Pet Valu Holdings Aktie

Greetings, welcome to Pet Valu Holdings Ltd. Annual General Meeting of Shareholders. [Operator Instructions]

Please note this conference is being recorded. I will now turn the conference over to your host, Chairman of Pet Valu Holdings Limited, Anthony Truesdale. Please go ahead, Mr. Truesdale.

Good afternoon. Welcome to the company's Annual General Meeting of Shareholders for 2026. We are conducting today's meeting as a virtual meeting. Our meeting will consist of a brief agenda of formal items, including the setting of the number of directors for the ensuing year, the election of directors, the appointment of our auditor and the advisory resolution on the company's approach to executive compensation.

Following the formal business of the meeting, there will be a corporate presentation and a more general Q&A session. Catherine Johnston, Secretary of the company, will begin by describing how we will conduct the meeting. Then I will take us through the official business portion of the meeting.

Thank you, Tony. Good afternoon, everyone. As the conference operator advised at the beginning of this meeting, if you have a question or wish to make an objection at any point, click on the messaging tab and type your question and confirm you are a registered holder of common shares of the company or a valid proxy holder.

We will read the questions pertaining to the business of the meeting aloud at the appropriate time. along with the name of the person submitting the question so that all attendees can hear the inquiry. Tony or I will then address the question as we would during an in-person meeting.

Although questions can be submitted throughout the meeting, I encourage you to submit your questions early and 1 at a time. They will be addressed at the appropriate time during the meeting. Only questions on topics relating to today's subject matter will be addressed. As Tony mentioned, there will be a more general Q&A session after the formal business of the meeting is completed. If you have not already voted your shares and you intend to vote at this meeting, please note that the polls are now open, and you can vote on all matters.

To vote, click on the voting tab on the Lumi platform. You'll be taken to an electronic ballot that you can fill out and submit online. Please note, the only attendees entitled to vote and submit questions or objections at this meeting are registered shareholders or duly appointed proxy holders who have logged in using their assigned control numbers or user names.

We remind you that if you are a registered shareholder and you have already voted by proxy, unless you wish to change your vote, you do not need to vote again. Votes may be changed up to the time voting is closed. The poll will remain open until the Chair of the meeting declares voting on all matters closed. We will provide you with preliminary voting results for all resolutions at the end of the meeting. For specific vote tabulations, please see Pet Valu's report of voting results which will be posted to Pet Valu's SEDAR+ profile after the meeting. A simple majority is required to approve matters voted on at this meeting. I will now hand it back to Tony.

Thank you, Catherine. I will act as Chairman of the meeting, and Catherine will act as Secretary of the meeting. Also joining us remotely are directors and members of senior management.

Louise Waltenbury of Computershare Investor Services, the company's transfer registrar and dividend distribution agent will act as scrutineer of the meeting. I will now review the manner in which notice of this meeting was given. Notice of this meeting has been provided to all registered shareholders, to the directors of the company and to the company's auditor and a copy of the affidavit as to such mailing has been provided by Computershare Investor Services, the company's transfer agent, which oversaw the mailing.

Notice of the meeting has been posted on SEDAR+ and is included in our management information circular. Copies of the circular and other meeting materials are available under the company's profile on SEDAR+ on the company's website and on the Lumi platform.

Absent any objection, I will dispense with the reading of the notice of the meeting. In light of the foregoing proper notice of the meeting has been given. I will now address whether quorum is present today for the transaction of business. The company's articles specify that a quorum at the meeting of shareholders is 1 shareholder who is, or who represent by proxy shareholders who, in the aggregate, hold at least 25% of the issued shares entitled to be voted at the meeting.

With respect to the presence of a quorum at today's meeting, the preliminary scrutineer's report indicates that there are 47 shareholders present at this meeting, either attending online or being represented by proxy, holding an aggregate of 62,369,217 common shares. This represents approximately 90.54% of the company's issued and outstanding common shares as of the record date of March 16, 2026, on which 68,886,721 common shares were issued and outstanding. I adopt the scrutineers' report and declare that a quorum is present.

With the appropriate notice of the meeting having been given and a quorum being present, I declare the meeting is duly constituted and ready for the transaction of business. In accordance with the company's articles, no motion at the meeting needs to be seconded. After preliminary voting results are announced and following the conclusion of voting, the Chairman will announce the results of each motion.

At this time, I'd like to advise that Jeff Glassford, the representative of our auditor, has joined us remotely.

The first item of business is to receive the company's audited consolidated financial statements for the year ended January 3, 2026, a copy of the financial statements and auditor's report for the company's financial year ended January 3, 2026 was mailed to those registered and beneficial shareholders of the company who requested them.

Copies of these documents are available for review on the Lumi platform. They are also available for review on the company's website and on SEDAR+. These documents are now placed before the meeting. No vote is required for the reception of these documents. Accordingly, I declare that these documents have been received. As previously noted, there will be a Q&A session after the formal business of the meeting is completed and management will be available to answer any questions.

We will now move on to the second item, which is setting the number of directors for the ensuing year. The circular for this meeting dated March 17, 2026, which is included in the meeting materials accessible on the Lumi platform sets out the details of this motion on Page 12. This vote is to approve an ordinary resolution to set the number of directors elected for the ensuing year at 8. This will be subject to any increases as may be permitted by the articles of the company and the provisions of the British Columbia Business Corporations Act.

I move that the number of directors to be elected for the ensuing year, be set at 8, and that this be passed as an ordinary resolution of the shareholders.

Are there any comments or questions on the motion?

No, there are no comments or questions on the number of directors to be elected for the ensuing year.

As there are no further comments or questions, we will now proceed. We will tabulate your votes as we progress through each matter to be voted on, and we will announce the preliminary results of all votes immediately after we close the polls at the end of our agenda.

The next item to be voted on is the election of directors. The circular for this meeting sets out the details of the 8 individuals nominated for election to the Board. Pursuant to the circular, the following 8 individuals are the nominees for election to the Board for the ensuing year.

Anthony Truesdale, Danielle Barran, Sarah Davis, Carmen Fortino, Laurence Molloy, Greg Ramier, Matt Reindel and Erin Young. Under the company's advanced notice provisions, shareholders' nominations for directors must be made not less than 30 days prior to the date of the Annual General Meeting of Shareholders.

As no further nominations were made in accordance with the advanced notice policy and management has proposed 8 nominees, I declare that the nominations be closed. I move that 8 nominees just announced be elected to the Board for the ensuing year.

Are there any comments or questions on the motion?

No, there are no comments or questions on the nominations.

As there are no further comments or questions, we will now proceed.

The next item to be voted on is the appointment of the company's auditor. The company's current auditor is Ernst & Young LLP. Management proposes to appoint Ernst & Young LLP as the auditor of the company and to authorize the directors to fix the compensation payable to the auditors. I now move that Ernst & Young LLP be appointed as auditor of the company until the next Annual General Meeting. And that the directors of the company be authorized to fix the auditor's compensation.

Are there any comments or questions on this motion?

No, there are no comments or questions.

The final item of business to consider is the nonbinding advisory resolution on the company's approach to executive compensation. This approach is set out starting on Page 28 of the circular along with the full text of the advisory resolution, which is set out on Page 24 of the circular. This vote is advisory only and nonbinding on the company and the Board. However, the Board will consider the outcome of the vote as part of its ongoing review of executive compensation. I move, on an advisory basis and not to diminish the role and responsibilities of the Board of Directors that the shareholders accept the approach to executive compensation disclosed in the circular delivered in advance of this meeting.

Are there any comments or questions on the advisory vote on executive compensation?

No, there are no comments or questions.

As there are no further comments, we will now proceed.

This completes the matters to be voted on at this meeting. The polls will close shortly. So if you have not yet voted on a matter, please do so immediately. While we are waiting for the polls to close, let me advise you that immediately after they close, our scrutineer will provide me with a preliminary tabulation of the results on each matter voted on based on proxies received in advance of the meeting and the votes cast at this meeting.

I will now announce those results presently.

Full ballot results for each item submitted to the shareholder vote at this meeting will be posted on the company's SEDAR+ profile following this meeting. The polls are now closed, and I have received the scrutineer's preliminary report.

The preliminary results are as follows: With respect to the number of directors, a majority of the common shares voting on this motion voted for setting the number of directors for the ensuing year at 8. With respect to the election of directors, each of the nominees has received a sufficient number of for votes to be elected to the Board until the next Annual General Meeting and that for each nominee, the number of withheld votes is less than the number of for votes.

With respect to the appointment of the company's auditor, a majority of the common shares voting on this motion voted for appointing Ernst & Young LLP as the auditor of the company until the next Annual General Meeting, and for authorizing the directors to fix the compensation payable to the auditors.

With respect to the advisory resolution on the company's approach to executive compensation, a majority of the common shares voting on this motion voted for adopting the advisory resolution. I declare that each of the motions submitted to vote of the shareholders at this meeting has been approved.

We have completed the formal business for which this meeting has been called. I now ask that anyone that has any other business they would like to bring before the meeting. If you wish to bring any other motion or objection before this meeting, please click the messaging tab and type your question. I'll pause now to allow any attendees to submit comments.

There are no motions or comments or objections.

There being no other business or objection, I now declare the meeting terminated. I'll now hand the proceedings over to Greg Ramier, Chief Executive Officer of the company.

Thank you, Tony. On behalf of the Board of Directors, our franchise partners, our leadership team and our ACEs across Canada, thank you for joining us today and for your continued support of Pet Valu. It is a privilege to speak to you as we reflect on our performance in 2025 and look ahead to an important milestone year, our 50th anniversary.

Before I begin, I want to note our customary cautionary language regarding forward-looking statements and non-IFRS measures. As we reflect back on 2025, the Canadian pet industry was shaped by continued demand for quality products together with a heightened desire for value fueled by macroeconomic uncertainties. In this environment, we acted decisively to strengthen our market position by leveraging our scale.

We expanded our physical and digital reach. We sharpened our everyday value. We deepened our in-store expertise, and we fostered innovation across our assortment. As a result of these actions, we saw another year of market share gains and delivered solid financial outcomes.

Fiscal 2025, revenue grew 7%, supported by a return to positive same-store sales growth. Adjusted EBITDA margins remained healthy at 22%, and we returned adjusted EPS -- returned to adjusted EPS growth despite absorbing $0.12 of incremental fixed costs associated with our supply chain transformation. We generated $104 million in free cash flow, representing a strong 40% free cash flow conversion ratio, supported by our capital-light model and easing reinvestment needs.

We returned a record $121 million to shareholders through dividends and share repurchases. And just as importantly, we reinforced the long-term resilience of our model by continuing to support success and profitability of our growing franchisee community.

Our performance reflects disciplined execution against our 3 strategic priorities, let me share some of those highlights. First, to be Canada's local and everywhere pet specialty retailer. Together with our franchise partners, we opened 40 new stores in 2025, reaching meaningful milestones across our banners including surpassing 100 locations in each of Bosley's in British Columbia, Pet Valu in Alberta and Chico in Quebec.

Our franchisee community grew to 370 local owner operators who collectively operate 600 local pet specialty stores across Canada, including our core corporate network, we ended the year at 863 stores nationwide, nearly 4x more locations than our nearest pet specialty peer.

Our digital channel remained a powerful complement to our store network, rounding out our industry-leading omnichannel offering. Building on our recent e-commerce platform modernization, we introduced everyday shipment, everyday AutoShip offers, expanding -- expanded third-party delivery partnerships and enhanced our pet profile capabilities to strengthen engagement and personalization.

Sales generated online once again outpaced our company average with particular standouts in our Click & Collect and online delivery platform offerings, which leveraged the core strength of our corporate and franchise stores across Canada.

Moving to our second focus: To deliver the best pet customer experience in Canada. As macroeconomic uncertainty weighed on consumer confidence, we leaned in to provide much needed value to devoted pet lovers through our merchandising and loyalty strategies. Over the course of the year, we made measured enhancements to our value proposition, including lowering everyday prices on key national brands and our most popular proprietary brands.

We expanded the assortment of brands eligible for our frequent buyers loyalty program, helping drive record loyalty sales penetration of 88%, and we executed a sharpened promotional calendar focused on building basket size, supported by effective in-store activation and our new promotional tool.

This value proposition was complemented by our enduring commitment to innovation and quality. With the introduction of new specialty formulations and brands, we also leaned into our made-in-Canada leadership, broadening our assortment of innovative Canadian brands, improving in-store and online merchandising of domestic products and leveraging our ACEs to support informed trust-based conversations with devoted pet lovers.

On the back of our successful Performatrin Culinary launch in 2024, we rolled out an enhanced culinary experience across 130 stores, elevating Pet Valu as a destination for culinary customers who represent some of the highest lifetime value devoted pet lovers.

And finally, our third focus: To fortify strong retail and wholesale fundamentals. In 2025, we completed our nearly 4-year $100 million supply chain transformation with commissioning of our final distribution center in Calgary. With over 1.3 million square feet of modern, partially automated capacity across 3 facilities, we have built what we believe is Canada's strongest pet specialty supply chain.

Benefits from this investment are already materializing including a 60%-and-climbing productivity improvement, increased wholesale penetration with franchisees, particularly within Chico and the beginning of a long runway of distribution cost leverage.

Looking ahead, 2026 marks an incredible moment for Pet Valu, our 50th anniversary. For over half a century, we and our franchisees have been there for devoted pet lovers and their pets, celebrating their important milestones, providing advice to help navigate uncertainty and creating memorable moments along the way. Our sheer desire to help Canadians with the health and happiness of their pets has sat at the core of our success and will continue to, as we chart our next 50 years of growth. And this all starts with our plans for this year.

2026 is taking shape very much the way 2025 left off with heightened levels of value-seeking behavior, perhaps amplified by the pressure rising fuel costs apply across household budgets. With our strong foundation, financial flexibility and unmatched scale in the pet specialty channel, we and our franchisees are well positioned to navigate the current environment, while strengthening our competitive moat, to drive growth over the long term.

Let me provide a few highlights of what is underway and what is to come this year. We will continue to invest in convenience with plans for approximately 40 new store openings across Canada, complemented by ongoing reinvestment in our existing network. Digital engagement will also remain a priority as we introduce more ways to integrate our retail experiences across channels. We will deliver everyday value, led by our high-quality proprietary brands and programs such as Item of the Month, while exciting customers through compelling events and promotions.

We will continue to bring innovation and quality across consumables and hard lines, delivering the breadth and differentiation to what pet lovers expect from Pet Valu. We will further evolve our in-store model through the phased expansion of our enhanced culinary experience into the franchise network and continue investing in our animal care experts to enrich in-aisle expertise.

And finally, as our supply chain shifts fully into optimization mode, we will pursue additional productivity gains across labor, transportation and systems, supporting a long runway of operational leverage.

In closing, thank you for your continued confidence and investment in Pet Valu, as we pursue our mission to be Canada's preferred pet retailer, delivering the products, care, expertise and memorable moments pet lovers want locally in stores and everywhere online. This concludes my prepared remarks, and I'd be happy to respond to any questions.

Team, are there any questions on the Lumi platform?

Seeing as there are no further questions, this concludes our presentation. Thank you for joining us today via webcast and over the telephone and for your continued support of Pet Valu.

Good morning, everyone. Thank you for standing by. Welcome to Pet Valu's First Quarter 2026 Earnings Conference Call. My name is Liz, and I will be coordinating today's call. [Operator Instructions]

I would now like to turn the call over to James Allison, Vice President of Investor Relations and Treasury at Pet Valu. Please go ahead, Mr. Allison.

Good morning, and thank you for joining Pet Valu's call to discuss our first quarter 2026 results, which were released earlier this morning and can be found on our website at investors.petvalu.ca. With me on the call is Greg Ramier, Chief Executive Officer; and Linda Drysdale, Chief Financial Officer.

Before we begin, I would like to remind you that management may make forward-looking statements, which include guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties, which could cause actual results to differ materially from those expressed today. For a broader description of risks related to our business, please see our Q1 2026 MD&A, 2025 Annual Information Form and other filings available on SEDAR+. Today's remarks will also be accompanied by an earnings presentation, which can be viewed through our live webcast and is also available on our website.

Now I'd like to turn the call over to Greg.

Thank you, James, and good morning, everyone. I'll start with a review of the quarter and our operational accomplishments, then pass it over to Linda to discuss our financials and outlook. The Canadian pet industry continued to be shaped by a strong desire for value in Q1, driven by sustained, if not rising inflationary pressure across household budgets. Most notable are retail fuel costs, which rose 40% through the quarter and have contributed to declines in prominent consumer confidence indices and spending expectations measured by the Bank of Canada.

Importantly, Pet Valu is there to meet the needs of devoted pet lovers, leveraging our prior price investments and sharp promotional program, together with complementary strengths in convenience, quality and expertise to drive meaningful market share gains in the quarter. To that end, we were pleased to deliver revenue growth of 3% at the midpoint of our full year guidance, making us one of the fastest pockets of growth within Canadian pet retail. The composition of this growth tells a tale of 2 stories.

We saw higher discount sales penetration as heightened value seeking industry-wide saw devoted pet lovers lean heavier into periods of events and promotions, which weighed on our margin rate in the quarter. However, when taking a closer look, our growth was in the right areas of our business. Our loyalty penetration hit another all-time record of approximately 90% in the quarter. And within that cohort, we successfully converted more casual customers to monthly shoppers, drawn by our compelling value and offering in needs-based consumables.

This is a critical outcome because as Pet Valu becomes the habitual destination where more and more devoted pet lovers do their monthly stock-ups, this stickiness will continue to pay dividends well into the future, especially as consumer confidence improves. Importantly, our scale and capabilities remain central to our clear competitive advantage in today's tighter market. Our strong vendor relationships, together with procurement economics enabled opportunities to deliver value at competitive investment levels while growing volumes with our strategic pet specialty brand partners.

The breadth and the legacy of our proprietary food brands worked in lockstep at each quality tier, providing compelling opportunities for customer trade-up or retention. Additionally, we continue to realize efficiencies and leverage from our world-class pet specialty supply chain, all while maintaining industry-leading on-time in-full service levels to our stores and franchisees. And throughout all of this, we consistently returned capital to our shareholders in the quarter through share buybacks fueled by our strong free cash flow and easing business reinvestment needs.

From an operational perspective, we advanced several initiatives in the quarter aligned with each of our 3 core focuses. On our first focus, to be Canada's local and everywhere pet specialty retailer, network expansion activities started the year off strong. We and our franchisees opened 8 stores in the first quarter, including further expansion into rural markets with exciting openings in the Northern Ontario communities of Wawa and Manitouwadge.

We ended the quarter with 870 stores nationwide and are pacing to open roughly 40 stores this year, many of which will provide us with first-to-market pet specialty access to growing rural communities across the country. At the same time, our digital capabilities continue to provide a tailwind to our growth. While we saw solid growth through our direct-to-consumer channel, performance was strongest in click and collect and online delivery platforms. This underscores the strength of our unmatched omnichannel offering, where our digital and physical presence complement one another to provide industry-leading convenience to devoted pet lovers across Canada.

Basket analysis continues to indicate online delivery platform customers are over-indexing in in-store-only products like our frozen raw or gently cooked offering, reiterating the incrementality of this business to our direct-to-customer platform. We also saw further momentum in our AutoShip subscription service in the quarter with strong growth and low churn since the introduction of our everyday offer last year. We've seen strong participation from our vendors, helping to supply compelling offers and drive incremental sales.

In addition to convenience, we amplified our strengths in value, quality and expertise to deliver the best pet customer experiences. We continue to be pleased with our competitive pricing position following our investments throughout 2025, which has been a critical component to our ongoing success winning the monthly shop over the last year. In the first quarter, we complemented this with new programs, events and promotional activities.

Following years of success with our Treat the Month offering, we launched our Item of the Month program in February, providing exciting value on everyday hardlines essentials to help build the basket. We've been pleased with its reception as performance has increasingly exceeded our expectations, building momentum with each subsequent month.

Also in February, we participated in Tim Hortons iconic Roll Up To Win contest as the first-ever pet price partner, enabling devoted pet lovers to share their winnings with their 4-legged family members. Not only was this a great brand-building collaboration, it also broadened our reach, drawing in new pet parents to our ecosystem. And through the quarter, we delivered a sharpened promotional program, enhancing our relevance within a competitive marketplace.

Just as important are the investments we are making to deliver newness to our assortment through high-quality and innovative products. Just this month, we launched an exclusive listing of Canada Pooch's new interactive toy line, WAGLAB. We also have some exciting new innovation coming from our proprietary brands, including Performatrin Prime Digestive Care, representing our first foray into pet formulated diet consumables and the expansion of our Performatrin Culinary lineup with the introduction of frozen raw for cats.

And finally, we're elevating our in-aisle expertise, highlighted by our enhanced culinary experience, which strengthens our position within the highest growth consumables category. Converted stores are outperforming the rest of the network on culinary-specific and total store sales at expected gaps. Following the completion of over 130 stores in 2025, we will complete roughly 40 conversions in 2026, heavily weighted towards franchise stores starting in late Q2. At the same time, we are continuing our ACE training to reinforce knowledge and share best sales practices learned through the first year of the program.

Turning to our third focus to fortify strong retail and wholesale fundamentals. In our stores, we are continually refining our customer service model to empower our ACEs as they deliver the best advice and product recommendations. With today's dynamic promotional environment, our corporate, field and frontline teams are working closer than ever to develop and execute our commercial strategy at speed, which is showing up in the sustained strength of our units per transaction or UPT.

At the same time, enhancements within our supply chain are progressing as planned with the successful implementation of our labor management system in our flagship Brampton DC in January, setting the stage for subsequent rollouts across our remaining DCs later this year. We are also in the midst of activating inbound transportation management systems across our 3 DCs. These enhancements, together with continual process optimizations unlocked by our new facilities and automation are delivering the expected efficiency and productivity gains, providing a consistent leverage on our DC costs.

As we apply insights from our Q1 performance and what we are seeing today, I want to share with you what has changed in our outlook for the year and just as importantly, what hasn't since we last spoke with you in early March. First, what has changed? As I mentioned earlier, devoted pet lovers, like all Canadians have had to absorb a surge in fuel prices starting in March, elevating value-seeking behavior, which continues today. Additionally, starting in the second quarter, we are gradually seeing the implications of higher fuel prices on our cost structure through transportation, freight and procurement.

As you would expect, we are taking decisive actions to adapt, making responsible decisions on where and how to best direct our investments. We are optimizing our commercial plan with speed to deliver value more efficiently while contemplating these cost pressures. We are also calibrating our operating expenses to capture savings that provide stronger support to our competitive positioning. At the same time, we will benefit from the gradual lapping of last year's price investments and from planned corporate resale activity through the balance of the year.

Now to the elements of our outlook that haven't changed. We continue to see heightened yet rational competitive behavior in our market and we will continue to encourage a stable trading environment. We also retain strong conviction in our ability to continue winning and grow share in this environment, like we did in Q1, leveraging our scale and capabilities to be Canada's pet retailer of choice. We have incorporated all of this into our updated outlook for the year, which we believe is realistic and achievable.

I'll now pass it over to Linda to walk through our financials and updated full year outlook in more detail. Linda?

Thank you, Greg. In the face of sustained value-seeking demand, we leveraged our strong financial position to support our enhanced value proposition in the first quarter, meeting the needs of the devoted pet lovers, supporting our franchisees and expanding market share. While this constrained earnings performance in the quarter, as Greg mentioned, we expect our plans to deliver sequential improvement in our adjusted EBITDA margins through the year, underpinning our updated 2026 outlook. I will expand on this shortly, but first, let me review our financial performance in the first quarter.

System-wide sales were $375 million, up 2.5% from last year as we and our franchisees continue to expand our store network with 41 new locations opened over the last 12 months. Same-store sales were flat with growth in average basket offset by trip consolidation and fewer non-loyalty trips, similar to the trends seen in Q4. While we continue to see the impact of heightened value-seeking behavior and the annualization of last year's investments in everyday value, we are retaining and growing the coveted monthly trips and using those moments to help build baskets.

Performance by category was similar to the fourth quarter with growth in consumables, offset by continued softness in hardlines tied to weak discretionary demand. Q1 revenue was $288 million, increasing 3% year-over-year, similar to system-wide sales growth and at the midpoint of our full year outlook range. Gross profit was $90 million, representing a gross margin of 31.4% compared to 33.1% last year after excluding minor nonrecurring costs related to the supply chain transformation.

The decline in rate was mainly attributable to higher sales in areas where we have made purposeful investments in pricing and promotions, which are helping grow our market share and successfully win more monthly consumable trips. At the same time, we delivered another quarter of distribution cost leverage, supported by efficiency gains, providing a consistent and strategic tailwind that few, if any, of our pet specialty peers can replicate.

Selling, general and administrative expenses in the first quarter were $56 million. Excluding share-based compensation and costs not indicative of business performance, our SG&A expenses were $54 million or 18.7% of revenue, up 50 basis points from Q1 last year. Rate was impacted by higher technology SaaS fees and costs associated with a higher corporate store count, a number of which are early in their sales maturation curve.

Adjusted EBITDA was $56 million, representing an adjusted EBITDA margin of 19.4% Net income was $20 million compared to $22 million last year. Excluding items not indicative of our underlying performance, adjusted net income was $22 million or $0.31 per diluted share compared to $25 million or $0.36 per diluted share last year, driven by factors I just mentioned.

Looking at our balance sheet and cash flow. We remain in a strong financial position with over $180 million in liquidity and leverage of 2.3x, including our net lease obligations, well within our comfort range. Q1 inventories were $143 million, up 7% from Q1 last year, reflecting timing of receipts to support new programs and item launches. We remain comfortable with the quality of our inventory across our DCs and stores and expect levels to be more in line with revenue growth through the balance of the year.

Net capital expenditures in the quarter were $7 million, supporting new stores, renovations and other maintenance activities. We continue to expect net CapEx to total approximately $20 million this year. We generated $13 million in free cash flow in the quarter compared to $15 million last year due to higher tax payments. On a trailing 4-quarter basis, free cash flow conversion remained at 40%, reflecting our disciplined approach to capital deployment, unlocking attractive opportunities to return capital to our shareholders.

We remained active on share buybacks throughout Q1, repurchasing almost 600,000 shares under our NCIB for a total consideration of $15 million. So far into Q2, we have repurchased another $10 million as we continue to see appealing value in our shares, supported by the strength of our fundamentals and confidence in our future growth trajectory.

Now turning to our 2026 outlook. While growth in the Canadian pet industry is largely materializing as expected so far this year, it has been shaped by a heightened level of value-seeking behavior driven by sustained inflationary pressure on household budgets and in particular, the recent surge in fuel prices. As a result, we saw a shift in sales towards periods of promotions and events such as our monthly seniors and military discount days through the latter part of Q1.

With this behavior continuing into Q2 as well as higher fuel prices starting to materialize in our transportation expenses and product costs, we are taking a number of actions to improve our profitability and earnings growth through the remainder of the year while continuing to deliver exceptional quality and value to devoted pet lovers.

First, our merchandising and marketing teams are optimizing our commercial plan to provide efficient value in the current market as we leverage real-time learnings from our pricing and promotions engine and adapt to the evolving cost environment. This, together with the easing headwind of last year's price investment as we lap those actions is expected to help strengthen our gross margins sequentially through the year.

And second, we are actively calibrating down operating expenses to capture savings, which together with planned benefits from greater corporate resale activity through the remainder of the year should see us return to SG&A leverage. Factoring in our Q1 performance, the evolving demand and cost environment and the benefits resulting from the actions I just mentioned, we have updated our full year 2026 outlook as follows.

We continue to expect revenue growth of between 2% and 4% on a 52-week comparable basis, supported by approximately 40 new stores, flat to 2% same-store sales growth and a slight increase in wholesale penetration. Q1 growth was right in the middle of this range with a similar trend seen in the second quarter to date. Adjusted EBITDA margin is now expected to be approximately 21%, factoring in the current state of value-seeking behavior, together with a heightened fuel cost environment as well as the benefits of the actions we are taking to adapt to both of these. With our revenue growth and tight cost control, we expect adjusted net income per diluted share to be similar to 2025 on a 52-week comparable basis.

I want to emphasize, we have a strong line of sight for how we will deliver the improved performance required to meet or exceed these metrics. Knowing what we can control and the actions we are taking, we expect 2/3 of the improvement to be driven by greater SG&A leverage and 1/3 by adjustments to our commercial plan. In parallel, we will continue returning capital to shareholders, funded by a resilient and compelling free cash flow profile. This includes our regular and growing dividends as well as our recently enhanced buyback activity. We and our Board see immense value currently not reflected in our shares, presenting an excellent opportunity to deploy our excess capital, which you can expect to continue throughout the balance of the year.

As I conclude my remarks, I want to reiterate that we are navigating today's transitory environment from a position of strength, unlocked through our unmatched scale, deep customer data and leading talent in the Canadian pet industry. In parallel, we continue to make the right long-term investments while others cannot, building stores, supporting our franchisees' financial success, enhancing our in-store expertise and entrenching Pet Valu as the household name in Canadian pet. With clear goals set for the year, our teams are focused and aligned on how to achieve them.

With that, I'll turn it back to Greg for some closing thoughts.

Thanks, Linda. This is a great business, shaped and fortified by half a century serving Canadian devoted pet lovers and their pets and half a century of successfully navigating multiple demand cycles through proven actions like those we are taking today. The legacy we have established and the foundation we have built over this time are incredibly powerful assets. Equally compelling is the resilience of our franchise community, where we continue to support their growth through competitive wholesale pricing and effective programs, showcasing how tightly tied our joint success is in this environment. Together, these are all advantages that enable us to both win in today's market and strengthen our moat to drive growth well into the future.

It has never been more important to deliver a winning combination of convenience, value, quality and expertise that our customers expect. And with strengths on each of these fronts, I am confident Pet Valu will continue to be the pet retailer of choice for millions of Canada's most discerning and devoted pet lovers.

With that, we'll be happy to take your questions.

[Operator Instructions] Our first question comes from Irene Nattel with RBC Capital Markets.

Thank you for all the commentary. I just want to make sure that we're all understanding. So is it a deeper promotional intensity? Or is it higher promotional penetration that's causing the gross margin pressure?

Irene, thank you for the question. Overall, we continue to see the prevailing demand for both quality and value that you've heard us talk about over the last year. Devoted pet lovers are still seeking out high-quality specialty products to provide better care for their pets. This continues to be most evident in needs-based consumables, where we see resilient growth in premium culinary, scientific and the natural enhanced formulations. At the same time, pet parents are making these decisions with value in mind, finding ways to purchase quality at the best price to ease pressure on their household budgets.

Our original outlook was built on 2 key assumptions. First, that the industry growth would remain constrained due to macro pressures; and second, that competitive intensity would remain at the elevated levels that we saw in Q4. While these base assumptions remain in place today, there are 2 key changes, both tied to the rise in fuel prices since we first set guidance. And they shaped the -- they changed the shape of demand and cost across our industry over the near term.

First, on the demand side, this has resulted in higher -- a higher level of value-seeking behavior from devoted pet lovers, shifting more demand to periods of promotions or events and out of nonpromotional periods. We saw this through the latter part of Q1, and it has continued into the second quarter. And then second, we're starting to -- starting in Q2, higher fuel costs are beginning to show up in our freight and transportation activities as well as our vendor costs, presenting pressure that will take some time to work through the system.

As Linda said in her prepared remarks, we're optimizing our commercial plan to provide value efficiently in today's environment. And this, together with the gradual lapping of last year's price investments should deliver stronger margins sequentially through the year. At the same time, we expect to drive a greater expense leverage as we calibrate our operating costs and rightsize discretionary spend plus benefit from the planned corporate resale activity through the remainder of 2026.

Tying all this together, we arrived at a new profitability trajectory for the year, one that we feel strongly we can deliver because it does fully incorporate these new market dynamics at their current run rates and the controllable actions we are taking to adapt to them.

Linda, what would you add?

Yes. Thanks, Greg. I just wanted to reiterate a few of the key elements of our updated guidance. First, our top line outlook remains unchanged at 2% to 4% revenue growth on a 52-week basis. We've had a good progress on this in the first quarter, supported by our market share gains and it's continued into Q2. Second, our adjusted EBITDA margin expectations of approximately 21% implies easing year-over-year pressure for the balance of the year. This is supported by the controllable actions Greg just mentioned. And given their nature, we expect this to materialize gradually over the course of the year. And then I'll just put all that into context.

Our business has shown a resilient track record of delivering EBITDA margins historically between 21% to 23%, and our 2026 outlook is in that range. And just as importantly, it continues to enable us to generate that strong free cash flow, which we plan to continue returning to shareholders.

That's very helpful. And a quick follow-up question. What happened to private label penetration? Because part of your value offering has always been the pro forma trend lineup. And so what's been happening there?

Irene, we've seen the macro pressure on the consumer show up in 3 ways. higher promotional penetration, as we talked about, a greater loyalty program adoption and usage and demand for our proprietary brands. So all 3 of those saw greater activity as we move through the quarter. And they're all elements that customer was looking for with the current pressure that they're seeing.

Our next question comes from Mark Petrie with CIBC.

Just with regards to the EBITDA margin guidance, can you just -- are there further price investments embedded in that from here? And I just want to sort of clarify and understand a bit better, how do you react to the consumer sort of leaning more into promo? Obviously, I understand the cost control element. But are you pushing harder on promotions in order to sort of capture those sales? Or are you pulling back in order to preserve gross margins?

So Mark, it's Greg. I'll take that one. We are -- I'm very happy. We're very happy with our price position right now and the investments that we've made through 2025. We think those set us up really well in this environment. If I talk about the commercial plan, so for competitive reasons, I'm not going to go into too much detail, but I'll give you some headlines that you should think about. We're changing our promotional depth and breadth and leveraging our loyalty program. And we're making sure that both our promotion and pricing adjustments are based on the current behavior we're seeing and the cost pressure that we're seeing in this environment.

We're going to lean into some of our more successful programs like Item of the Month that we talked about in the prepared remarks because we're seeing momentum. And we remain committed to making sure that we have the best value in Canadian pet specialty, but that we are encouraging stable trading in this environment.

Yes. Understood. Fair enough. Okay. That's helpful. And then just on refranchising I'm just curious if you could update us on your expectations for 2026 and then the visibility that you have to that as you stand today.

Yes. Thanks, Mark. Maybe I'll touch on just the franchise mix before I go into refranchising. So we believe that the low 70% franchise penetration that we've talked about previously remains a sustainable mix over the next several years and it's consistent with how we're planning the business. Naturally, there is a higher mix of corporate stores in our recent new store openings and that's driven by the best site first approach that we've talked about a number of times and the more rural regions we are expanding into.

At the same time, we're pairing this with an active corporate resale program. It can be lumpy at times. And we didn't have any activity in Q1. We've already had a few stores trade hands in Q2, and we expect this to pick up through the year and it will be an accelerator program to keep us in that -- in the low-70s from a mix perspective.

Our next question comes from Martin Landry with Stifel.

I was wondering with the industry slowing down right now, how does that impact the payback period of your new stores? And I was wondering if you can touch a little bit on the health of your franchisees right now.

Thanks, Martin. I'll touch on both. The stores, we built 40 stores, rolled out 40 stores last year and remain on track to do that both this year and next year. Still seeing some really strong returns in them. They're great locations. I'll remind you that we're making 10-year investments, both us and our franchisees as we go into new locations. And it is an area we're leaning into given the returns to make sure that we take up white space and that we can service more devoted pet lovers and it's been an important part of our revenue growth over the last number of quarters, including last quarter.

Franchise health, happy with it. It was flat year-on-year as we talked about in our franchise disclosure document. And in a tighter environment, we are seeing them being just as successful as they have with strong 4-wall EBITDA rates and lots of help from us in making sure that we have the right mix of programs to drive their sales, including our proprietary brands and that they're getting the right level of costing to be successful.

Okay. And in your prepared remarks, Greg, you mentioned that you've been gaining share. Can you tell us what's your assessment of the industry performance in Q1?

I can. So our market share tracking both with our loyalty and customer data doesn't show any meaningful trade out of specialty. What we are seeing is a relatively flat to possibly slight growth in the total market. And the performance within the quarter mapped pretty close to what we would have shared as we exited Q4 last year, where we're consolidating customers and winning within pet specialty and Amazon or pure plays in e-commerce are winning within the mass and online channel.

We think there's some really clear reasons on why. When you look at the retail experience and the preferences of our core customers and the products they seek, it's all very different and unique to what's available through mass. What you've heard us -- what you're seeing and what you've heard us say many times is the higher desire for value within our stores and digital channels is causing customers to change when they buy. In the quarter, we were extremely happy with what we saw in our digital channel. And our online sales continue to outpace. We talked about in the prepared results, real strength in our click and collect and our online delivery platform offerings. And that really brings to light the strength of the omnichannel experience we have when combined with our stores.

Our next question comes from Vishal Shreedhar with National Bank.

Just on the e-commerce, are you able to provide us with more discrete indications of how it's performing by channel, the growth like be it your click and collect or in-store offerings versus third party? And what the profit impact is on the P&L? And is that something that you anticipate to grow at the rate that it's growing at? And I'll just stop there. I'll follow up later.

Thanks, Vishal. The short answer to the question is that we do expect it to continue at the same rate. We've been very happy with customer pickup and very happy with the total demand that we've seen through the digital channels. The areas that are growing the most within that are the click and collect and online delivery platforms, which for us at this point are Uber, Instacart and DoorDash. Those are avenues where somebody is taking advantage of the store and the bricks-and-mortar network and our expertise. Those sales are the exact same profitability profile that we would see for a regular bricks-and-mortar purchase. So we remain very happy with it. I expect the pace to continue and it really doesn't have any real swing on the profitability of the business.

Okay. So just to clarify, so when you get a third-party aggregator delivery, when you're talking about there's no impact to the profitability of the business, you're talking about related to Pet Valu corporate. But the franchisee, there would be a little bit less profitability as you share some with the aggregators. Is that correct or...

No. The profitability profile for both Pet Valu, the franchisor and our franchisees is the exact same as an in-store purchase.

Okay. And just to help us understand what happens to pet adoption trends during periods of heightened consumer stress? Do you see that tail off in your experience at Pet Valu?

So we haven't seen any real indication that there's a change in adoptions or in surrenders. We have seen that over time that pet ownership will track with household formation growth. And that's been pretty consistent over multiple demand cycles through the years. Not really clear data around the percentage of pet ownership and changes. What we would say is we've always in Canada had a little higher percentage of cat ownership than what some of our peers in the U.S. would have and that we're well positioned regardless of ownership type within that. But to answer your question, no clear indication that we're seeing a shift in ownership type.

Our next question is from Chris Li with Desjardins.

Within your basket growth of 0.6% in the quarter, can you share with us how much of that was deflation or inflation versus unit volume?

Absolutely. Thanks, Chris. So I'll touch on transactions first, so same-store transactions. And like every retailer, we have a spectrum of visitors from our most loyal customers who shop with us monthly to casual customers who visit occasionally to those who are not on our loyalty program and perhaps just stopping in to find a deal. When we dig into our traffic in the quarter, we saw a greater proportion of our most loyal customers, our most loyal monthly customers in our transaction growth and fewer from our non-loyalty visitors.

Within our loyalty members, we are also seeing a bit of consolidation as customers trim their discretionary trips due to higher fuel costs. But we were very happy in the quarter with our ability to grow monthly customers and to take advantage of a customer coming in the door to top up their trip with the programs that we've talked about and the extra programs that we added like item of the month.

On the basket growth, Chris, the factors are largely similar to Q4. Units per transaction remained strong, which is -- that's really intentional from us based on our commercial plan and strong in-store execution from our ACEs. At the same time, I'll remind you and everybody on the call that we're still cycling the everyday value actions, combined with some promo seeking behavior from our customers, we are seeing continued deflationary headwind in the quarter.

Got it. Okay. No, that's helpful. And then my other question is just on the adjusted EBITDA margin guidance for the year. And I don't mean to be too precise, but is your 21% roughly EBITDA margin guide anchored towards the midpoint of your revenue and same-store guidance, i.e., is there a risk to margin if you were to say only achieve the low end of your revenue guidance or other factors that still allow you to achieve that margin irrespective of the range on the top line?

No, I wouldn't say that, Chris. From a -- I think what I would say is that we have a good conviction in our guidance. And when I focus on how -- what that shape of that guide is, it's really taking -- looking at the current pressure in fuel prices and the value-seeking demand that Greg has been speaking about and looking at the actions that we can take to control to manage those things. And they are very much within our control.

So 2/3 of that improvement needed to reach or exceed our guidance relates to the operating expense leverage and that's tied to very tangible elements like our corporate store resales that are well underway. And then the other 1/3 relates to our commercial plan, where we have good visibility into the pockets of opportunity to drive that margin without impacting our value proposition. So lastly, I'd just add that should we see fuel prices ease and that value-seeking demand revert back to where we started the year -- at the beginning of the year, that would present upside.

Our next question comes from Michael Glen with Raymond James.

Just on the inflation you're seeing right now in your input costs on consumables specifically, we're seeing obviously a lot of headlines regarding cost inflation on various inputs. Are you -- I'm trying to understand exactly, are you not seeing this from your supply base in terms of consumable price inflation?

Thanks, Michael. It's Greg. I'll take that one. We are seeing cost pressure in the environment, both on product costs and fuel costs. And we do expect that to remain elevated in the near term. Our team remains focused on leveraging our scale and managing what is what we expect to be a pretty dynamic situation and that would track back to the merchandising or commercial plan optimization work that Linda spoke to in her prepared remarks.

Okay. And then just on loyalty, has there been any discussion or motivation or any reason to think you would benefit from the introduction of a mobile app?

So Michael, we were very happy with how customers leaned into our loyalty program last year. You'll remember that we added a number of brands on to it as part of 2025. So I think the extra value with the frequent buyers program that our devoted pet lovers see has helped us this year and we've seen customers add or lean into it harder. You should expect us over the near to medium term to continue to work on channels, just like the one that you're talking about to have more access to the 3 million devoted pet lovers in our loyalty system.

[Operator Instructions] Our next question comes from Cheryl Zhang with TD Cowen.

This is Cheryl on for Michael. So first, I just wanted to follow up on the higher promotional penetration. Is that coming from more items being on promotion, consumer switching between brands and product tiers or something else?

Thanks, Cheryl, and welcome to the call. On promotions, really, the quarter finished as we would have expected it with promotional activity across the industry remained elevated, but similar to Q1 -- or sorry, similar to Q4 in Q1. And we continue to see heightened activity from a few select specialty peers chasing growth. The activity didn't meaningfully intensify, but we did see pet parents lean heavier into those moments. We had a strong program, which together with our convenience of our stores and the expertise and execution of our ACEs was key to ensure that we gain share in a tighter market. But at the end of the day, we saw elevated but not increasing promotional intensity in the quarter.

Okay. Got it. And then just wanted to touch on the performance between categories. How did the consumables, hardlines and culinary, the different categories trend in Q1?

So Cheryl, I'll touch on culinary first. So we continue to be very pleased with the culinary category. It is at the top tier of our product offering and it remains our fastest-growing category. That is helped by the work that we did last year with rolling out the 130 stores in the destination culinary and us increasing our capacity and expertise in that category like we did last year and like we'll do in the extra 40 stores this year is an important element for us. The rest of the portfolio, we saw pretty consistent trends to what we saw in Q4 with needs-based consumables up. The higher ends of our needs-based consumables were our growth areas and discretionary items like hardlines remained under a bit of pressure.

Our next question comes from Adrienne Yih with Barclays.

This is Mike Vu on for Adrienne Yih. I know that marketing and advertising spend was higher during the quarter as well as discounting. But what other strategies you have in place? Or what are you really going to lean into to drive customer traffic in stores and online? I know you have one of the best value offerings through your proprietary brands, but how are you going to drive new customers and sales offerings for the remainder of 2026?

Thanks, Michael. I will come back to -- we were quite happy with our monthly customer growth through our loyalty program in Q1. We -- the softness we saw was in non-loyals who are casual customers for us. So we're very happy with winning with our core most profitable, highest spend customer base. To help us over the next year, you've seen us pivot our marketing efforts more into mass media. That happened through Q1 and will continue across the country, both radio and digital.

And we are continuing to leverage our investments in our everyday price through last year, including our proprietary brands and making sure that we take advantage of the traffic that we see that comes into the store because we are continuing to expect a bit of trip consolidation from our customers. So it's very important that we leverage programs like we talked about with Item of the Month to be able to add a discretionary item into the basket.

And I will add one more thing because I'd be remiss if I didn't. Our growth of stores really helps with this. So at 3% revenue growth, we were happy with that number in the quarter and that's a direct outcome of us continuing to invest in high-quality stores this year and next.

Great. Yes. And that was actually part of the follow-up I had is I was going to ask, are you seeing any signs of traffic improvement quarter-to-date? And is it -- or is the growth really going to rely on the ticket size of the new stores?

So the growth in new stores, you should view that as consistent and very helpful to us. As far as trends in Q2 so far remains competitive, very much in line with our expectations. We see the same consumer dynamics and the same competitive dynamics that we would have seen in Q1, especially post the change in fuel prices. And we continue to compete effectively leveraging our commercial tools and our scale. As we've talked about through this call, we're making -- we have made and will make changes to our commercial strategy to adjust to both the consumer behavior and the cost pressure. And we've seen relatively similar same-store sales growth in Q2 so far that we would have seen in Q1.

That concludes today's question-and-answer session. I'd like to turn the call over to Greg Ramier for closing remarks.

Thank you all for your questions, and we look forward to talking to you as we finish up Q2. Have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good morning, everyone, and thank you for standing by. Welcome to Pet Valu's Fourth Quarter 2025 Earnings Conference Call. My name is Harry, and I'll be coordinating today's call. [Operator Instructions]

I would now like to turn the call over to James Allison, Investor Relations at Pet Valu. Please go ahead, Mr. Allison.

Good morning, and thank you for joining Pet Valu's call to discuss our fourth quarter 2025 results, which were released earlier this morning and can be found on our website at investors.petvalu.com.

With me on the call is Greg Ramier, Chief Executive Officer; and Linda Drysdale, Chief Financial Officer.

Before we begin, I would like to remind you that management may make forward-looking statements, which includes guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties, which could cause actual results to differ materially from those expressed today. For a broader description of risks related to the business, please see our Q4 2025 MD&A, 2025 annual information form and other filings available on SEDAR+.

Today's remarks will also be accompanied by an earnings presentation, which can be viewed through our live webcast and is also available on our website.

Now I would like to turn the call over to Greg.

Thank you, James, and good morning, everyone. I'll start by reviewing some of our key highlights from Q4 and 2025 before handing it over to Linda to discuss our financials and outlook for 2026. 2025 marked another dynamic year in Canadian Pet as macroeconomic uncertainties drove an environment, where devoted pet lovers required higher quality and lean more heavily into value. I'm proud of the decisive actions we took to meet this immediate need, providing the highest quality products and everyday value, especially through our proprietary brands. We also continue to invest in our future by strengthening our omnichannel offering through new stores and online delivery platform options, differentiating on quality with exciting new product introductions, enhancing our expertise with investments in culinary, all the while supporting the success and profitability of our franchisees.

This comprehensive strategy is helping us grow share by staying focused on winning the monthly shop while we reinvest in our assets so that we and our franchisees can continue to capture profitable growth over the long term. Together with diligent cost control, we were able to adapt well to 2025 dynamics and deliver full year revenue and adjusted EBITDA within our original guidance ranges, while generating compelling free cash flow to fund record returns to shareholders of over $120 million in buybacks and dividends.

Looking specifically at the fourth quarter, we saw heightened levels of consumer value-seeking behavior and specific competitor responses chasing value-driven sales. This, alongside with our everyday value and promotional plan weighed on our same-store sales growth. While the end result didn't achieve the bar we had set for ourselves, what this figure doesn't show are the encouraging underlying factors that tell us we've got the right strategy to win in this environment.

First, we once again grew share with more devoted pet lovers choosing Pet Valu, especially for their monthly shops. Second, we saw momentum in our units per transaction or UPT reaching a multiyear high, a direct result of our focus on compelling targeted promotions and in-store execution. Third, our consumable sales were once again led by our proprietary brands, driving deeper customer loyalty. And fourth, our supply chain investments continue to yield savings, which together with good cost control, helped partially offset margin pressures and safeguard profitability. These trends show we are responsibly balancing near-term investments to maintain monthly food shops with our most loyal customers while leveraging promotions to add to the basket to drive UPT and get volume leverage through our world-class supply chain.

We are strengthening the foundation from which our momentum will build as confidence and spending conviction improve within Canadian Pet over time. Let me share a few of our operational highlights from the quarter and year, which help support our continued resilience in making Pet Valu one of the strongest pockets of growth within Canadian Pet.

Further increasing our competitive advantage as Canada's local and everywhere pet specialty retailer, we and our franchisees opened 14 new stores in the quarter, hitting our target of 40 stores in 2025. With 863 sites coast-to-coast, we have almost 4x as many locations as our nearest pet specialty peer, bringing us closer to our customers every day. We resold 8 corporate stores to franchisees in the quarter, showcasing ongoing strong interest in capacity from new and existing franchisees who form a core element of our continuing success.

With over 2,200 inquiries last year, our teams are cultivating a robust pipeline of qualified applicants to whom we can sell stores to in the future. And in 2026, we will keep building on this strength by opening approximately 40 new stores across Canada, leveraging our strong balance sheet and deep real estate industry connections to find profitable new growth opportunities while other pet retailers may be retrenching.

Momentum in our digital channel continued as we elevate and leverage our capabilities. In the wake of the success we saw in our limited time AutoShip offers for the fall, we thrilled customers with 20% off Click & Collect orders in December, driving a strong response and new customer acquisition. This offer really leaned into our strengths, providing us with a competitive edge online while driving traffic into our already convenience stores. We also successfully onboarded DoorDash and Uber Eats mid-quarter, expanding the reach of our ecosystem.

Our third-party market share tracking shows that our online growth continues to outpace the channel, highlighting how our omnichannel model is meeting customers where and when they choose to buy in-store or online. We also advanced our focus to provide the best pet customer experience in Canada. With value at the forefront of consumers' minds, we delivered, leading with our proprietary brands. Following actions taken in the spring in our Performatrin Prime portfolio, we made targeted investments in Q4 across select SKUs in our Performatrin Ultra and Naturals brands to create compelling entry points for customers looking for high-quality alternatives at lower prices.

By strengthening our proprietary brand portfolio, we are creating deeper customer loyalty, furthering our advantages in winning the monthly shop. Altogether, we are pleased with the performance in our proprietary brands, which increased roughly 200 basis points in unit penetration in 2025 with more progress to come in 2026. On the promotional front, we executed an exciting agenda with weekly deals, a stronger year-end Seniors' Day offer and the 20% off Click & Collect event mentioned earlier, all of which were supported by our 360-degree activation that helped keep us top of mind during the promotional holiday season.

Loyalty sales penetration reached another all-time high of 88% in 2025 as our over 3 million active members responded to our expanded portfolio of brands eligible for our popular frequent buyer program. The data collected through our program provides a fantastic opportunity to deliver more personalized and meaningful value, and we're leaning into this more everyday testing breed-specific and cross-sell opportunities.

And finally, we completed our initial rollout of our enhanced culinary experience in the quarter, bringing us to 120 corporate stores, along with an initial group of 13 franchise stores in 2025. Culinary continues to be one of our fastest-growing segments, and these stores are outperforming the company average in both culinary-specific and total sales. We are now beginning this rollout with our franchise network with roughly 40 projects planned in 2026.

Turning to how we fortify strong wholesale and retail fundamentals. With the completion of our distribution network transformation, our supply chain teams have now fully shifted from implementation to optimization mode, focused on extracting further benefits from our investments. We continue to grow our wholesale penetration across our franchise network, in particular with our Chico franchisees, which helped sustain revenue growth ahead of system-wide sales again in the quarter. We believe there is still plenty of opportunity here and expect the gap between revenue and system-wide sales growth seen in the latter half of 2025 to be more indicative of what's to come over the medium term.

For me, a particular bright spot in the quarter was the leverage we achieved in distribution costs, fueled by productivity and efficiency improvements. These are the benefits we envisioned at the outset of our supply chain transformation and are proving especially powerful in today's environment, enabling us to compete profitably against peers without this tailwind. We have increased our throughput by more than 60% from our pre-transformation baseline on a per labor hour basis, helping drive down variable costs while adapting to changes in an uneven demand environment. Our supply chain team is now turning their attention to opportunities in labor and transportation management processes to be implemented over the coming quarters and years, supporting a long tail of further productivity opportunities ahead.

And finally, late in the quarter, we commenced initial steps towards the implementation of our new finance system, which will support our growing and evolving business alongside other systems investments we've made over the last several years. Linda will touch on this shortly. As we begin a new year, 2026 marks an incredible milestone for us, our 50th anniversary. That's half a century serving devoted pet lovers, half a century building Canada's leading omnichannel offering in Canadian pet and half a century of memorable moments.

While we celebrate our accomplishments from the last 50 years, we look forward with tremendous excitement and anticipation for what the next 50 have in store for us, and that all starts with our plans for this year. To recap some of the highlights that I have provided above, we will continue to invest in our convenience through approximately 40 new stores and empower our online capabilities to meet or exceed customer expectations through our ever-improving omnichannel tools. We will continue to deliver everyday value through our high-quality proprietary brand products and new programs like our item of the month, while thrilling customers with exciting events like our participation in Tim Hortons iconic Roll Up to Win contest.

We will continue to bring greater quality through innovation in both consumables and hardlines, delivering the breadth of products our devoted pet lovers expect to see. We will continue to evolve our in-store model with a phased rollout of our enhanced culinary experience within our franchise network and enrich our expertise through continued investment in our animal care experts. And we will continue to drive increasing productivity and benefits from our supply chain investments as our teams move fully from build to optimize, not only in our distribution centers, but also through further labor and transportation management investments. This will all support what we expect to be an exciting year, contributing towards solid revenue and profit growth.

Before I pass the call to Linda, I'd like to note the restructuring charges we took at the end of 2025. Just as our environment has evolved over the last several years, so have the capabilities, plans and needs of our business as we chart our next chapter of growth. Together with Linda and our executive team, we carefully reflected on this and believe these actions will reposition resources and talent to both win in today's competitive marketplace and drive profitable growth over the long term. We're grateful for the work contributed by those that departed, and we are equally excited by the team and capabilities we're putting in place as we move forward.

And with that, I'll pass it over to Linda to review our financials and 2026 outlook. Linda?

Thank you, Greg. 2025 once again saw evolving macroeconomic factors keep consumer confidence and discretionary demand suppressed in the Canadian pet industry. Despite these market constraints, the flexibility of our business model, together with the actions Greg discussed, helped deliver resilient financial results, all while advancing strategic initiatives that build shareholder value over the long term. For the full year, we grew revenue over 5% on a 52-week comparable basis, maintained healthy adjusted EBITDA margins of 22% and returned a record $121 million in capital to shareholders through share buybacks and dividends.

Turning to the fourth quarter. System-wide sales grew 9% to $424 million. Excluding the extra week this year, system-wide sales grew 2%, fueled by our network expansion as we opened 40 new stores over the last 12 months, bringing us to 863 sites to post by year-end. On a same-store basis, sales increased by 0.3%, driven by growth in average basket and in particular, UPT, which is a direct result from the impact of our targeted promotions and strong execution of our in-store ACEs.

While we continue to drive growth in needs-based consumables, the pace eased on a dollar basis in the quarter in response to intentional actions taken throughout 2025 to provide everyday value to devoted pet lovers and drive unit growth as well as higher promotion intensity than last year. Performance in hardlines remained relatively consistent with recent trends. Q4 revenue grew 11% to $326 million. Excluding the extra week this year, revenue increased 3%, once again slightly outpacing system-wide sales, fueled by continued growth in wholesale penetration. As we had indicated last call, the gap between revenue and system-wide sales growth was similar to that seen in Q3, and we believe this to be indicative of what to expect in the coming quarters. Gross profit margin, excluding nonrecurring costs related to the supply chain transformation, declined 90 basis points versus Q4 last year.

We drove leverage in our distribution costs as a result of our recently completed supply chain transformation, but this was more than offset by actions we took to provide value to both devoted pet lovers and our franchisees. While this created noise in the quarter, we are confident they are the right actions to help position Pet Valu for long-term growth. One of the many ways we are supporting these investments is through responsible and controlled management of our SG&A expenses. Excluding share-based compensation and costs not indicative of business performance, our SG&A expenses were $54 million or 16.5% of revenue, similar to last year.

Leverage in our recurring people costs and lower professional fees helped offset expected inflation in technology SaaS fees. Q4 adjusted EBITDA was $75 million, representing 23% of revenue, a sequential improvement from the third quarter and roughly similar to Q4 last year. Net income was $29 million, similar to last year. Excluding share-based compensation and items not indicative of business performance, adjusted net income was $34 million or $0.49 per diluted share compared to $32 million or $0.45 per diluted share last year.

Now turning to our balance sheet and cash flow. We ended the year with $186 million of available liquidity, consisting of $36 million in cash and $150 million under our revolver. Factoring in our growth together with debt repaid in the quarter, our leverage now sits at 2.2x, down from 2.4x at the end of Q3. Fourth quarter net capital expenditures were $8 million as we rounded out our planned culinary renovations, reached our new store target and completed other maintenance projects.

For the year, net CapEx was $39 million, slightly below guidance due to strong proceeds from corporate resales in the fourth quarter. This year marked a strong step towards more normalized net capital intensity now that we have completed our supply chain transformation. As I'll discuss shortly, we plan to make further progress in 2026, driven by prudent capital allocation decisions to generate shareholder returns. And finally, we generated $37 million in free cash flow in the fourth quarter, bringing us to over $104 million in 2025. We are pleased to once again deliver free cash flow conversion on a trailing 4-quarter basis of 40%, consistent with our framework. We returned $18 million to shareholders through share buybacks and dividends in the quarter.

In 2025, we returned a record $121 million to shareholders, almost twice what we returned in 2024, which is a testament to our commitment to delivering value back into the hands of our shareholders.

Now to our outlook for 2026. As we shared back in the fall, industry growth in Canadian pet is likely to remain constrained in the near term without a meaningful improvement to the macroeconomic backdrop. This is how conditions unfolded through Q4 and so far into early 2026 and remains our base case assumption for the year, an approach we believe is pragmatic. That said, the results we delivered in 2025 showed how our unmatched retail and wholesale assets, together with our deep customer data and investments in everyday value position Pet Valu as the best investable pocket of growth in Canadian pet. Within this context, our 2026 outlook is anchored in our continued leverage of these strengths today, while reinforcing our points of difference to create further opportunity over the long term.

Please note that we will return to a 52-week fiscal calendar in 2026 compared to 53 weeks in fiscal 2025. On a 52-week comparable basis, we expect to deliver the following in fiscal 2026. Revenue growth of between 2% and 4%, supported by approximately 40 new store openings, flat to 2% same-store sales growth and slight increased wholesale penetration. Flat to slight expansion of our adjusted EBITDA margin, supported by leverage in SG&A and supply chain costs while maintaining our competitiveness and compelling value offering, and adjusted net income per diluted share growth in the mid- to high single digits as we move past the prior headwinds from the step-up in fixed DC costs.

And finally, with respect to our capital allocation priorities for 2026, we expect to reinvest approximately $35 million into our business, consisting of approximately $20 million in net capital expenditures related to growth and maintenance capital in our physical assets and approximately $15 million in transformation costs expensed through our income statement. These transformation costs mainly relate to implementation of our new finance system, which we expect to complete in 2027. In aggregate, the $35 million we have earmarked for reinvestment in capital and transformation in 2026 represents a significant reduction from the heightened levels over the last 4 years as we move past the supply chain transformation. In turn, we expect this to help drive continued strong free cash flow conversion at or above 40%.

We plan to once again return the bulk of our free cash flow to shareholders through a combination of dividends and share buybacks. We are pleased to announce our Board approved an 8% increase to our quarterly dividend to $0.13 per share, marking 5 consecutive years of dividend growth. At the same time, we've already taken action on buybacks under our recently renewed NCIB and plan to continue to do so throughout the year in a balanced way.

Before handing the call back to Greg, I want to reiterate our conviction in the long-term resilience and growth potential of the Canadian pet industry. With half a century serving devoted pet lovers, we've learned how to adapt and succeed in slower growth periods like today while knowing these periods are finite as our industry has shown us time and again. Through prudent fiscal management and continued strategic investment, we've never been better positioned for when that time comes.

With that, I'll turn it back to Greg for some closing remarks.

Thanks, Linda. As we celebrate our 50th anniversary serving as a trusted partner and resource to millions of Canadian devoted pet lovers, I reflect back on what has made and continues to make Pet Valu so successful, our people. From our frontline ACEs and franchisees to our supply chain and field staff to our leaders in our corporate offices, each of us share a common desire, to help Canadians with the health and happiness of their pets. This forms the foundation for every decision and every investment we make. As we embark on the next 50 years building our growing legacy, we plan to remain true to that purpose. Thank you to all our people for all that you do. And with that, we'll be happy to take your questions.

[Operator Instructions] Your first question today will be from the line of Irene Nattel with RBC Capital.

I was wondering if we could just drill down into what's going on at the industry level. You say your share is up and yet you can all see that sort of the underlying performance is sort of -- we've got the headwinds in there. So what's happening to tonnage? What's happening in terms of channels? Are you losing share to other channels? And what's been the magnitude of price investment to date? And do you think you're where you need to be?

Irene, it's Greg. I'll take that one. And let me start with a few consistent elements that we saw throughout 2025. Devoted pet lovers continue to seek both quality and value in purchasing for their pets in the quarter. We once again saw solid growth in our most premium food tiers, culinary and premium dry kibble. And this underscored the enduring appeal of specialty brands and formulations only found in the pet specialty channel. At the same time, we saw the pursuit for value continued with customers leaning into our events and promotions, leveraging our frequent buyer program and showing increased interest in our proprietary brands. That said, I'd point out a couple of nuances in the quarter, Irene.

First, we did see the level of value-seeking behavior intensify. Consumers took more of their dollars and shifted them into periods of events and promotions. And I will say we had a very strong commercial program in the quarter, including the highlights I called out in my prepared remarks around the year-end Seniors Day and the 20% off Click & Collect offer. But this was also amplified by a general uptick in promotional intensity across the industry, particularly from some of our pet specialty peers.

And second, throughout 2025, you saw us sharpen our everyday value positioning in consumables, particularly with our proprietary brands. Devoted pet lovers are taking note. It's been central to our share gains, but it also applied increased pressure on our same-store sales growth on a year-over-year basis. And this all said, I want to reiterate some of the encouraging underlying trends we're seeing in the business that set us up well for 2026 and beyond. First, we continue to gain share, primarily from pet specialty peers as we win the monthly shop through a compelling consumables offering and value. Second, our customers are adding more items to their basket, a direct result of our commercial strategy and in-store execution. And third, we're seeing our proprietary brands lead our growth in consumables, which drives better stickiness as these products are only available through us.

And Greg, just as a follow-up, do you think -- with the investments that you made in pricing in 2025, do you think you're where you need to be? Or should we be expecting more investments in pricing in 2026?

Irene, we're very happy with where we are from a value and pricing perspective, led with our brands, but also just value and pricing on key national brands. And you'll remember that started with our Performatrin Prime investments at the end of March and then a number of other investments, especially in key national brands through the summer. So very happy with how we show up to the customer and that we're able to meet them where they want us to be right now.

The next question will be from the line of Martin Landry with Stifel.

I would like to dig a little bit more into the assumptions underlying your guidance for same-store sales for '26 of flat to 2% growth. I mean, that is lower than most of the inflation forecast that people have for '26. So further to Irene's question, is the category expected to be deflationary this year? Are you expected to reinvest in pricing? What's the breakdown between traffic and basket for that flat to 2% same-store sales growth?

Martin, it's Greg. I'll -- let me provide a few high-level comments on 2026, and then I'll pass it over to Linda to go a bit deeper around some of the underlying elements. So when we think of the construct of the market heading into 2026, we're essentially expecting a similar environment to what we expected in 2025, which has proven to be the case year-to-date. Quality and value remain top of mind for devoted pet lovers. And given the persistent inflation in other areas of the household budget and ongoing uncertainty around economic growth and trade negotiations, we're expecting industry growth to remain tepid and the marketplace to remain competitive.

In this context, we're entering the year with a strong understanding of what it takes to win in this environment and a solid track record from 2025 to back that up. We've got a strong set of plans and initiatives to support our continued growth. both in transactions and basket while delivering the benefits from our prior investments to deliver solid earnings.

Maybe with that, I'll turn it over to Linda to talk about some of the deeper look at the assumptions.

Yes. I would just add that when you look at our top line same-store sales and revenue growth guidance, really similar to what we delivered in 2025 on a 52-week comparable basis, built on the expectations that Greg just described. And depending on several factors, including the level of growth, we expect flat to slight expansion in adjusted EBITDA margin, supported by SG&A leverage and supply chain savings. Once you consider the leverage on depreciation and interest expense, now that we've moved past the step-up in fixed DC costs, all that points to solid earnings growth. And I'll just have to finish by saying that with a normalized reinvestment level, we expect our free cash flow conversion to once again meet or exceed 40%, the bulk of which we intend to return to shareholders through buybacks and dividends.

Okay. And then just a follow-up maybe on the EPS growth of mid- to high single digits. Linda, what does that assume in terms of share buybacks?

What I would say there is just we intend to, as I said in my prepared remarks, would return a significant portion of our free cash flow to shareholders through share buybacks as well as dividends.

The next question today will be from the line of Michael Van Aelst with TD Cowen.

I just want to go back to your Q3 conference call when at the time you were expecting same-store sales growth to be similar in Q4 than it was in Q3 and Q3 was 2.3%. So let's call it, maybe 2% that you were maybe 1/3 of the way through the quarter at that time, maybe a bit more. So can you talk about the cadence of the same-store sales growth as you went through the quarter? So how it progressed and what changed to make you fall short of that expectation over the final 11 -- or sorry, 8 weeks?

Thanks, Michael. It's Greg. In the quarter, we saw a few things. The -- if you think of Q4, there are a number of weeks and it builds through the end where both discretionary purchases and the -- and where consumers will be looking for value intensify. We saw both consumers being more value focused, both in picking promotions and then deciding to spend on discretionary through the latter half of the quarter. We also saw competition, especially in pet specialty, increase their efforts around promotions in the back half of the quarter. That was really how the quarter flowed.

So were you running at 2% to start the quarter and then it fell off or you're expecting a stronger finish to the year?

I'm not going to give you that -- the first part of that from a results perspective, Michael. But we did slow at the end of the year to land at 0.3% same-store sales growth. Still very happy with the units per transaction that we saw, which showed that the traffic that came through the door, we were very good at being able to build a basket around and we are happy with our market share growth through the quarter. It was a relatively tepid quarter for the whole industry.

Okay. Because I mean, if you were anywhere close to 2% in the first 5 weeks, then you would have been probably slightly negative to finish. So I'm not quite -- I'm just trying to figure out whether that -- whether you're starting off the year below like with negative same-store sales trends and having to work back into the 0% to 2%.

Michael, the way to think about Q1 so far is we're seeing a very similar environment with very similar results to what we saw in Q4.

The next question today will be from the line of Mark Petrie with CIBC.

I wanted to ask about the CapEx. And can you give us a gross number and then the implied refranchising activity that you have built into your guidance?

Sorry, Michael, I just -- Mark, sorry, I just want to understand the question in terms of the CapEx.

Yes.

Well, $20 million of net CapEx was what's in the guidance. And we -- as I shared in my prepared remarks, I just want to highlight that we are looking at that, and we think it's appropriate to look at that, including transformation costs as well as net CapEx together. So we expect to invest approximately $35 million into the business, consisting of $15 million in transformation costs, $20 million in CapEx. And so that $35 million is down significantly from the last several years following, as you know, the completion of our supply chain transformation.

And so I just want to call it longer term, while there are some shifts between CapEx and transformation costs year-to-year, we believe the aggregate level of reinvestment this year is a good starting point for how to think about that over the next few years. And I'm going to pass it over to Greg to talk a bit more about the stores.

Thanks, Mark. Thanks, Linda. So Mark, from stores and a refranchising perspective, we had a very active resale program in Q4, and we had a relatively similar year-on-year resale program in 2025. You should expect something similar in 2026. For us, it's important to keep our franchise network in and around that 70% range. So you should see both a level of new store openings at 40 and that level of franchise penetration with an active resale helping support it through the year.

Okay. So the franchise -- I guess that was my follow-up. So the right way to think about corporate store or franchise penetration is the percentage, not the absolute number of stores. And we should expect new openings to continue to skew to corporate with some refranchising activity. Is that fair?

That's correct. Let me reiterate something as part of that question, though, please. So as you know, with our new stores, we have a best site first strategy, and we have the flexibility to lean into either corporate or franchise networks based on the location and making sure that we get the right real estate. What we've done in the last year and what I'd expect this year is we lean a little more heavily into corporate stores because of where we're looking to open. There still will be a mix between corporate and franchise in our openings. And we'll have a strong resale program like you saw in Q4 in order to make sure that we maintain that healthy balance. Ultimately, our franchise network will continue to be a critical part of our growth, both in new and resold. And we're happy with where we are right now on that.

The next question will be from the line of Vishal Shreedhar with National Bank of Canada.

Just a clarification. Management for the guidance for 2026, you say we should look at it on a 52-week basis when we look at 2026 relative to '25. And you gave us the 2% adjusted figure, so we can multiply the lines by 0.98. But then you say EBITDA margin should be similar year-over-year. But is there any 52 week adjustment that we should apply to the EBITDA margin?

No.

Not on the margin rates, Vishal.

Okay. With respect to the transaction, the modest transaction pressure that you saw in the quarter, given that the pricing initiatives that Pet has been taking, should we anticipate the results of the pricing initiatives to have benefited in Q4? Or do you anticipate transactions to improve through the year? And yes, I'll pause there.

Thanks, Vishal. So we believe the transaction trends we saw in the quarter tie back to the promotional environment. And it was really key for us to win the right type of trips in this environment, so the monthly consumables focused trips, which are central to our DPL's habits and provide the best lifetime value. Our loyalty penetration hit another all-time high in the quarter of -- or sorry, in the year-end in the quarter of 88% and we have excellent visibility to this, and we're continuing to grow monthly shoppers. So we are happy with the types of shops that we won in Q4.

What we did see from a basket and inflation perspective is, on one hand, you heard me call out the strong trends in -- that we're seeing in units per transaction, which is hitting multiyear highs, and that's a direct outcome, as Linda said, of the sharpened promotional plan around the basket and great in-store execution and draw attention to it. On the other hand, we saw deflation at a level similar to industry tied to our everyday value actions that we've taken through different segments of last year in our consumables portfolio, together with a higher promotional intensity in the quarter. We do expect to grow both transactions and basket through 2026. And you'll see us doing that leaning into the value investments we've already made using our proprietary brands and getting the most out of our promotional plans and loyalty program.

[Operator Instructions] And the next question today will be from the line of Chris Li with Desjardins.

Maybe just first, a clarification question on market share. So based on your AIF, it shows that Pet's share continues to remain stable at around 18%. You said you're gaining share. Is the difference because the mass market is perhaps growing faster than specialty and therefore, on a total basis, your market share remains stable?

Thanks for the question, Chris. So we did see share gains. It still rounds to the same number without basis points. We were happy with the share gains we saw both in the year and in the quarter, though. And we're really seeing us win that with the monthly consumables-based shop from pet specialty retailers. Certain other online retailers also gained share. And we -- in our view and our reporting, we showed that coming from the mass retail or mass channel.

Got it. Okay. That's helpful. And that was my follow-up. In the same chart, it shows Amazon gaining share. And I was wondering if you can elaborate a little bit on sort of what you're seeing on e-commerce. Obviously, you have a strong omnichannel platform. It seems to be performing better than what you're expecting. But just overall, just from an e-commerce shift perspective, is that something that for this year or in the coming years, you want to fortify so you're capturing your fair share of that market?

Thanks for the question, Chris. So we were very pleased with what we're seeing in our digital channel and then really excited about what it will do for this year. Our online sales continue to outpace our company average. We continue to gain share in the digital channel, growing at or above what the digital channel is growing. And really, what's even more important is the role these capabilities and the capabilities we've built play in our omnichannel offering. As we've shared in the past, that customer visits our store and websites 5x more than an online-only customer and spends 4x more.

So not only are they more engaged, but they're the most valuable, least price-sensitive segment in our customer base. We were happy with how our auto ship offers helped win subscriptions in the quarter, and you're seeing us continue to do that through this year. We are also happy with the start-up of two more delivery platforms -- and that just -- all three of them now provide a nice way for our customers to be able to find us, and they're a good growth engine for us that you'll see through all of this year.

The next question will be from the line of Adrienne Yih, Barclays.

This is Michael Vu on for Adrienne Yih. First, I know you've emphasized growth in your proprietary brands as a sales driver. Would you be able to remind us of the percentage of sales from your proprietary labels now? I know you mentioned it grew 200 basis points in 2025. And then secondly, how those offerings impacted your margins?

Thanks, Michael. It's Greg. So again, very happy with the growth in our proprietary brands, especially in consumables. The way to think about it is it's 1/4 of our sales to 25%. It is outpacing our unit and customer growth versus the rest of the store. And there is an approximately on average 1,200 basis points benefit in margin. Think of it as lower price for the consumer, better cost for us, therefore, equals better margin that we share jointly with us and our franchisees to make this a really profitable way to lean into growth.

Awesome. That's great to hear. And then I guess as a follow-up to that, do you see further headroom to expand the penetration of the higher margin specifically for the private label products? And maybe even the in-store services. I haven't heard about that in a little bit. So anything from there that contribute to 2026 performance?

Michael, we do continue -- like I'm quite bullish on our proprietary brands, especially in consumables and winning the monthly shops through this year. So we will be lapping a number of the changes that we made as you go through the year. We're still seeing ongoing benefits from those everyday pricing actions and the store execution of them. We're also very focused in consumables on innovation within our Performatrin brands. So you are seeing us put more time and energy into that. The -- and remind me the second part of your question, Michael?

It was about the in-store services. I know that you're rolling them out more into the stores, and you've talked about in the past, so I just want to touch on that?

Thank you. The very focused on dog wash is our primary service that we offer. We're still looking at potential other services, but there's nothing to talk or report about there at this point. Dog wash remains an important part of our offering to devoted pet lovers. It's a great way to interact with the customer in a nice service that differentiates us. It's in the vast majority of our stores now, and we've seen good uptake in it.

The next question will be from the line of Irene Nattel with RBC Capital.

I was just wondering if we could spend a minute talking about the discretionary piece of the business because in the past, it's been -- or at the time of the IPO, it was about 20%. Certainly, it's been under pressure. Can you talk about what you're seeing there? And also, I believe that you had some initiatives around refreshes or newness in the discretionary offering. Can you give us an update on that, please?

Absolutely. Thanks, Irene. So maybe start off with just how the category is performing versus consumables. So as Linda shared in her remarks, we continue to grow our consumable sales in the quarter and -- but that pace eased a bit versus relative quarters, both because of our everyday value actions and the higher promotional intensity. Hardlines, though, we continue to see softness here. We would have talked about discretionary spend or improvement pausing in Q3. That stayed paused in Q4. So we saw very comparable results to recent trends, no real change in the actual results. What we are focused on in it because we do believe that hardline categories play an important role in our offering and that they should really complement our strength in consumables in a much better way.

But with the pullback we've seen in discretionary spending, that space has certainly become more competitive. So as you asked, there are some things that we're changing to be better positioned to win in this environment. We're continually introducing better value, especially in products where devoted pet lovers are looking for that the most. And that's led by our proprietary brands. We're also continually refreshing products to bring in innovation and instill a sense of newness. We're leaning into national brands to do that more and more. And even in this quarter, you're seeing us introduce a number of new things that we're quite excited about what they will do.

And thirdly, we're sharpening the promotional program. So that would -- an example of that would be we just launched an item of the month program within hardlines. It's really consumables-based hardlines and giving our stores and customers another reason to add that extra item into the basket and have a program around that, that we execute really consistently. So the work is ongoing. We'll provide more updates as we move through the year, Irene.

With no further questions on the line at this time. I'd now like to leave the floor to Greg Ramier for any closing remarks.

Thanks, everybody. Looking forward to speaking to you in May. We're excited about the plans for this year. I'll bring you back to -- we are very focused on growing our proprietary brands, our reach with our store network and taking advantage of the everyday pricing investments that we've made last year to win both the monthly shop and build a basket in 2026. So thank you very much.

This concludes the Pet Valu Q4 2025 Earnings Call. Thank you all for joining. You may now disconnect.

Good morning, everyone. Thank you for standing by. Welcome to Pet Valu's Third Quarter 2025 Earnings Conference Call. My name is Harry, and I'll be coordinating today's call. [Operator Instructions]

I would now like to turn the call over to James Allison, Investor Relations at Pet Valu. Please go ahead, Mr. Allison.

Good morning, and thank you for joining Pet Valu's call to discuss our third quarter 2025 results, which were released earlier this morning and can be found on our website at investors.petvalu.com. With me on the call is Greg Ramier, Chief Executive Officer; and Linda Drysdale, Chief Financial Officer.

Before we begin, I would like to remind you that management may make forward-looking statements, which include guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties, which could cause actual results to differ materially from those expressed today. For a broader description of risks related to our business, please see our Q3 2025 MD&A, 2024 annual information form and other filings available on SEDAR+.

Today's remarks will also be accompanied by an earnings presentation, which can be viewed through our live webcast and is also available on our website.

Now, I'd like to turn the call over to Greg.

Thank you, James, and good morning, everyone. I'll start by reviewing some of our key highlights from the quarter before handing it over to Linda to discuss our financials and the update to our outlook for 2025. Before I begin, I'd like to express how excited I am to step into the role of CEO. Hard to believe it's been a year since I joined Pet Valu, but in that time, I've seen countless examples firsthand of why millions of devoted pet lovers turn to us for their pets' needs. From how deeply our ACEs and franchisees care about providing the best in-aisle expertise to the scale and quality of our store network, digital channel and supply chain, to the breadth and innovation of our proprietary brand assortment, we truly are unmatched in the Canadian pet. I'm thrilled to have the opportunity to help lead Pet Valu through this next chapter of growth and to add to our legacy of serving Canadians' devoted pet lovers.

Now moving to the results. Our business delivered another quarter of growth and healthy margins in Q3 as we continue to navigate an uneven discretionary demand environment. With our growth once again outpacing the market, it's clear devoted pet lovers are increasingly drawn to our unique combination of strength in convenience, value, quality and expertise, which together creates our compelling retail experience unmatched in Canadian pet.

System-wide sales increased 4%, supported by continued momentum on a same-store basis as well as our strategic expansion in our industry-leading store network. This translated into 5% revenue growth, including contribution from higher wholesale penetration. We achieved these outcomes through responsible and balanced investments in everyday value across our assortment and new product introductions. And we supplemented these investments with events to drive excitement to invigorate discretionary demand. At the same time, our teams continue to find opportunities to realize operating expense savings to offset inflation. As a result, adjusted EBITDA margins improved sequentially to 22%. The resilience and consistency of our performance speaks to the success of our commercial playbook and long-term strategies working in tandem.

Let me unpack a few of the highlights from the quarter. We took several actions in Q3 to help solidify our position as Canada's local and everywhere pet specialty retailer. We and our franchisees opened 16 new stores in the quarter, bringing us to 849 locations coast-to-coast. With 26 stores opened year-to-date, we are well along our way of reaching 40 new stores by year-end. At the same time, we and our franchisees renovated, expanded or relocated another 72 locations, almost all of which related to our enhanced culinary experience, which I'll touch on shortly.

Our digital channel continues to scale with all elements, our transactional website, AutoShip and marketplace contributing to its success. In the quarter, we featured a limited time AutoShip offer, providing 20% off first orders of key Made in Canada brands, including our Performatrin family of products; generating strong uptake and helping drive our continued growth in active subscriptions with devoted pet lovers.

We are also seeing great ramp-up in our marketplace offering, which complements our other channels. Following a successful first year with Instacart, we plan to add more options for devoted pet lovers in Q4 to further elevate our industry-leading omnichannel offering and convenience. At the same time, we continue to leverage our strengths to deliver the best pet customer experience. Devoted pet lovers are taking note of the everyday value we deliver with strong response to the investments we made in our Fresh 4 Life litter last fall and in particular, to our Performatrin Prime investment this spring, with both programs exceeding expectations in volumes and sales.

On the back of this success, we bolstered our everyday value proposition across hundreds of additional items in the latter part of Q3 and early Q4 with our Lower to Lock program, including investments at both retail as well as wholesale, so our franchisees can participate alongside us. While it's still early, these actions strengthen our position to continue to win the monthly shop.

We complemented our everyday value with a smart and exciting promotional program, powered by our new pricing and promotions tool, celebrating events like our anniversary sale and the limited time 20% off AutoShip discount. We also broadened the portfolio of brands eligible under our frequent buyer loyalty program, including the exciting addition of Purina Pro Plan in early Q4. Equally important are our investments in innovation and quality.

In the quarter, we introduced approximately 150 SKUs of national branded toys, collars and leashes, better aligning our hardlines offering with what devoted pet lovers are looking for. We also continue to innovate with our proprietary brands. This included new product introductions such as plant-based dog kibble and freeze-dried cat treats under our Performatrin Ultra brand. Fresh 4 Life corn litter and opening price point travel carriers and accessories under our Essentials brand.

And finally, our enhanced culinary experience. With 70 stores completed in the quarter, including a handful of initial franchise locations, we're pleased with the pace of implementation. While still very early in its deployment, initial data reaffirms the strong lifetime value of culinary customers who visit and spend more than twice that of a traditional customer. We remain on pace to bring this enhanced experience to roughly 120 corporate stores by the end of the year.

Now moving to our third focus, to fortify strong retail and wholesale fundamentals. As previously shared, we concluded our supply chain transformation in Q3 with the commissioning of our new Calgary DC in July and the exit of our legacy facility and third-party storage space in that market by the end of September. With over 1.3 million square feet of modern, partially automated distribution capacity in Canada, we have successfully built Canada's strongest supply chain, supporting the pet specialty industry and one that will support our growth over the next decade plus. For those of you who've been with us on this journey over the last several years, you know we haven't had to wait for this moment to realize the compelling benefits this transformation brings. For the past 2 years, these new facilities have enabled efficient new store growth, unlocked our ability to capture higher wholesale penetration with our franchisees and supported inventory leverage.

In the third quarter, we reached another important inflection point, delivering year-over-year leverage in our consolidated distribution costs as we began to lap the step-up in fixed costs associated with these new DCs. We believe this is a strong signal for the opportunities ahead to drive profitability and reinvestment as we grow into our upsized capacity.

All of these achievements, network expansion, merchandising excellence, transformation of our supply chain would not have been possible without the talent and commitment of our ACEs, our franchisees and leaders across the organization. We are a business built around nurturing the love pet parents share with their pets, and this is only made possible by nurturing and supporting our people and franchisees. We are humbled to have recently been recognized for our efforts, including receiving the 2025 Hall of Fame Award from the Canadian Franchise Association for our leadership and contributions to the Canadian franchising industry, and being named a 2025 Employer of Choice by Canadian HR Reporter.

By forming strong relationships and providing safe and rewarding working environments, we help drive stability and tenure with our franchisees and ACEs, which benefits everyone, including our devoted pet lovers. To learn more about how we accomplish this, please see our 2024 ESG report, which was released this morning alongside our Q3 results.

With that, I'll pass it over to Linda to review our financials and 2025 outlook. Linda?

Thank you, Greg. Overall, our business delivered another quarter of responsible growth and healthy margins in Q3 as devoted pet lovers alongside all Canadians continue to navigate today's uncertain environment. This financial resilience is a direct result of both the right strategies and our strong culture built around providing the best for our customers and relentless pursuit of efficiencies and savings.

Let me review some key financial highlights before turning to our refined outlook for the full year. System-wide sales grew 4% in Q3 to $374 million. On a same-store basis, sales increased 2.3%, similar to the pace seen in Q2 and supported by growth in both basket and transactions. Comp trends across categories were relatively consistent to those seen in Q2. From a non-comp basis, we opened 16 stores in the quarter and 45 over the last 12 months, bringing us to 849 sites coast-to-coast at the end of Q3. Q3 revenue was $289 million, representing an increase of 5%, slightly ahead of system-wide sales as we continue to increase wholesale penetration with our franchisees. As expected, the gap between revenue growth and system-wide sales growth eased as we began to lap our wholesale catalog expansion in Q3 last year.

Gross profit was $96 million, up 7% from last year. Excluding nonrecurring costs related to the supply chain transformation, gross margin was 33.5%, similar to last year. While we continue to see impacts from higher occupancy costs and to a lesser extent, higher wholesale merchandise sales, these factors were offset by leverage in our distribution costs, allowing the margin stability of our commercial plan to shine through.

Echoing Greg's earlier comments, achieving leverage in our distribution costs has been a long promised benefit of our supply chain transformation, and I want to pause to celebrate this moment and to congratulate our teams for their perseverance and dedication to getting us here. Q3 marks the start of what we expect to be many years of distribution cost leverage from our recent supply chain investments, which will provide opportunities for greater profitability and flexibility for reinvestment to fuel our growth and support financial resilience.

Moving to operating expenses. SG&A in the third quarter was $54 million. Excluding share-based compensation and costs not indicative of business performance, our SG&A expenses were $51.5 million, similar to Q2 as our team did a fantastic job in diligently managing our expenses and finding efficiencies to offset expected inflation. Adjusted EBITDA was $64 million, representing 22% of revenue, an improvement from our margin in the first half of the year. Net income was $25 million compared to $23 million last year. Excluding share-based compensation and items not indicative of business performance, adjusted net income was $28 million or $0.40 per diluted share compared to $30 million or $0.41 per diluted share last year.

Now turning to our balance sheet and cash flow. We ended the third quarter with ample liquidity, consisting of $15 million in cash and $140 million in unused borrowing capacity. Total debt net of deferred financing costs was $294 million, a decrease of $17 million from Q2 as we directed free cash flow towards repayments on our revolver. Factoring in net lease obligations, our leverage remains at 2.4x, consistent with last quarter and just slightly above our recent run rate over the last several years.

Q3 inventories were $141 million, up 5% from Q3 last year, in line with revenue growth. Our supply chain and replenishment teams continue to do an excellent job managing turns across our DCs and delivering industry-leading store service rates, all while completing the final DC transition into our new facility in Calgary, Alberta. As we enter the busiest season of the year, we believe our DCs and stores are stocked with the right quality and quantity of product to meet the everyday and holiday needs of Canada's devoted pet lovers.

Net capital expenditures were $8 million in the quarter, bringing us to $30 million year-to-date. With key investments into our supply chain transformation now behind us, our capital investments are now being directed towards the continued rollout of our enhanced culinary experience across our corporate stores, new store builds and ongoing store refreshes and other maintenance projects. And finally, we generated $25 million in free cash flow in Q3. Year-to-date, this brings us to $67 million, up 9% from last year, driven by improved earnings and lower CapEx. Importantly, free cash flow conversion on a trailing 4-quarter basis was 43%, consistent with our framework of roughly 40% or greater. While we continue to return a portion of our free cash flow to shareholders in the quarter through dividends, we directed the majority of it towards repayments on our revolver. We expect to complete these repayments by the end of the year, after which we will once again look to share repurchases on an opportunistic basis.

Now to our outlook for 2025. As Greg indicated, the Canadian pet industry has displayed resilient yet tepid growth this year as pet parents seek out the best opportunities for quality and value to care for their pets. Devoted pet lovers are increasingly turning to pet value to fulfill this need, driven by our industry-leading omnichannel convenience, curated offerings of specialty pet products, in-isle expertise and recent investments in everyday value. Our strong financial performance and market share gains underscore the success of these strategies. At the same time, macro uncertainty continues to weigh on consumer spending, creating uneven discretionary demand, which has continued into Q4. Based on this, we have narrowed our full year outlook to reflect year-to-date performance and current market conditions. As a reminder, our 2025 outlook incorporates an extra week given the 53-week calendar this year.

We now expect 2025 revenues between $1.175 billion and $1.185 billion, supported by approximately 40 new store openings, same-store sales growth of approximately 2% and increased wholesale penetration. Adjusted EBITDA is expected to land between $257 million and $260 million, representing growth between 4% and 5%. This continues to incorporate normalization of operating expenses and planned investments. Factoring in our narrowed revenue and adjusted EBITDA ranges, we now expect adjusted net income per diluted share between $1.63 and $1.66, representing growth between 4% and 6%. As a reminder, this includes absorption of approximately $0.12 of incremental depreciation and lease liability expense associated with our new distribution centers. And finally, capital allocation. We continue to expect approximately $45 million in net capital expenditures. We also continue to expect to convert roughly 40% of adjusted EBITDA into free cash flow this year, the vast majority of which is being returned to our shareholders.

Before turning it back to Greg, I'd like to share our initial view on 2026 as we near year-end. With no real certainty on when today's macroeconomic conditions will improve, there is a strong likelihood that uneven discretionary demand we've seen through much of 2025 could extend into 2026, which may keep growth in the Canadian pet industry below its long-term average. As we say consistently each year, our aim is to grow alongside the industry and lean into initiatives to expand market share like continuing new store openings in 2026 at a pace similar to 2025 and further investing in our culinary renovations.

With the completion of our supply chain transformation, we expect earnings growth to improve starting in Q4 and continuing into 2026 as we lap the major step-ups in fixed DC costs. And most importantly, we plan to grow our free cash flow, which we plan to deploy in accretive ways, including opportunistic share repurchases. We look forward to sharing more details around our financial and operational outlook for 2026 when we report our Q4 results in March.

With that, I'll turn it back to Greg for some closing remarks.

Thanks, Linda. As we complete our supply chain transformation and commence the next leg of our growth within the Canadian pet landscape, I'm excited about the opportunities ahead of us. With a great team, great assets and a clear strategy, we are well positioned to deliver on our mission to be Canada's preferred pet retailer, delivering the products, care, expertise and memorable moments that devoted pet lovers want.

With that, we'll now be happy to take your questions.

[Operator Instructions] Our first question will be from the line of Mark Petrie with CIBC.

Just on same-store sales, traffic maintained positive, but you were lapping a pretty weak period last year. There was some modest deceleration sequentially. So could you just talk about sort of consumer behavior and specifically the traffic figure?

Absolutely. Mark, maybe I'll talk about same-store sales first. We were very pleased with the pace in Q2, it was similar -- or in Q3, it was similar to Q2. Growth did come in a bit lighter than we initially expected in the quarter. And I'd say the main reason for that is tied to the shape of demand. If you recall in Q2, we've seen some early signs of stability in hardlines with trends improving sequentially from the beginning of the year. This progress paused in the third quarter, suggesting customers are more closely monitoring their spending given all the uncertainty around trade and other macro factors.

I think the key takeaway for us, though, is that even in this constrained environment, we're winning share. This is a result of the actions that we've taken so far this year, including Q3, both the long-term actions around network expansion and digital investments, but more recently, the investments we made in everyday value and having a sharpened promotional program. I think specifically on a 2-year basis, we don't think that the 2-year stack is a particularly helpful way to look at our performance given that 2024 was a fairly stable year in how our weekly sales progressed, which is something we're also seeing this year. And our comments all year have been around this -- our original 1% to 4% guidance range, which we continue to deliver within, and we now expect to reach roughly 2% for the full year.

Okay. And if I could just follow up on culinary. Obviously, it's still relatively early days, but just wondering how that's performing. And curious if that category has more variation in its performance by sort of local demographics and neighborhoods than other parts of the assortment.

As I shared in my prepared remarks, Mark, I'm very happy with the pace of the rollout. We've already completed almost 80 stores so far this year, including 70 in the quarter. Still very early in the deployment, but I can share the data that we're seeing, the first few weeks reaffirms how much the culinary customer spends in their pets. We've begun to expand the experience into a handful of franchise stores. So we're looking forward to what it's going to do in 2026. This category continues to be at the high end of growth for us in double digits. And we don't see a lot of variance to your question regionally or within different stores.

The one thing I'd add, Mark, is that we have rightsized the level of investment by store to best complement the existing layout in culinary presentation. So as a result, we expect the returns on these to be above our internal hurdle rates.

The next question is from the line of Irene Nattel with RBC.

Just continuing the discussion around same-store sales. Could you walk us through, please, sort of where you're seeing the highest level of unevenness? That's the first part of the question. And then the second part of the question is I'm wondering about sort of the degree to which the investments and the introduction of private label products at lower prices is kind of -- be acting in a deflationary way from a basket perspective.

Thanks, Irene. I'll start on the consumers. So we continue to see devoted pet lovers seek out quality products, looking for better nutrition and better ways to feed and care for their pets. And we do see our highest growth still in premium kibble and in our culinary products as a result of that. At the same time, devoted pet lovers are looking for value. And this is where our proprietary brands really shine. And we've been very pleased with the progress on that front, both in volume and in sales.

And really, the way that those themes have -- are manifested from a category perspective is we've seen and continue to see resilient growth in needs-based consumables and more uneven or opportunistic spending within discretionary hardlines. And as I noted, we saw early signs of stability on that discretionary demand in Q2. It held. We didn't see any further improvement in Q3, which I think really ties back to the macro environment. I do think that in this environment, what's really important is the things that we've done over the last several quarters to lean into our strengths, our points of difference to show how Pet Valu can deliver on both quality and value.

Three things that I'd point out within this that we're doing to be successful in this environment. First is our focus on high-growth quality categories like culinary that we just talked about. The second is leaning into the role that our proprietary brands can play and -- both in innovation and in value, and they performed well. Third is the investment we've made to provide everyday better value, and you would have seen the -- us talking about our new Lower to Lock program across hundreds of key items that we launched at the end of Q3. These strategies in total are working. We're winning the monthly shop. We did that in Q3, and we're gaining share, growing same-store transactions.

That's really helpful. And then just thinking ahead to 2026, what I heard you say is if we have all been thinking about, let's call it, mid-ish single-digit same-store sales growth in 2026, unless we see something change in the environment, which doesn't seem likely at this point, that will be difficult to achieve. So I guess, is that, in fact, what you wanted us to hear?

Yes. With the macro environment playing such a critical role in how devoted pet lovers and frankly, all consumers are spending and given how fluid the trade environment remains, I think it's a bit premature to make a firm call. But our view and as per Linda's remarks, is we think industry growth will remain below its long-term mid-single-digit run rate through next year. I do think there's going to be a couple of big themes that are going to remain consistent, though, within that. First is the stability of demand for needs-based consumables, which account for about 80% of our sales. And this is the -- this has been a consistent growth driver for us through 2025, and I don't expect that to change next year.

And second is the humanization trend and seeing that continue. So culinary products, as we talked about, continuing to gain traffic. And we're leaning into that category to make sure that we continue the growth curve that we've seen on it. Those are both big themes within what we view will be a fairly similar industry backdrop.

The next question today is from the line of Martin Landry with Stifel.

I would like to just go again looking at the long-term outlook of the industry. I think the industry has been growing slower than its historical pace in '24 and '25, and you're calling for maybe a cautious outlook for '26. When do you expect the industry to get back to its historical growth rates? I think you quoted historically 4% to 6%, and it's even been higher than that over the last 20 years. At what point could we see the industry return to more healthier growth rates?

Thanks, Martin. The -- as we pointed out in the past, the Canadian pet industry has an impressive track record of resilient growth over 30-plus years. When you take a look at what's driving that is really the humanization and premiumization of pet care that we've talked about. That tailwind hasn't stopped even in today's environment. We continue to see it every day in the conversations that we have with devoted pet lovers in store and the questions they're asking, and especially in the products they're buying. The best example of this continues to be the strong sales growth in our most premium peers of kibble and culinary.

The slower pace of the industry growth that we've seen over the last few years has really been isolated to the more discretionary pockets of our industry, as we've said, particularly in hardlines like toys, apparel, collars, beds. These are categories where pet parents exhibit more compromise through either deferral or substitution when the environment is uncertain like it is today. But as history has shown time and time again, we believe this softness to be transitory. We expect it to stabilize as the macro environment stabilizes. In the meantime, what you've seen is we're leaning into our strengths of convenience, quality, value and expertise to win in today's environment, which has been driving our market share gains.

Okay. And how much of the industry you think is switching online? It feels like the online channel is growing maybe a little faster than the brick-and-mortar channel. And how are you positioned to capture that switch?

Very well positioned. We've been very pleased with what we're seeing in our digital channel. Our online sales continue to outpace our company average. But what's even more important is the role this channel plays in our omnichannel offering. As we've shared in the past, our omnichannel customer visits the store and site 5x more than a non-omni customer and spends 4x more. They're not -- not only are they more engaged, but they're the most valuable, least price-sensitive customer segment that we have. We've seen -- so we've seen good growth in our omnichannel. It's outpaced our total business.

The next question is from the line of Michael Van Aelst with TD Cowen.

I wanted to talk to you more about the franchise and corporate mix that you've got this year. In the past, you've said you've reiterated the view that there's strong demand for franchises. But this year, you've opened 25 new stores and 21 of the net new stores are corporate versus 4 franchise. So can you talk about the health of the franchisee, that four-wall per EBITDA? And why specifically are you not seeing more franchisees stepping up this year?

Mike, thanks. For most of our history, we've operated both franchise and corporate networks at scale. And they're both strategically important for us with unique benefits that complement each other. One of the strategic benefits of this dual structure is operating at a best site first strategy with the flexibility to lean into either a bit more corporate or a bit more franchise, depending on where we find the sites and where our franchisees -- our franchisee pipeline where they physically are.

Right now, we've opened a bunch of really great locations, most of which we haven't identified the right franchisee yet. So we're opening them as corporate stores, which I'll remind you still provide fantastic returns for us. We may choose to resell some of those to existing or new franchisees, but we'll make that determination on what's in the best interest of both the community, the store and the franchisee given that they're making a 10-year commitment. Our health and pipeline of franchisee -- franchise inquiries is still strong. So that has remained consistent through this environment. And I think, Linda, from a four-wall EBITDA?

Yes. So I mean, we update that annually in the AIF. As we stated from last year, it was $230,000, and we'll update it again in the next year.

Linda, are you willing to at least give us an indication of direction whether that -- whether it's higher or lower than what it was last year?

I can't at this time, Michael. Yes, I think there's compelling returns to the franchisee, and that's as far as I'll go on that.

And Michael, we continue to see strong interest.

Okay. So Greg, just to follow up on that, though. Historically, I think Richard had said, given the indication that you wanted at least 200 corporate stores and probably would be happy something. It sounded like it was something in the 200 to 230 level in that ballpark, let's call it. So with the corporate store count rising now up to 241, I think that's the highest level you've ever been at. Do you see that number coming down over time still? Or do you expect to start growing more? Is it changing a little bit where it's not as much of an asset-light growth strategy going forward?

No, you shouldn't anticipate a change in that strategy. The strategy for real estate is best site first. And we will continue to be around that rate of franchise stores as a percentage. It will depend on where we find the best sites and how our franchise pipeline is looking for those trade areas. So you shouldn't expect a material change there.

The next question will be from the line of Chris Li with Desjardins.

First question is -- first, thanks for all the discussions on the consumer so far. But Greg, I was wondering if you can talk a little bit more about the competitive environment as well. Have you seen an uptick in promotional intensity during the quarter? And how is it looking so far in Q4?

Thanks, Chris. I'll start off by saying, generally speaking, and as a reminder, we operate in the least competitively intense end of the pet industry where devoted pet lovers -- with devoted pet lovers who value more than just price when shopping for pets. So as a result, we tend to have a very rational trading environment. In September, we did see promotional intensity increase from select specialty peers. That's perhaps in response to recent market share trends.

But with that said, we continue to stick with our strategy of providing devoted pet lovers with quality and value that they can count on every day. It's a strategy that's anchored in what our customers appreciate. It's a strategy that works in driving the -- and winning the monthly shop. And we've got not only that, but a full agenda planned in Q4 from a commercial plan with some of our biggest weeks left to come in the quarter.

Okay. And I think just a follow-up maybe for Linda. If we take around just the midpoint of your full year guidance, I think the implied Q4 SSSG is going to be around 2% and EPS growth maybe around 9% if you exclude the extra week impact. If my math is right, I guess my question is looking out to next year, if let's say, same-store sales will remain a bit tepid like more in the low single-digit as opposed to mid-single-digit growth, is there still enough operating leverage within your business model to achieve at least that high single-digit EPS growth for next year?

Yes. Thanks, Chris. You're really choppy, but I think I caught your question. But for the 2026 growth, what I would say is we're still early days for plan 2026, and I'll provide more detail when we release our 2026 outlook. But from a high level, we do plan to continue to be successful winning customers and growing market share while delivering solid earnings growth in this environment.

The next question will be from the line of Chris Murray with ATB Capital Markets.

Maybe talking a little bit about the wholesale business now that, I guess, the supply chain transformation is sort of behind us a little bit. Can you talk about where you're at in terms of that wholesale penetration number? And how we should maybe think about the next couple of years now that you've got the supply chain base really in place?

Thanks, Chris. It's Greg. The -- so we continue to see good performance from a revenue perspective with outpacing system-wide sales. That's really driven by two primary factors. One is the clear opportunity we have had and still have in Chico as we grow that business and we -- from a store perspective and grow our wholesale penetration there, and with the capacity that we have in the supply chain. So we continue to add both innovation and new assortment into the distribution center that will -- that's going to continue to -- because we have lots of capacity that we're leveraging right now. That will continue to be a tailwind for us over the next several years.

Is it fair to think that your wholesale sales might actually kind of outstrip kind of like what you would think the same-store number will be over the next couple of years just as you capture additional share? Is that the right way to think about this going forward?

Yes. The way you should think about our -- shape of our sales over the next few years is our system-wide sales should outpace our same-store sales because of our continued focus on new store growth and that our revenue should outpace our system-wide sales because of the wholesale penetration opportunity we have with Pet Valu franchisees and especially because of the opportunity in Quebec with Chico.

And the pace of that will ease from the current...

Okay. And then just maybe a quick one for me. Just sort of thinking kind of into '26 in capital spending. I know it's still early, but if you think about it semantically, no major investments in supply chain. Maybe some store level investments you talked a little bit about the ability to continue to roll out fresh product. But kind of on the whole, is there any reason to believe that there's anything that would be taking capital spending actually up materially from where it is going to end up this year? Or should we be thinking about kind of like just gradually tying it to sales growth over the next little while?

Yes. So we're still working through capital plans for 2026, Chris. But I'd say the expenditures will be in the ballpark of what we've targeted for this year would be a good starting point. We're continuing opening new stores, as you said, rolling out our enhanced culinary experience across both corporate and franchise stores. So you can also expect us to start to return to share repurchase in the next year. I'll add that in with respect to our capital.

Okay. But there's no major capital expenditures planned or anything like that, that we should be aware of?

No.

The next question is from the line of Vishal Shreedhar with National Bank of Canada.

With respect to industry square footage growth, do you have -- or industry capacity growth, do you have an estimate of that? Is it growing at an accelerated pace? Or has it moderated in line with these more challenging conditions you've seen over the last couple of years?

Vishal, what we saw in Q3 was quite similar to what we've seen so far this year. We are the lion's share of industry footage growth. We are fully on track to be at our 40 stores again this year. We've seen slow or muted growth from other competitors. So that is an area, as Linda said, that we are leaning into right now to make sure that we get growth now and growth in the future and find the best sites to be in over the long term.

Greg, as you continue to expand and right now, you operate at a premium end of the market. But as you continue to expand, you start bumping up against a customer who's more value conscious or who values other attributes that maybe Pet Valu doesn't focus on as much. Wondering your perspective on this, the expansion and your premium tier, I mean, there's only so many customers that value those attributes.

Our store decision-making isn't just about the here and now. When we open a store, whether it's corporate or franchise, we're making a 10-year commitment. And that 10-year commitment includes or encompasses all the phases of an economic cycle. So that's how we look at it when we are making the decision about opening a store. As you've heard us share in the past, we believe that there's a clear opportunity for us to operate over 1,200 stores across Canada. We do lots of modeling around that, both on the location and the customer base. We see a large portion of devoted pet lovers within those locations that will allow us to be successful with our model. We're only roughly 2/3 of the way along that path of 1,200 stores.

I'd love the pace of us with 40 stores a year. It's a nice manageable size, but still provides really good growth trajectory for us. And we continue to see strong returns, both corporate and franchise returns with the new stores that we're opening.

Okay. And with respect to the environment which you anticipate and granted, I know there's substantial uncertainty regarding the outlook, but you anticipate it to be more challenging, at least relative to historical trends. Do you feel -- and you've come in and you've implemented the pricing initiatives and more analytical promo decisions. Do you feel that pricing at Pet Valu is sufficient? Or do you think the gap versus peers could still use some adjustment?

It's a good question, Vishal. I'll come back to our strengths, which are convenience, value, quality and expertise. We've made some changes in our value program this year, starting about this time last year to have a sharper promotional plan and to have better everyday value across especially our brands, but now some key value items in national brands. That has allowed us to gain share consistently.

We are -- as we talked about, we're winning the monthly shop. We're growing same-store transactions. We have stable margins at the same time because we've done a lot of good work under the -- under all of that. So I like where we are right now. I think it sets us up to be very successful next year during what we expect to be a similar environment to this year.

[Operator Instructions] And our next question will be from the line of Adrienne Yih with Barclays.

Great to see the progress. Craig, I wanted to ask a couple of things on pricing. So the brands have obviously raised prices sort of year-to-date this year. How much pricing have they taken? And has the spread between the brands and your private label expanded? And what do you expect in terms of future pricing as we go into 2026? And then for Linda, you talked about the EPS growth kind of accelerating in the fourth quarter and then into next year. Is that largely because you're starting to anniversary the fixed costs and the incremental depreciation from the investments?

Adrienne, so I'll -- there's a couple of questions within that. I'll maybe start with the inflation question and then go to brands and then get Linda to ask or to answer the last part. There wasn't -- we had inflation in Q3. It was a bit less than what we've seen in previous quarters, but it's still positive. And this is really a result of the intentional actions that we've taken to make sure that we have the right everyday value. That would be earlier or this time last year that we're still lapping the Fresh 4 Life and the litter reductions that we did, the value that we did in Prime at the end of Q2, and then just now at the end of Q3 with the recent changes that we've done with the Lower to Lock program.

So we've been focused on making sure that we have the right value and that we're competing to win that monthly shop. Within that, we've made sure that our proprietary brands are positioned to give the savings for devoted pet lovers. I'll remind everybody that they're 1/4 of our sales. They're an important part of our business. They give savings to customers, great quality and better margins for us. So it's a very helpful environment. So that's what we've really seen. We've done the work with making sure that we are focused on and building our brand sales and basket penetration has been a key focus for us this year.

Yes. And on your question about the growth on the EPS, you nailed it, Adrienne. It's the returning -- as we annualize the investments in our supply chain, that's unlocked that, and we're really looking forward to that.

Okay. And then can you just -- as a follow-up, can you just remind us where you are in the journey of sort of increased productivity gains and capacity utilization? I remember earlier on, you had talked about and we are seeing it that it would start to really manifest in the back half of this year, but it was a multiyear journey. And so if we're just starting to see that, I can only imagine that there's more to come, so it's going to help us where we are here.

Adrienne, we're very early in this journey. So we've built capacity for 10-plus years. We will leverage that capacity through those 10 years. And we were pleased with starting to see some -- both leverage and productivity gains in Q3. That Q3 was a little stronger and a little better than what we had anticipated. We foresee a strong tailwind from both the leverage and the productivity opportunities that we've created with the supply chain investment.

Fantastic. Controlling what you can in an uncertain macro is the name of the game. So good luck.

Thank you.

The next question will be from the line of Mark Petrie with CIBC.

I think I heard a comment earlier about adding a bunch of national -- I think it was 150 SKUs of national brands in hard goods. And can you just confirm that? And could you just talk about that decision in the context of what you're highlighting with regards to the consumer and sort of the importance of value around private labels? And so what's the background there?

Mark, that is true. Our strategy in hardlines, and this is an area where we want to compete stronger next year is to make sure that we have the right innovation, both from our brands and from national brands. We've added some great specialty brands into the portfolio to close out the year that will help us in Q4 and to make sure that we have the right value in both led with our proprietary brands. We want a great balance between the innovation and value of both national brands -- the right national brands and our proprietary brand.

Okay. So is this more a substitution of what your national brand portfolio was before or -- and just sort of a refresh there? Or are you sort of shifting like -- maybe you went too far on the proprietary brands and now you're shifting some of the SKUs from own brands to back to national brands?

No, Mark. This is an effort to make sure that we have the right national brands with the right newness and the right innovation as we go into the holidays.

With no further questions on the line at this time, I will now hand the call back to Greg Ramier for some closing remarks.

Thank you, everybody, for joining us. Looking forward to speaking with you in March. I hope everybody has a great Q4 and a great holiday season. Thank you very much.

This concludes the Pet Valu Third Quarter 2025 Earnings Conference Call. Thank you to everyone who joined us today. You may now disconnect your lines.

Good morning, everyone, and thank you for standing by. Welcome to Pet Valu Second Quarter 2025 Earnings Conference Call. My name is Carly, and I'll be coordinating today's call. [Operator Instructions] I'd now like to turn the call over to James Allison, Investor Relations at Pet Valu.

Mr. Allison, please go ahead.

Good morning, and thank you for joining Pet Valu's call to discuss our second quarter 2025 results, which were released earlier this morning and can be found on our website at investors.petvalu.com. With me on the call is Richard Maltsbarger, Chief Executive Officer; Linda Drysdale, Chief Financial Officer; and Greg Ramier, President and Chief Operating Officer.

Before we begin, I would like to remind you that management may make forward-looking statements, which include guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties, which could cause actual results to differ materially from those expressed today. For a broader description of risks related to our business, please see our Q2 2025 MD&A, 2024 annual information form and other filings available on SEDAR+.

Today's remarks will also be accompanied by an earnings presentation, which can be viewed through our live webcast and is also available on our website.

Now, I would like to turn the call over to Richard.

Thank you, James, and good morning, everyone. We are pleased to report another quarter of strengthening performance as devoted pet lovers increasingly chose Pet Valu for our balance of quality, convenience, value and expertise for their pet care needs.

All in, this helped drive Q2 results at or ahead of our expectations across all key financial indicators. Same-store sales grew 2.6%, marking the third consecutive quarter of accelerated growth, accompanied by a return to positive growth in same-store transactions, while revenues grew 6%, once again outpacing system-wide sales on higher wholesale penetration.

We then successfully paired sales and revenue growth with stronger-than-expected margins, ultimately delivering adjusted EBITDA growth of 4% and adjusted EPS growth of 6% despite continued absorption of higher supply chain fixed costs. These outcomes are a direct result of well-crafted commercial and supply chain plans together with strong execution by our teams. All the while, we continue to advance our long-term strategies to better serve Canadian devoted pet lovers and grow the long-term returns for our franchisees.

These actions include; opening new stores, reinvesting into existing stores, enhancing our digital capabilities, improving our merchandising excellence and product innovation and strengthening our infrastructure. Greg will speak more to these in a minute.

As we look into the back half of the year, we have growing conviction in the sustainability of our recent commercial success using data and expertise to target investments that drive continued momentum in our top line and deliver margin dollars for reinvestment and returns. Tying this together with strong performance in the first half, we are raising our full year outlook, which Linda will cover in more detail shortly.

Before passing the call to Greg, I want to celebrate completion of the final major milestone in our supply chain transformation. In mid-July, we commissioned our third new distribution center located in Calgary, Alberta, essentially concluding our multiyear $100 million investment to modernize and upsize our distribution center capabilities.

In 2022, it seemed like a daunting task to undertake the single largest and most complex investment in our company's history. But through meticulous planning and execution, we remained on time and on budget and now operate the most advanced and resilient distribution network supporting the Canadian pet specialty sector. This is a key moment of pride, not just for our extremely capable supply chain team, but for all of our ACEs and franchisees as we continue to elevate the standard for pet specialty retail in Canada. Well done.

Now, over to Greg to walk through our operational accomplishments. Greg?

Thank you, Richard. I'd also like to commend our ACEs for delivering an excellent quarter where we tied together the strength of our tools, data and expertise to deliver the right combination of quality and value devoted pet lovers are seeking, all while driving operational efficiencies. This was made possible through the continued pursuit of our core focuses.

Let me highlight some of our key accomplishments in the quarter. First, to be Canada's local and everywhere pet specialty retailer. We and our franchisees continue to expand our market-leading store network, opening 3 stores in the quarter and 10 year-to-date, bringing us to 833 locations nationwide.

We've had a busy Q3 so far, with another 5 stores opened by the end of this week, keeping us on track to completing approximately 40 new stores this year. We also completed 9 major renovations, expansions and relocations in the quarter, helping to ensure that our more tenured stores deliver exceptional retail experiences to our customers.

In our digital properties, improved customer experience unlocked by our modern architecture and subsequent enhancements is driving strong traffic and conversion improvements, sustaining online sales growth ahead of our company average. In the quarter, we introduced an everyday offer to our AutoShip subscription programs, delivering incremental value to devoted pet lovers on every order.

We believe this, together with the flexibility for in-store or home delivery fulfillment places our AutoShip program at the forefront of subscription services in Canadian pet specialty, ensuring devoted pet lovers receive industry-leading convenience and value when shopping with us.

In May, we integrated our recently upgraded pet profile platform into our annual casting call competition for our Pet Valu calendar, driving exceptional engagement. With one of the fastest-growing pet databases in Canada, we're building stronger connections every day with our customers to help deliver the best nutrition and solutions for their pets.

Turning to our second focus, delivering the best pet customer experience. Leveraging our tools and programs, our commercial playbook continues to resonate with devoted pet lovers driving positive same-store transaction growth and share gains in the quarter. We continue to win the [ monthly shop ] through targeted investments like our new lower prices across our Performatrin Prime assortment this spring, which drove an immediate acceleration in volumes.

We set another record in loyalty sales penetration as we broadened our assortment of participating brands, which included the addition of Canadian Naturals dog and cat nutrition, which is made in Canada and now available in our stores coast-to-coast. And we deployed a sharpened promotional program, leveraging our new promotional planning tool, helping counterbalance competitive intensity with our own ability to drive both excitement and efficiency.

At the same time, we further broadened our proprietary brand offering in the quarter with several new product introductions. This included new consumables products like our Performatrin Culinary single-serve frozen goat milk yogurt, Performatrin Prime oral care dog food and Performatrin Ultra stuffed bones. And in hardlines, we launched our JUMP! Life vest, which quickly became the #1 life vest product in sales and units across our stores due to its compelling value and innovation with UV indication technology.

While our marketing team continues to support all our commercial and merchandising programs, perhaps the most memorable activities in Q2 were those centered around our Canadian roots and community involvement. In May, we celebrated the Lions Foundation's 40th Walk for Dog Guides, hosting events in over 200 communities across Canada to raise awareness and over $1.4 million in funds to support their life-changing work.

We also joined the Nova Scotia Loyal program to celebrate our local businesses and entrepreneurs. In June, we ran our annual Pet Appreciation Month campaign, where we raised approximately $2.4 million in product and cash donations to support almost 500 local pet rescues and pet-related causes across Canada. And at the end of the quarter, we collaborated with CBC during their Canada Day celebration, providing powerful brand moments, visibility and emotional resonance leading up to and during the event.

Now moving to our third focus; to fortify strong retail and wholesale fundamentals. Following the completion of our fit-up work during the quarter, we commissioned our new 295,000 square foot Calgary DC last month and will ramp up operations through the balance of the summer. As Richard mentioned, this marks the final major milestone in our nearly 4-year supply chain transformation, which has seen us transition from 9 legacy company-operated and third-party overflow facilities to 3 modern, partially automated DCs with twice the capacity and supported by industry-leading warehouse management software.

As you've heard us discuss frequently in recent quarters, the benefits of this $100 million investment are becoming increasingly apparent, whether it's through incremental wholesale revenue and profits, inventory leverage or productivity improvements. In the second quarter, these productivity improvements exceeded our plans, contributing to our stronger-than-expected margin performance. We anticipate a long tail to these supply chain benefits as we continue to refine processes over the coming quarters and years and begin to leverage fixed costs starting in Q4.

And finally, I'd like to share an exciting new initiative we kicked off this past quarter to further tap into Canada's fastest-growing segment in Canadian pet food, culinary, including frozen raw, gently cooked and freeze-dried products. As we shared in the past, this is an area of our business which has seen over 20% annual sales growth in the last several years.

Last spring, we took another step to strengthen our leadership in this category with our successful launch of Performatrin Culinary frozen raw and gently cooked products. Then, in late 2024, we began to pilot an enhanced culinary experience within our stores to better showcase the appeal of culinary pet food and make it a true destination. This included expanded freezer space, enriched displays and signage, optimized planogramming and further investment into our in-aisle expert advice.

After a successful pilot over the last 8 months, we are pleased to announce the rollout of this updated layout and training curriculum across approximately 120 of our corporate stores this year, beginning in the second quarter. By year-end, we expect to have over half of our corporate stores completed and we will most likely expand this to other corporate stores and into our franchise network in 2026.

As you can tell, our teams are working hard to serve the needs of devoted pet lovers in today's environment while advancing the right long-term initiatives to ensure we remain at the forefront of the Canadian pet industry and deliver sustainable, profitable growth over the long term.

With that, I'll pass it over to you, Linda.

Thank you, Greg. I'm pleased to report we delivered strong earnings growth in the second quarter, ahead of our plan and the directional EBITDA margin guidance provided on our last earnings call in May. I want to congratulate ACEs across our organization, and in particular, our merchandising, in-store and supply chain teams for their exceptional execution and relentless pursuit of efficiencies, which were the core drivers of these better-than-expected results.

Let me unpack some of the highlights before turning to our updated outlook for the full year. We continue to see accelerating sales momentum in Q2 with system-wide sales of 5% to $370 million. On a same-store basis, sales increased 2.6%, continuing our accelerating pace of growth over the last 3 quarters. We were particularly pleased to see a return to positive same-store transaction growth, a testament to the effectiveness and resonance of our commercial strategies.

Same-store sales growth in both consumables and hardlines improved sequentially, while the relative gap between them shrank, both strong indicators we are starting to see discretionary demand stabilize. We opened 3 new stores in Q2 and 34 over the last 12 months, bringing us to 833 sites nationwide at quarter end and placing us closer to more devoted pet lovers across Canada.

We generated revenue of $281 million in the second quarter, representing an increase of 6%, once again, exceeding system-wide sales growth, driven by a further increase in our wholesale penetration with our franchisees. Gross profit was $94 million, up 7% from last year. Excluding nonrecurring costs related to the supply chain transformation, gross margin was 33.6%, down 60 basis points from last year. While our rate continues to be impacted by revenue mix shifting toward wholesale merchandise sales and higher distribution and occupancy costs, it was better than we expected as we benefited from the higher commercial and supply chain efficiencies I mentioned earlier.

SG&A expenses in the second quarter were $57 million. Excluding share-based compensation and costs not indicative of business performance, our SG&A expenses were $51.5 million or 18.3% of revenue, similar to the rate in Q1 and up 30 basis points from Q2 last year.

We continue to diligently manage through expected cost inflation while investing in key capabilities to drive long-term growth and efficiencies. Adjusted EBITDA grew 4% to $60 million in the second quarter. As a percentage of sales, this represented 21.4%, 40 basis points ahead of our rate in Q1 and well ahead of the directional guidance provided last call due to favorable gross margins and diligent cost management.

Net income was $22 million compared to $18 million last year. Excluding items not indicative of our underlying performance, adjusted net income was $26 million, similar to last year, while adjusted net income per diluted share was $0.38, up 6% year-over-year, driven by a lower average share count.

Now turning to our balance sheet and cash flow. We ended Q2 with $11 million of cash on hand and $138 million in unused borrowing capacity, providing us with ample liquidity. Total debt, net of deferred financing costs, was $310 million, an increase of $32 million from Q1 as we drew on our revolver to partially fund share repurchases in the quarter. Factoring in net lease obligations, our leverage now sits at 2.4x, up slightly from our recent trend, but well within our comfort range.

Q2 inventories were $141 million, reflecting healthy quality of stock across our DCs, corporate stores and franchisees. We delivered a ninth consecutive quarter of inventory leverage as a percentage of revenue as our supply chain transformation continues to unlock our ability to improve turnover, while ensuring we deliver industry-leading customer service levels to our stores and franchisees.

Net capital expenditures were $12 million in the quarter, bringing us to $22 million year-to-date. Our investments continue to be focused on new store builds, ongoing refreshes and renovations as well as the final setup work at our new Calgary DC ahead of its commissioning in early Q3.

And finally, turning to free cash flow and shareholder returns. We generated $27 million in free cash flow in Q2. This brings us to $42 million year-to-date compared to $31 million by this point last year, driven by improved net income. Free cash flow conversion on a trailing 4-quarter basis reached 45%, the highest level since 2021 as we exit our heightened investment cycle and leverage our working capital.

We returned $82 million to shareholders in the quarter through a combination of dividends and opportunistic share repurchases, including a $60 million direct share repurchase from Roark Capital. While we continue to monitor our equity valuation through the balance of 2025, given actions taken to-date, we intend to allocate excess capital towards repayment of our revolver over the near-term.

Now to our outlook for 2025. Growth within the Canadian pet industry continues to unfold in line with the expectations we had heading into the year with resilient demand for quality consumables and stabilizing yet still value-oriented demand for more discretionary items. In this context, our teams have crafted and delivered a compelling commercial plan, which together with better efficiency gains in our supply chain and good cost control has delivered strong financial performance and market share gains in the first half of the year.

Based on this, together with continued momentum into the third quarter, we have raised our full year profit expectations. Let me run through the key highlights of our 2025 outlook, which I will remind everyone incorporates an extra week, given the 53-week calendar this year.

We now expect 2025 revenues between $1.18 billion and $1.21 billion, reflecting growth of between 8% and 10% and supported by approximately 40 new store openings, same-store sales growth of between 1% and 4% and increased wholesale penetration. Based on the cadence seen in Q3 to-date, we continue to expect same-store sales growth to accelerate through the year.

We have raised our guidance range for adjusted EBITDA to between $257 million and $262 million, balancing our strong first half performance with continued caution in today's macroeconomic environment. This represents growth between 4% and 6% and continues to incorporate planned investments and normalization of operating expenses, which will continue into Q3.

Factoring in our increased revenue and adjusted EBITDA ranges, we now expect adjusted net income per diluted share between $1.63 and $1.68, representing growth between 4% and 7% despite absorbing approximately $0.12 of incremental depreciation and lease liability expense associated with our new distribution centers.

And finally, capital allocation. We now expect to invest approximately $45 million in net capital expenditures, up from $35 million as we incorporate investments associated with the rollout of our enhanced culinary experience across approximately 120 corporate stores this year. Based on our initial and expanded pilots over the last 8 months, we are confident this incremental investment will be accretive to our returns as we tap further into this high-growth category.

We continue to aspire to convert more than 40% of adjusted EBITDA into free cash flow this year, the vast majority of which will be returned to our shareholders. Given share repurchases completed to-date, we plan to direct excess capital after dividends toward debt repayment until we have paid off our revolver, which we expect to achieve by year-end.

In conclusion, I am very pleased with our financial accomplishments to-date, which have enabled us to enhance returns to our shareholders while continuing to operate from a position of financial strength and flexibility as we monitor the evolving environment.

With that, I'll turn it back to Richard for some closing thoughts.

Thank you, Linda and Greg. Overall, our business has great momentum, with our commercial plans growing sales and revenue and creating stronger bottom line performance, now positioning us to increase our annual guidance for fiscal 2025.

We have continued to get leverage from our many customer-facing technology investments and 360-degree marketing channels, loyalty program expansion and our digital commerce platforms. And as noted, with the opening of our Calgary DC, we have completed our multiyear distribution center network transformation on time and on budget, which is already delivering benefits through supporting new store openings, shipping over 40% of Chico's wholesale product needs already this quarter and achieving variable distribution cost leverage on a per unit basis.

With this quarter's announcement of our culinary in-store rollout, we have even greater growth on the horizon. This business has a strong operating platform, is taking market share and has a tremendous future ahead of it.

As stated in our release this morning, the Board has unanimously adopted my recommendation for a senior leadership succession plan. Greg will succeed me as Chief Executive Officer on September 21 this year, a date that works perfectly as that is when we kick off our annual store manager and franchise conference, where I'll be happy to formally transition day-to-day executive leadership to Greg at the event.

Starting at September and running through April 2026, I will continue to work closely with Greg and Linda as a senior adviser and continue in my role as a Board member of Pet Valu. Greg and I have a detailed transition process plan for how I will continue to assist him in the more strategic aspects of the role across these next 8 months. I have the utmost confidence in Greg to step into the CEO role and look forward to working closely with him on a successful transition until my retirement.

As always, I want to thank the hard work and commitment of our ACEs, franchisees and leaders who are the driving force behind the efforts that have allowed us to more than double revenue and quintuple net income during my years leading the company. It is truly a business where the compassion, expertise and commitment of our people make the difference, and I've been honored to be part of that journey.

I also want to take an opportunity here to thank my wife and children whose support across this chapter of my career has been exceptional. When the business pivoted and became Canadian only, we knew there would be days and weeks where the whole family had to work together to make the most of this opportunity. And every day, they have been supportive of me and what has taken for me to be both committed to Pet Valu and to our family. Now, it is time for me to transition to be more available for my family.

Finally, thank you to our Board of Directors and to our long-term-oriented shareholders, many of which that have been with us since IPO and also those that have more recently joined us. Your support, guidance and questions have helped us sharpen our capabilities, our focus and our competitiveness, and we look forward to many years ahead of your continued support and investment.

This is a great business. It's in a great place and has a great future laid out in front of it. I'm very excited for what's ahead and glad to be a continued part of it throughout this transition.

And with that, Carly, we will now be happy to take questions.

[Operator Instructions] Our first question comes from Irene Nattel from RBC.

Congratulations to both you, Richard and you, Greg. But I'm not going to ask about that yet. I'm going to focus my question on the business and the momentum in the business. It sounds as though, and you stated clearly that things have accelerated. Can you walk us through how much of that you think is a result of specific initiatives on your part versus what you're seeing in the channel overall?

Sure. Irene, it's Greg. Thanks for the question. I will take that one. So, very happy with the quarter. Top line trends show the success, momentum we're seeing in our commercial strategies, which we really emphasized starting in Q4. A couple of key pillars that I'd like to highlight as part of that.

So, first, we're continuing to win the monthly shop, as devoted pet lovers are responding well to our sharpened promotional program together with our everyday price investments. And you'll remember sort of 2 important ones, our Fresh 4 Life litter investment in November and then in April, our Performatrin Prime investment and the actions we took there. Those have worked well.

Second, our loyalty program continues to be a point of strength. We continue to expand the assortment of brands eligible for it, and we drove the sales penetration of it to new record highs in Q2. So, happy with that as well.

Third is the culinary category. It continues to be a standout. We're seeing pet parents increasingly look to Pet Valu as a destination for their culinary needs, which is why we've taking the opportunity to lean further into this with enhanced in-store experience and the investment and focus that you've seen for the balance of the year.

Together, these actions have really helped create both an increase in basket and an increase in trips and our same-store transaction growth returning to positive territory in the quarter. So, we do feel these trends are sustainable because our programs and decisions are a direct product of the tools, data and expertise that the team has, and we're getting stronger every day in that. So, I thought it was a good quarter, and we feel really good about where this is going to take us over the next few quarters.

That's really helpful. And just a follow-up. You mentioned something in JUMP! Hardlines, but how would you describe overall the level of consumer demand in the non-essential or discretionary category? And what do you think it takes to get a little bit more momentum there?

Yes. So, Irene, this is Richard. I'll give a start and then I'll jump over to Greg to give us some more detail. So let's -- I just want to pull up a little bit, let's just talk about overall industry demand. Look, as Linda noted on the call, we continue to see momentum and progress in both hardlines and consumables.

Consumables, of course, being over 80% of the business, really carrying today very strong performance and continuing to lead, especially on the back of the key commercial pillars that Greg just outlined for you. But as Linda noted, we also saw a sequential improvement in hardlines and a shrink of the gap between the 2 categories. And I'll let Greg talk a little bit more to that.

Irene, I think overall, I think we did a much -- we did a really good job in Q2 with balancing value and quality with our customers. So I think we're doing a better job of meeting them where they want to be. Specifically to hardlines, we're starting to see it stabilize. So -- and that's encouraging. And I think that's partially due to general trends in the industry, but it's also due to the actions that we've taken over the last year.

And I'd highlight 2, we continue to strengthen our hardlines' proprietary brands position. You mentioned 1 product. That continues to be a big focus for us, both to give value to our consumers and to our franchisees. And in recent quarters, we've layered on more targeted promotional programs to help drive some excitement and build a basket with those products.

Our next question comes from Michael Van Aelst from TD Securities.

Good numbers, and it was a strong quarter and stronger than what you guys had guided to actually on the margin side. So, I'm not sure if you touched on this, I got on a bit late. But can you just clarify, I guess, why the gross margin or why the margins in general were higher than what you anticipated. But also why -- if some of that is timing since you beat by -- consensus by about $0.05 and your guidance is only going up $0.02 to $0.03 for the full year. So that would suggest either higher costs in the second half of the year or some additional conservatism built in.

Michael, it's Linda. I'll take that one. So, yes, we were pleased with how our business performed in the quarter. It was the strong execution of our strategies, which I summarized across 3 main buckets. First, as you just heard Greg discuss, we saw improving success in our commercial program with our devoted pet lovers responding well to our merchandising and promotional strategies for both quality and value.

Second, we realized better-than-expected benefits from our supply chain transformation. Teams leveraged our new facilities and systems to drive the productivity and efficiency even while we neared the go-live in Calgary. And third, we did a really solid job controlling our SG&A spend, which reflects the culture of the responsible investment that we've fostered over recent years.

With respect to the raised guidance, so as per usual practice, we revisit our annual guidance each quarter. So we were looking at the strong performance we saw in the first half, those sustainable drivers underpinning that. At the same time, today's environment is still uncertain. So that limits our visibility into the future consumer spend, especially over the holiday season in the fourth quarter.

We believe our raised guidance balances these dynamics with the high end of our ranges, reflecting the stability in the discretionary demand together with the weakened -- with the continued success of our commercial plan, and the lower end reflecting the weaker macro environment. So, ultimately, we have the flexibility to adapt. We're not seeing a ton of timing in that. So...

Okay. Great. So, none of the expenses were really pushed into -- or programs were really pushed from Q2 into the back half. It's really just your conservatism for the second half given the macro outlook is uncertainty.

Yes, I would say that. One thing I would call out, you will recall last year, our Q3 margins benefited from lower variable compensation. So, we don't expect that to repeat this year. So, we would expect a more normal cadence quarter-to-quarter where we typically see our strongest adjusted EBITDA margins in the fourth quarter.

Okay. Perfect. And then -- sorry, one other thing. Where the heck did it go? Yes, sorry, on your inflation trends, it seemed to slow down from Q1 to Q2 or at least, I guess, your average transaction value growth. So, is that a reflection of the promo activity? Or are you seeing underlying cost of goods sold inflation moderating?

Michael, it's Greg. I'll take that one. So, in the quarter, we did see very modest inflation, basically similar to our historical run rates. Our merchants did do a great job of challenging proposed cost increases from suppliers and accepting only the ones where we felt they were justified given the underlying cost and commodity inflation.

But I do want to reiterate, for our guidance, it isn't banking on higher prices or inflation. We're really focused on driving growth in transactions and basket with our commercial program, and that's really tied to winning the monthly shop and leveraging our loyalty and promotional programs combined with great in-store execution to build the basket. So, that's what we're seeing this quarter, and we expect it to continue.

Our next question comes from Martin Landry from Stifel.

I would like to dig into the expansion of your culinary offering. Within your existing -- when you upgrade and increase your freezer space, what are you removing from your floor to make space for that? And then, what kind of uplift are you seeing in sales?

Martin, it's Greg. I'll take that one as well. And I'll maybe start with a bit of color around the investment and the focus for us in general. So, as you know, for the last several years, Culinary Food & Treats has been the fastest-growing segment within our consumables business, and that's really fueled by humanization and premiumization trends. We already had a strong leadership position here, but we did see an opportunity to enhance the experience even more. And so we piloted this layout within a handful of corporate stores starting last year, both expanding the freezer capacity, like you mentioned, applying a more thoughtful and intentional merchandising program and enriched signage, but just as importantly, upgrading our in-aisle expertise to match.

Very pleased with the results across the whole store, not just within culinary. And these investments drew in that customer who have a high lifetime value and shop in-store more often. So, it really surpassed our returns and led to this stage of us moving to a rollout in our corporate stores. We're seeing solid growth in the -- with this customer, which drives total sales.

And Martin, this is Richard. I would just add on to there, that second part of your question around sort of what are we giving up? Not a lot actually. The vast majority of this is actually a layout change as opposed to, in many cases, an incremental allocation. It really is doing a better job of centralizing not just the frozen and gently cooked products, but also the freeze-dried, the supplements and all the things that go in. But as important as the actual capital investment we're making is the training investment we're making into the in-isle expertise.

As Greg noted, these are high-value, highly discerning customers, and they buy across the entire store. And so, while there is a bit of an investment with the $10 million going into the corporate stores, over 120 corporate stores this year, and there is some physical layout changes you'll see, the much more subtle but much more impactful change is the impact on the training that we're doing, the support we're providing to that training and the expertise we're bringing to the customer as they make these choices.

Okay. And can you talk about the profitability levels for that category? Is it fair to say that all that is culinary drives higher margins than your average store overall?

So, Martin, what I would say is, it's well in line with the overall store. Remember, this is frozen raw, gently cooked, freeze-dried and in many cases, supplementation. And so, it really does represent a broad range from everyday food to some of the higher-margin goods that go into the supplementation and the care for the pet.

But as Greg said, I think the most important thing to take away here is these customers buy across the whole store. right? This is a full share of wallet. And as Greg noted in his stated remarks on the call, these are also in-store customers. They disproportionately shop in store, oftentimes generating weekly or bi-weekly trips. And so, yes, there's a category impact, but most importantly, this is really about a customer prioritization.

Okay. Super. That's helpful. And Greg, congrats on your appointment. And Richard, it's been great working for you -- working with you over the years and good luck in your future projects.

Thank you, Martin.

Our next question comes from Vishal Shreedhar from National Bank.

Linda, in the preliminary script, I thought I heard you comment, you can confirm that same-store sales growth is expected to accelerate through the year, but the same-store sales growth is a range of 1% to 4%. So, should we anticipate the bottom end of the range being unlikely and we should focus more on the top half? Is that the comment?

We give a range for a reason. I think and I guess I would reflect on our -- we do expect it to continue, but also being mindful of today's environment, still uncertain, lot of the year left to come. So, that's why we provide the range.

Okay. But in the script, you did say you anticipated it to accelerate through the year. That was -- I did hear that correctly.

You did hear that correctly.

Okay. To what degree did the partnership with Instacart and Pet Valu contribute to the same-store and profitability, if at all?

Vishal, it's Greg. I will take that one. I'll maybe start off with -- we were happy with our online sales and our omnichannel sales. They continue to outpace the -- our total store sales. The Instacart partnership was part of that omnichannel growth. It was a nice amount. It isn't material in the grand scheme of our sales, though. So, I think I'd attribute more of that to our strong commercial strategies and plans with Instacart offering just another option for convenience to allow customers to more easily access that plan.

Okay. With respect to competitive industry growth, have you seen that moderate to levels more in line with historical trends? Or is that still an elevated rate?

Vishal, can I just clarify that question? I just want to make sure I understood. So, your question was, have we seen competitive industry growth moderate to long-term trends?

Yes, I was talking about real estate growth in particular.

So, real estate and store growth. Okay. I just want to make sure we understood what the genesis of your question was. We are seeing that there has been a bit of a pullback in the industry from other competitive openings over the past year. It is, once again, giving us an opportunity to lean in and take share in the marketplace, thanks to the strength of our balance sheet and the strength of our real estate process and the quality and the assessment that we bring into this.

We're quite happy with what we've seen to date on the year. As Greg noted on the call, we'll be up to 15 openings by the end of this week. We're well on track with line of sight to our 40 openings for the year. And -- so while maybe perhaps a few of our less well-capitalized competitors have had to pull back, we continue to have a good, consistent roughly 40 openings per year.

Our next question comes from Mark Petrie from CIBC.

I'll echo the congratulations, Richard, on a fantastic career and wish you all the best; and of course, to Greg on the new appointment, looking forward to working together. I want to ask just about gross margin again. You've called out the sort of better-than-expected leverage from the supply chain. I know there's different levers here, but could you parse that out a little bit? Is that just sort of pure shipping efficiency, just getting product out the door with less labor? Or is it about higher penetration of SKUs? Or maybe just sort of give us a sense of the materiality of the different pieces here.

So, the great news is, Mark, first response is, thank you. Second response is, you nailed it. It's all of those things. So, really, I would say, I just want to give credit to the supply chain team because while simultaneously getting the Calgary DC transitions this quarter, they really did pull out incremental efficiencies in both our GTA and our Vancouver warehouses; yes, in units per hour productivity or shipping cost; yes, in the management of our e-commerce, shipping costs with actions that they're taking to manage on that front; and yes, in great management of the incremental SKUs.

So, note again that we increased our SKU count about 3,000 SKUs on a year-over-year basis, broadening our wholesale catalog, becoming more relevant, having already been really relevant, now even more relevant. And quite frankly, as we noted in my remarks, we're up to over 40% of wholesale shipments now to our Chico franchisees in Quebec. So you combine all of that together, while we were expecting productivity, as Linda noted in her prepared remarks, we just got more than we expected. Our teams are truly doing a great job. And I'm just -- I couldn't be more proud of the way in which they balance both change and run the business at the same time.

Okay. And then I guess somewhat related question, could you just talk about the runway for revenue to grow faster than system-wide sales? I know that the increased shipments to Chico is part of that. But maybe just talk about the other levers. And is that something that you think has significant runway? Or is this just sort of a normalization over the next kind of 6 to 12 months with regards to those 2 lines growing more in concert?

Mark, it's Greg. I'll take that one. So, I'd start off by saying we're very pleased to see our revenue continuing to outpace system-wide sales growth and really driven by wholesale shipments to our franchisees.

Richard just talked about the additions and strength to our product category. That absolutely helps us sharpen our ability to be able to serve our franchisees and with the new supply chain capability, both on time and in full. The gap that you're currently seeing, we do expect that to taper over time, a longer time period than what you just mentioned, but over time.

But -- so we still see opportunity in being able to grow our franchise shipments as we add new brands and fulfill more of their sales needs. And we still see a lot of runway left in Chico. So, we're at 40% sales penetration now that will be at 50% by the end of the year, and there's still runway after that.

And the only thing I would add, Mark, is, it can be a bit lumpy quarter-to-quarter. Some of it is impacted just by the timing of when we introduce new brands or we expand distribution across the country. So the actual gap itself will taper over time. Exactly the pace will sometimes be dependent upon just what happened in the quarter.

Our next question comes from Chris Li from Desjardins.

Yes, Richard and Greg, let me first extend my congrats to you both. And Richard, very happy to hear that you'll be able to spend more time with your family. It's really well deserved. Maybe first a follow-up question. Sorry if I missed it earlier, but the culinary category, can you remind us roughly what percentage of sales currently come from the culinary category? I remember it's pretty low at the moment.

Chris, it's Greg. So, continuing to see strong double-digit increases in it. Our sales penetration is more or less in line with what you would see in the industry. So in the range that you just said, sort of mid to mid-single digits. We do expect this to increase over time. And -- but I do want to reiterate that higher culinary sales in and of themselves is not the only benefit from this initiative. Richard talked about that. This is a high-value customer. They have high lifetime value. They are our priority for both that and the fact that they are much more likely to want to come to a store every week. So, they typically, as a reminder, spend double and with more trips.

Got it. Okay. That's helpful. And then, with respect to your effective strategies in terms of gaining market share, I'm just curious, as you're having success in that area, have you seen any notable changes in terms of competitive intensity or reaction from your competitors, especially since the market is still fairly uncertain? Are you seeing any uptick in competitive intensity overall?

Chris, it's Greg again. No. So, I think no real change in the environment. It does remain competitive, but no real change. I think what has changed is our approach. So, we've sharpened it, both with the tools that we've talked about and our team to enhance the effectiveness of our program. And we've been able to use that to drive both sales and revenue and exceed our margin targets or margin expectations as you heard. So, we've been happy with that. I think we -- I believe we are the real change that drove our results in the quarter.

Got it. Okay. And then, Greg, maybe just a last one. I think you touched on this earlier already, but I know it's still very early, but can you give us an update on what you're seeing so far in your new promo planning tool, I think that you launched just maybe a month or 2 ago?

It's one of the factors that has allowed us to do what I just mentioned around driving sales and revenue with being able to do that with effective margin. I wouldn't say it's the only factor. I think our stores have done a great job of utilizing the promotional plans that we have. Our team, we've added some talent and we've learned through this -- since we started on this plan in Q4. The tool helps support that, though.

Our next question comes from Michael Glen from Raymond James.

Just on the Chico penetration, the 50% target rate, what are some of the -- like if I think of that relative to the network outside of Quebec, what are some of the big product categories that remain in place to get that penetration rate narrow the gap between 50% and where the network is as a whole?

Certainly. Just as a reminder, the overall network, Michael, is roughly around 90% penetration. We do not self-distribute cold chain at this point. So, our frozen raw is through an outside distributor. Beyond that, much of what the rest of the network purchases are small regional products and things that we test, usually small producers that can't quite support the entire network yet.

If you look at the difference between that and where we are today in Quebec, there's still a handful of larger Quebec brands that may or may not come into our supply chain over time, depending upon if we also see opportunity in potential provinces outside of that.

Once you get past a few of those brands, it's really thousands of smaller items that just they take time. It really is just a matter of introducing them. A key factor, of course, is Quebec language laws. For example, we have almost 2,000 proprietary brand SKUs in total in the network, but only a little over 1,000 that we've currently been able to make compliant with Quebec language. And it's really important to us to honor the local expectations. And so, part of this is just transition over time, Michael. It's just making sure we've got the right products to be able to put in that are relevant for the Quebec market.

Okay. And then, industry as a whole, what do you see in terms of data on overall pet population growth right now? Is pet population starting to grow again or pet adoption rates starting to pick up? Any data or insights that you have there would be interesting.

Really, Michael, we're just still seeing the same general trends. It's a pretty stable environment, kind of like where we were prior to the pandemic. If you go even back to our IPO materials, we were very clear, there's a little bit of pet population growth per year. Generally, you're about 63% to 65% of Canadian households have a pet, several with multiple pets. That's been a pretty consistent percentage over the long term, 30-plus years' worth of tracking.

Really, what drives our industry is premiumization and humanization. And as we've seen in our results, especially with the outsized performance in our premium consumables and the investment we're making in the culinary, that is still the core drivers of our above-average growth.

Our next question comes from Adrienne Yih from Barclays.

Great. And let me add my congratulations, Richard. What a great way to go out on top of all these -- the commitments over the past 4 years. So, congrats there, and congrats to Greg. Looking forward to working with you.

Thank you.

Absolutely. So, either for one of you or both of you, kind of the $100 million investment over the past 4 years, it really sounds like you are at this tipping point. Greg, you mentioned ongoing or leverage in the fourth quarter. I'm just trying to figure out, from a capacity utilization, from a stores capacity, Chico's is doing 40% can grow more. Where are you at? It sounds like you're in the early part of the journey. So how should we think about this on a longer term, a 2 or a 3-year horizon? How much can this kind of generate in terms of fulfilling the network?

So Adrienne, let me start first with just your broader question about capacity, then I'll actually turn to Linda to talk a little bit about sort of how it's going to help to contribute to results over time. So, the good news is, we've doubled capacity. Now especially with Calgary in place, we are at 2x the capacity we had. Now remember, we were at 115% capacity utilization in 2023. So, some of that was necessary just to keep up with the existing business we already had 2-plus years ago.

So, we have great capacity utilization today. At the same time, we've actually left incremental space available in each one of the 3 warehouses that we could add rack and/or automation over time to, to increase that capacity when or if the capital is required. We are still very early in getting the productivity. We're still very early.

We love what we're seeing in the units per hour productivity that teams are generating. We like what we're seeing out of the automation that we put into the GTA. But again, we're still not even quite out of the old Calgary facility. That doesn't technically happen until the end of next month. So we're still very much at the last major milestone of the actual change itself.

But I'll turn it over to Linda to just talk a little bit of sort of expectation of contribution over time.

Yes. So, what I would say on that front, like marrying up the -- there's puts and takes on the whole gross margin side. So marrying up those efficiencies in the supply chain that Richard was just talking about together with our commercial strategy. At the same time, we'll be having the mix shift towards wholesale. And of course, those fixed costs from -- as we are still absorbing those in the back half of this year.

So, putting all of that together, we do expect that those things will start to balance out. And then we can see some upward trajectory starting in 2026 as we leverage those fixed costs and continue to benefit from those productivity and efficiency tailwinds from the transformation.

Perfect. In terms of the proprietary brand penetration, where do we sit now? And how should we think about that kind of over time? And then my second question is the loyalty program, how many loyalty customers do you have? Obviously, with everything that you're doing, you might be seeing sort of an acceleration in kind of conversion? And what percent do they make up of total sales?

Adrienne, maybe I'll kick off the loyalty question first. So, $3 million, just under 90% sales penetration in the quarter. So, that's a record for us. We were happy with how that helped drive our monthly customers. And just happy with it in general as we expanded out the number of programs or number of brands that are eligible for it. So that remains an area that we can continue to leverage.

On proprietary brands…

Yes, I'll jump in there, Adrienne, we were -- roughly 25% penetration is what we released within our AIF. Interestingly enough, we're still there, if not turning a corner and increasing penetration. What has been very interesting, though, is on a year-over-year basis, we've actually increased our proprietary brand unit penetration by over 200 basis points.

So, remember, when we did a lot of finding value for the customer by converting to our own brands, we actually took down retail prices in many of those cases by 5% to 20%. In addition, with the value pillars that Greg talked about, specifically investments we made in November on Fresh 4 Life Litter and then in April on Performatrin Prime, we're creating incremental dollar value to the customer. We're seeing a great unit pickup. And as I just said, in this past quarter, we turned the corner and are starting to see penetration growth rates on a dollar perspective as well.

That's great. Last housekeeping question, Linda, the 53rd week, the contribution in sales and EPS, if you have that, please?

Yes, we've said roughly like 2% for that 53rd week.

Our next question comes from Chris Murray from ATB Capital Markets.

First of all, congratulations. I think, Richard, on a really successful run at Pet Valu. It's really been fun to work with you. And Greg, looking forward to working with you as well.

Just turning back to supply chain, a couple of quick questions here. So, first of all, as Calgary comes online and now you've got sort of 3 facilities, as you said, room to grow. how to move stuff around. I think as we've seen the newer facilities mature, can you talk a little bit about how you think both the regional and maybe the national profile could change on how you do different programs, either that's for e-commerce or stuff like that, now that you've the capability more nationwide to do some distribution?

Chris, it's Greg. I'll take that one. This helps an awful lot. So, the doubling of capacity, especially starting in Ontario, we built a very strong extended aisle program that we were then as we added capacity to first Vancouver and then Calgary -- and now Calgary, we're able to add those items into that assortment first for our stores on the items that have proven to really work through extended aisle and then for our e-commerce business to be able to get those 2 customers faster and more efficiently.

And in addition, I would just highlight, I don't know if you noticed, but we also took a step forward with our AutoShip program during the quarter, especially leveraging our advantage, having the only AutoShip program of specialty pet and I think maybe one of the very few in all of retail that actually allows the customer to either order to their home or for a subscription pickup in store. And so this has, again, enabled further flexibility in us being able to service customers when where and however they choose.

Okay. That's helpful. And then the other question is, as we're talking about sort of the growth in either frozen or fresh, is there any thoughts around adding cold chain into your -- into the facilities at this point? Or is it still too early?

Yes, it's really still too early for that, Chris. We're still, like I said, finishing the transition in Calgary. So we'll get through that. Every year, as we look at our planning, we make capital conversations around what's the best use of capital and the next step we should take. Right now, as we just announced, that next best use of capital is the culinary investment that we're making, the incremental $10 million of capital we announced for this year and probably similar levels next year as we continue to finish out the rollout in our corporate stores and likely begin some of our franchise stores.

But yes, Chris, each and every year, we take up what's that next best use. That will be one of the things we look at over time. But today, there's still an opportunity to really grow the penetration in the sales and then determine whether or not we need to make a change in how we actually manage the distribution.

Thank you very much. At this time, I would like to hand the call back to Richard Maltsbarger for any further remarks.

As always, thank you to everybody listening in, all of our long-term investors, all the people that are interested in the company and all of you for your great questions, and as I said on the call, what you've done to help sharpen our focus and our competitiveness over the years.

I really appreciate all the kind words this morning on the call. This, like I said earlier, is a great business. We've got a great platform. We're a growing company. I'm extremely proud of our executive leadership team and excited to see what they continue to do in the future. So, with that, thank you all so much, and the team will come back and talk with you in November.

As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.