant number of the customers that came in were new. We will continue to offer this throughout the year. In the second quarter, we are driving excitement with the rollout of our Well+Good grooming products I just referenced, as well as a new Disney Stitch grooming package, which includes scented shampoo and spritz, conditioner, teeth brushing, nail buffing, and a seasonal bandana. Together, these initiatives are intended to ensure that our salons remain a premier destination for pet parents and a highly dependable driver of recurring foot traffic. On the vet hospital side, the strong performance we are driving today helps fuel our future expansion plans, which are on track to resume in 2027. We continue to see improving productivity across our footprint, and we are on track to optimize about 25 significantly underutilized hospitals this year. Crucial to this effort is our veterinary team, and we are pleased to share that "doctor days," which is a combination of hiring additional doctors and adding hours per doctor, continues to improve. Because of our scale, depth of expertise, unique ecosystem, and the flexibility we offer, we believe Petco is an employer of choice for veterinarians and vet techs looking to build long-term careers. As we discussed last quarter, cross-selling continues to be a major and largely untapped opportunity between our clinics and the rest of the store. A great example of this clinical presence driving our broader business is our vet diet category, which performed extremely well this quarter, tying beautifully back into our veterinary ecosystem. Looking ahead, we believe we have several strong catalysts and opportunities in Q2 designed to drive ongoing traffic to our clinics. In mid-April, we launched the new Vetco Clinic packages, which offer bundles of services such as routine shots, and we are excited to see them gaining early traction. Additionally, to drive traffic and care during National Pet Month in May, we offered free microchips, with the number of pets getting microchipped up 71% versus last year. Looking beyond these near-term drivers, we are incredibly optimistic about the long-term growth opportunity within our wholly owned vet business and the immense value it brings to the Petco ecosystem. Our third pillar: our trusted store experience. The work is underway to build our basket size through better cross-selling and customer engagement. For example, we are now empowering our groomers with customer data to facilitate sales across the entire store. They can see a customer's last food purchase history. This allows our partners to have informed, personalized conversations that drive cross-category sales and, importantly, can help enhance customer satisfaction and loyalty over time. In terms of customer engagement, we feel in-store experiences are how we best appeal to our core customer, the passionate explorer. This quarter, we hosted popular events such as pictures with the Easter bunny, and we continued that effort with weekly store events throughout May to celebrate National Pet Month, including Mother's Day photos and weekly brand tasting events. Finally, our fourth pillar: an integrated omnichannel model. We are pleased with the headway we have made and our ongoing work to improve retail fundamentals in our omnichannel model compared to last year. By removing friction from the online checkout process, we have been seeing improved digital traffic. We achieved sales growth in omnichannel even while lapping the nonproductive, unprofitable sales we were still generating in Q1 last year. Looking ahead, we see ongoing opportunities to increase site speed and optimize shipping windows for our customers. The key callout is BOPIS, which was up strongly year over year. This is our differentiation in action — building loyalty through ecommerce while physically bringing the customer into stores to experience our services, community, and the cross-selling opportunities our partners provide. Speaking of loyalty, I am thrilled to share that we are relaunching our loyalty program later this quarter, officially branded as Petco Perks. During our pilot phase, our biggest learning was that simplifying, removing friction, and making the program distinctly customer-friendly had a massive impact. Petco Perks uniquely leverages our entire ecosystem spanning both merchandise and services. The program will be heavily focused on personalized offers based on factors like shopping frequency and customer lifetime value, a strategy that successfully drove higher sales and stickiness during our pilot. In conclusion, the first quarter served as an initial proof point of our inflection to growth. While the broader macro environment remains dynamic, we remain hyper-focused on controlling what we can control, and our results prove that our self-help strategy is successfully navigating this environment. We are executing on our Phase 3 "reach for the sky" strategy. While we are pleased with these initial results, we are still in the early innings of what is a long, exciting journey. We have immense opportunity to deliver product newness, capitalize on cross-channel shopping, grow our differentiated services business, and provide the most personalized experience possible to the Passion Explorer and their pets. I want to take a moment to deeply thank our teams across the organization. Your hard work, adaptability, and compassion for pets are what make these results possible. Our focus remains firmly on driving sustainable, longer-term top line growth and on delivering shareholder value. As we look ahead, we are pleased with the momentum our initiatives are generating, positioning us to continue to deliver positive comps. I look forward to our second quarter call and sharing with you the continued progress we are making with our reach-for-the-sky strategy. With that, I will turn the call over to Sabrina to take you through the details.
Thank you, Joel. Good afternoon, everyone. As we have discussed, our primary goal is to build a stronger retail and financial foundation that supports our focus on regrowing our top line in Phase 3 and driving sustainable profitable growth. As such, we are committed to delivering upon our economic model for the full year in 2026 and are pleased to report that we are off to a solid start. Turning to first quarter results, net sales were up 0.2% to $1.5 billion. Importantly, the first quarter marked our return to positive comparable sales, with a 0.7% comp providing evidence that our initiatives across our four growth pillars are beginning to take hold. The spread between comp and net sales reflected the 16 net store closures in 2025 and four net closures in Q1. We ended the quarter with 1.38 thousand stores in the U.S. Moving on to margin results, first quarter gross profit dollars were $574.4 million, while our gross margin rate expanded 21 basis points to 38.4% as we executed with discipline. Moving on to expenses, for the quarter, SG&A was $549.8 million, or 36.7% of net sales, leveraging 34 basis points. The $3.8 million improvement in expenses year over year was driven by declines in G&A despite investments in marketing to support our omni-related initiatives. For Q1, our expanded gross margin and expense leverage resulted in operating profit of $24.6 million, or a 50.5% improvement versus the prior year. Operating margin rate improved 55 basis points year over year. Adjusted EBITDA increased $7.9 million, or 8.8% year over year, to $97.3 million. Adjusted EBITDA, balance sheet, and cash flow. First quarter ending inventory was down 1.9% year over year on top of a 5.2% decline last year. It is worth noting that inventory dollars were down year over year even with sales growth of 0.2%, reflecting our ongoing discipline and execution. Our first quarter ending cash balance was $167 million, an increase of approximately $33 million versus the first quarter last year. For the quarter, free cash flow was an outflow of $69 million. While our first quarter cash flow is historically our lowest, we wanted to call out two contributing factors. First, capital expenditures were $10 million versus last year but are in line with the full year guidance we have provided. Second, as planned, inventory investments increased to support our growth, but we are pleased overall that inventory levels remain well controlled. Moving on, total liquidity for the first quarter was $654.4 million, up versus the prior year. For the quarter, total debt was $1.48 billion, down over $100 million compared to Q1 last year. As many of you have heard me state, after completing our opportunistic debt refinancing, we have extended our maturities out to 2031 and achieved a more optimal mix of fixed to floating rate debt, which provides us with ample flexibility. Importantly, we remain laser-focused on our goal of reducing our leverage ratio to 2x. And now turning to our outlook. While the external environment continues to evolve, our solid foundation enables us to remain agile and we are well positioned to deliver on our financial commitments this year. Therefore, we are reaffirming our full year sales and adjusted EBITDA outlook. Specifically, we continue to expect net sales of flat to up 1.5% compared to last year as our growth initiatives take hold and build over the course of the year. We continue to expect adjusted EBITDA to be between $415 million and $430 million. Looking out, we wanted to outline some updates to our underlying full year assumptions. First, we now expect fuel prices to remain at approximately current levels for the remainder of the year. Recall that our prior full year outlook assumed higher fuel prices through the first quarter only. Next, our outlook includes the benefit of a tariff refund received in May. The refund represents only a portion of the AEFA tariffs we paid through February 2026. Our full year guidance assumes no additional tariff refunds beyond what we have received to date. Further, our outlook also assumes that the current tariff policies remain for the balance of the year. With regard to other line items, the following assumptions remain unchanged for the full year: net interest expense, about $125 million; depreciation and amortization, about $200 million; capital expenditures, about $140 million with an ongoing focus on ROIC; net store closures between 15 and 20, weighted toward the back half of the year. And finally, we still expect the full year spread between total sales and comp sales to be about 50 basis points though it will vary by quarter. Moving on to the second quarter, we are comfortable with current consensus estimates for net sales implying growth of about 0.3% versus the prior year. We expect adjusted EBITDA to be between $110 million and $112 million. As you think about your models, we wanted to flag some considerations to be helpful. First, recall last year's Q2 reflected peak adjusted EBITDA growth including peak gross margin expansion. In last year's second quarter commentary, I flagged an approximate $9 million benefit in SG&A from a semiannual actuarial true-up. This was related to employee optimization work. This year, we do not expect to anniversary this benefit. Finally, on tariffs and higher fuel costs, a simple way to think about these factors is that the tariff refund roughly offsets incremental tariff and higher fuel cost expected in the second quarter, thereby neutralizing one another in the quarter. In closing, I want to thank our teams for their dedication and discipline in executing on our transformation this quarter, including our return to positive comparable sales growth. We will now open up the call for your questions.
分析師問答
Thank you. We will now begin the question and answer session. We ask that you please limit yourself to one question and one follow-up. If you are using a speakerphone, please pick up your handset before pressing the keys. At this time, we will pause momentarily to assemble the roster. The first question will come from Michael Lasser with UBS. Please go ahead.
Good evening. Thank you so much for taking my question. When you look across the different categories between consumables, hard goods, services, as well as the different species of animals that you serve, where was there a change or an inflection in your market share versus what Petco had been experiencing last year? And how do you see those market share trends continuing to unfold?
Thanks, Michael. I think as I reflect back on the quarter, I think less about market share a little bit, and I think more about the sequential improvements. We saw improvements in all three of those categories: consumables, supplies and companion animals, and services. So I think those are all really good early indicators that the new strategy is taking hold and the customers are reacting positively to it. While we have not yet started to gain on market share, which is part of lapping the last year, we are really seeing that the market share decline has moderated significantly, and that is showing up in the sequential improvements in all three areas.
Understood. Right. And then thanks for that, Joel. Follow-up question is on the outlook. You exceeded at least the consensus forecast for the first quarter. You comped positive, like you had anticipated. You are simply reiterating the full year outlook. So is there something that you are seeing currently in the business or have seen as of late that is influencing your conservatism or your decision not to flow through the upside from the first quarter to the full year?
Hey, Michael. It's Sabrina. That is a great question. To our own range, we are really pleased that in the first quarter we beat a couple of million, three million at the high end. The environment has continued to evolve, and there are a lot of different new cycles going on. We are super pleased that in the face of that, we are reaffirming our full year guidance. In particular, one of the big changes from when we initially laid out that guidance is fuel. So we are actually absorbing that second-half fuel within our reaffirmation of the full year. So, again, we are very pleased that we are able to do that through our discipline.
Thank you so much, and good luck.
Thank you, Michael.
The next question will come from Katharine McShane with Goldman Sachs. Please go ahead.
Hi, good afternoon. Thanks for taking our questions. We wanted to ask just with regards to any kind of behavior changes within the quarter by the consumer, what you saw across income cohorts and any kind of consumer behavior with trading down?
Katharine, great question. Like every retailer, we are watching consumer trends closely. I would remind everyone on the call that Petco serves customers across all income demographics. We have a really nice offering from value all the way to premium brands. As we look back on the quarter, I would say there was nothing material amongst income demographics that performed differently. It was pretty consistent across all. So in total, we did not see any meaningful change in behavior by income cohort.
And then our follow-up question is just with regards to the pricing environment. I think you have a retailer out there that is talking about getting a little bit more aggressive on pricing. Just how does that influence anything in terms of your strategy or what you are thinking? In conjunction with that, it sounds like you are going to get a fair amount of tariff refunds here; it will be neutralizing in Q2 as you laid out. Could we see maybe the tariff refunds be used for any kind of pricing investment as we get into the back half of the year?
Yeah, I will start on the pricing piece, Katharine, and just say similar to when we were faced with tariffs last year, we do not really react on our pricing to any one event. We are always reviewing our pricing architecture. Our lens is always customer first. We are always, of course, reviewing the competition. We make adjustments as necessary, but we are not planning to do anything reactive to any single event. And then with regard to the tariff, we are not counting on any further refunds. I think you all know there is a date coming up in a few days where there can be some appealing of the whole refund process. So we thought it prudent not to count on any of that. So none of that is in our assumptions. Should it come, fantastic. We can update you on our next quarter call.
Thank you.
The next question will come from Kaumil Gajrawala with Jefferies. Please go ahead.
I guess the first thing is your positive comps, your cost structure has changed quite a bit over recent years. What is the comp level that we should be looking for to allow it to sort of really leverage itself down the P&L?
That is a great question, Kaumil. The beauty of our model is we do not really need super high comps to make the economic model work. We are talking low single-digit comps to be able to nicely leverage our SG&A, maintain our healthy margins, and drive that operating profit growth. So we are really pleased that we have managed the expense structure such that we can deliver with that low single-digit profile.
Okay. Got it. And then on these oil prices and, I guess, not moving guidance because of the price of oil — by the way, not moving guidance is the right idea. Obviously, it is just one quarter, but the idea of absorbing the cost of oil is that because of increases from prices from your suppliers, or is it just concern about things that are going to come your way over the course of the rest of the quarters?
Mostly, I am addressing the direct cost to our transportation and to our supply chain. So it will impact us most directly from our inbound, which lags through our P&L a bit because it first goes into inventory and shows up on the P&L as cost of goods sold when we sell it. But the immediate impact of fuel to our transportation is on our outbound, so our DC to our stores and also our parcel business. So that is the piece that is most direct that we are looking at.
I got it. Thank you.
Thank you.
The next question will come from Oliver Wintermantel with Evercore ISI. Please go ahead.
Thanks very much. Joel, what was the biggest contributor to pushing comps from negative to positive this quarter? Is it improved transactions? Is it mix or is it price or AUR? If you could just give us a little more detail on what actually drove the comps positive this quarter.
I would rather talk about it first from the strategy side, and then Sabrina can go into the specifics on the mix. What is really important to remind everybody is — and I called this out last quarter — this is largely a self-help year for Petco. What really drove that, and let's just call Q1 a trifecta: we delivered positive comps, we improved profitability, and we outperformed our outlook. What really drove that is the execution against all four of the pillars, so we saw strength in all of those and it is resonating with the customer. Given we are in the early innings of that, I have line of sight to the future and I'm pretty excited about what is still to come with the rest of our strategy.
From a comp lever perspective, UPT was quite strong. Basket actually improved and the trend in transactions improved, but I would call out that remains a really good opportunity for us.
Got it. And on the gross margin side, a similar question there. Could you maybe give us a little bit more detail what drove the gross margins? Was it mix? Was it merch margin, something like that? And then as you mentioned, the second quarter is a little bit tougher compares, but I think the third quarter as well. So maybe a gross margin outlook for the year, how we should see it. Thank you very much.
Of course. We do not guide to gross margin in particular. I did try to be helpful on the second quarter outlook just to remind that the entire second quarter last year was a bit unusual for the reasons I outlined. With regard to the first quarter, we continue to use every lever at our disposal. So it is back to Phase 2 retail fundamentals: negotiating with our vendors, making sure we are getting good costing, watching our promotions, our clearance, our markdowns. All of those levers across the board culminate in delivering on our margin.
Got it. Thanks very much, and good luck.
Thank you.
The next question will come from Steven Emanuel Zaccone with Citi. Please go ahead.
Great. Good afternoon. Thanks very much for taking my question. Joel, you talked about efforts underway to build the basket size with cross-selling and customer engagement. Curious if you could talk a bit about timing there. Is this something that can build over the next couple of quarters? Is this a multiyear initiative just to get better cross-selling within the store?
We are just getting started on that, Steve, so it clearly has tailwinds in front of us. The biggest reason I called it out is we used to run services in the center of the store as separate organizations. As we have dissected the business and looked for areas of opportunity, the integration between our services and our center-of-store teams is a real opportunity for us. Cross-selling is one example. Prior to this, our grooming associates did not have access to a customer's consumables purchases. Why is that important? A groomer might notice skin or coat issues and could recommend a sensitive-skin food if that is not what they are using today. The fact that they could not see customer purchase history meant they could not be as helpful. Giving them access to that is just one great example of a cross-selling opportunity and a way to be really helpful for our customer and the health of their pet. So real opportunity going forward for us.
Okay. Great. The follow-up I had is just on the industry overall. We are only one quarter into the year, but there has been mixed commentary across the pet landscape. As you think about industry growth forecasts for 2026, how do you think things are playing out versus expectation? You talked about cat outperforming and fresh and frozen doing well, but how do you think the year is shaping out relative to expectations from an industry perspective?
We are not seeing adoption trends growing at this point, with the exception of cat. But I would remind you, this is a self-help year for Petco. We are not beholden to the industry growing to achieve our objectives for this year. We will take the tailwinds if they come, but right now we are really driving our pillars, our reach-for-the-sky strategy, to make a difference.
Okay. Thanks for the detail. Best of luck.
Thank you.
The next question will come from Steven Forbes with Guggenheim Securities. Please go ahead.
Good afternoon, Joel and Sabrina. Joel, appreciate the comments around optimizing the services business, but curious if we can maybe just take a step back and have you expand on what you are exactly doing in the 25 underutilized hospitals today — what you are seeing, what the customer posts sort of those changes. If there is any way to sort of size up how you see or contextualize the opportunity ahead, based on the number of customers today engaging in services relative to the percent of the total pool of customers engaging in the product.
A lot to unpack there, Steve. Earlier in our vet growth we were in a phase where we were just trying to hit the number of openings. The focus and opportunity I saw when I joined was really more on optimization and driving productivity before we start growth again. Having said that, we are in a much different position today — nearly 300 hospitals and 1.4 thousand clinics, meaning we are in all our other stores with vaccination clinics. It is an asset I did not fully appreciate when I joined, and we are really now operating at scale. We have the opportunity to have more flexible schedules, so we have been really good at opening up the schedule so a customer needing a vet appointment does not have to wait two weeks. Teams have done a great job changing that, optimizing doctor days, and being more flexible with schedules. Opening up more days in the week is driving productivity, and with that, we will be better positioned as we start to open new hospitals, which are still on track for 2027. I am really excited about the phase we are in right now for hospitals.
That captures everything, thank you. As we think about the return to vet hospital growth in 2027, most of us have expectations about the prior maturation expectations of the vet hospitals. I would be curious, based on the initiatives underway and what you are seeing, if there has been a directional improvement and if we can think about a better ROI or a shorter payback period or any initial thoughts on the conviction behind returning to that hospital growth?
I'll add that the improvement we have seen in these later cohorts is significant. We learned lessons the hard way when we expanded very quickly in the early 2020s, and we have been honing the model ever since. It is absolutely true that we are improving and shortening that maturity curve in the recent cohorts. I will also add that we have a great opportunity with the existing fleet to keep improving the return on those assets and to keep optimizing the fleet. That continues to be a terrific opportunity in addition to future growth. It is not just that we have these 25 which we are super focused on; we keep improving the entire fleet, and that is an important opportunity.
That's a great callout, Sabrina. All those learnings on optimizing existing hospitals and how to improve productivity of the 25 we are concentrating on are going into shortening the ROI curve and improving the ROI curve when we start to open new hospitals next year.
Thank you.
The final question will come from Simeon Gutman with Morgan Stanley. Please go ahead.
This is Lauren Ng on for Simeon Gutman. Thank you for taking our question. So your outlook looks to contemplate a slightly stronger earnings profile in the second half of the year. Can you touch on how much of the progression is driven by initiatives you have already outlined contributing versus potentially some incremental margin opportunities that have not yet been fully realized? Thank you.
If you think about our Q1 actual at $97 million and the midpoint of our Q2 at $111 million and our midpoint for our full year adjusted EBITDA guide, they sort of break out 49% to 51%, which, honestly, from a historical perspective is very much in line. So what we have guided to is not unusual and I am actually very happy to say that because I always like to pull forward as much as we can the earnings into the first half so you are not looking at a big hockey stick. So with this guide, we have already in some ways derisked because we are looking at, even with all of our initiatives coming in, a very balanced year in terms of first-half, second-half profitability.
Okay. Great. Thank you. You highlighted some stronger performance in the cat category and suggested the demand pickup was largely expected. Could you unpack the underlying drivers there a bit, please?
When I said expected, I meant we saw this trend improving last year, so the merchants jumped on it already last year and really got after it in Q1 with newness. That played well with the strong year-over-year sales growth. We are leaning in further with other categories in cat, as we have not seen this trend go the other way at all. We are really excited about cat, and it is a great example of getting better at being trend-right as merchants: identifying where we can differentiate and where we should drive newness. Cat was a great example.
Great. Thank you.
Thank you. And I think, operator, that concludes our call today. We appreciate everyone participating.
Thank you. This concludes today's conference. You may now disconnect.