Pet Valu Holdings Stock

Good morning, everyone. Thank you for standing by. Welcome to Pet Valu Second Quarter 2026 Earnings Conference Call. My name is Cherie 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 second 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 Q2 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 would like to turn the call over to Greg.

Thank you, James, and good morning, everyone. I am pleased to report our second quarter results, which showed an inflection in profitability compared to our Q1 trend. Gross margins improved to 32.5% and adjusted EBITDA margins reached 22.4%, all while maintaining solid top line momentum and further market share gains. These improved outcomes were direct results of the actions we took to execute our strategy while adapting to today's demand and cost environment.

Let me call out a few highlights. First, we made calibrated adjustments to our commercial plans for the second quarter. We delivered value where it would have the biggest impact for devoted pet lovers, all while encouraging a stable trading environment and providing room for our strengths in quality pet products and expert advice to shine.

Second, our team sharpened their focus on cost management. Leveraging our position as one of the fastest pockets of growth within Canadian pet, we work closely with strategic specialty pet brands to mitigate rising product and fuel costs, helping us deliver value at more competitive investment levels.

Third, we drove a fourth consecutive quarter of distribution cost leverage unlocked by our supply chain transformation with much more benefits expected to come.

And fourth, we were very active on corporate store resales, with a record-tying 11 locations sold in the quarter to new and existing franchisees, including the first resales under our Chico banner.

The impact of each of these tailwinds was amplified by another quarter of solid top line growth and market share gains. Revenue grew almost 4%, supported by our proven strategies, network expansion into growth markets, momentum in e-commerce, and rising wholesale penetration as our franchisees ordered more through us.

Same-store sales trends were largely consistent with Q1, despite lapping our strongest comp of 2025 in the second quarter and ongoing value-seeking consumer behavior following the rise in fuel prices. We believe our ability to maintain consistent same-store sales growth demonstrates the resilient appeal of our value proposition as we deployed a more balanced commercial plan in the quarter. Once again, we were pleased with the composition of these sales as we grew share of wallet with our loyalty customers, converting more to monthly shoppers. And while higher fuel prices shaped purchase frequency, we grew tonnage as devoted pet lovers stocked up when they shopped with us.

At the same time, we executed on each of our 3 main themes underpinning our long-term strategy. First, to be Canada's local and everywhere pet specialty retailer. We opened 7 stores in the quarter, bringing us to 15 new stores so far this year. As I mentioned earlier, we are expanding into resilient, growing markets such as Alberta, as well as rural towns, which have historically been underserved by pet specialty. We ended the quarter with 877 locations coast to coast, 71% of which are franchised, representing a slight uptick in penetration from Q1 due to the pace of corporate resales. This is a particular highlight for me as it demonstrates the strong interest we see from new and existing franchisees to invest in our business. This is due in large part to the close relationship we share and the long-term commitment we place in achieving joint success with our franchisees.

The growing scale of our store network is paying dividends within our digital channel, where demand for online delivery platforms and Click & Collect help drive record growth. We were pleased with the momentum in both of these areas, where support from limited time offers drove excitement and adoption of those platforms. At the same time, our AutoShip subscription service continues to grow both in absolute dollars and as a proportion of our digital sales, as more devoted pet lovers leverage its convenience for their recurring orders.

Moving to our second focus, to deliver the best pet customer experiences. Our merchandising, marketing, and in-store teams continued to do what they do best, curating a strong selection of high-quality and innovative products, delivered with helpful advice and exceptional value. Their efforts in the second quarter centered on delivering value more effectively, leveraging our scale, and working with specialty brands to deliver exciting programs.

In hardlines, our refreshed go-to-market strategy continued to take shape. We saw further momentum in our recently introduced Item of the Month program, providing devoted pet lovers with low price point, high appeal hard goods to add to their baskets. On the back of this program's success and the longstanding popularity of our Treat of the Month program, we will be expanding these programs into our Chico banner in Quebec, as we increasingly leverage our scale and expertise to better serve Quebec's pet parents.

We were also pleased with our performance in toys, which grew nicely in the quarter. The resurgence of this category has been led by key national brands, several of which were introduced late last year, injecting newness and excitement into our offering.

In consumables, culinary was a standout once again, with our enhanced in-store experience amplifying sustained demand from devoted pet lovers. As the fastest pocket of growth within consumables, it is clear pet parents remain committed to providing better nutrition for their pets and are choosing Pet Valu to help meet these needs. We expect these trends to continue, supported by key category extensions such as our recently introduced Performatrin Culinary frozen raw for cats and frozen goat yogurt salmon bites for dogs.

We also made an exciting advancement on our roadmap to providing greater personalization through our loyalty program. In the quarter, we piloted providing enhanced loyalty data to our in-store ACEs at the checkout, enabling their ability to deliver service and meaningful conversations at an individual level. This has since been rolled out across most of our network and provides the foundation for incremental personalization initiatives we have planned for later this year.

And finally, our third focus, to fortify strong wholesale and retail fundamentals. The most prominent actions on this front center around our supply chain activities, which continue to provide a meaningful tailwind to our margins, even throughout the current higher fuel cost environment. This is being driven by the culmination of multiple initiatives, from the sharpening of our performance management enabled through our new labor management systems, to best practice training across our DCs, to cost avoidance unlocked through our scale. All of these were made possible by our supply chain transformation, with a long tail of further benefits expected over the coming quarters and years.

Altogether, our business delivered the improved operational and financial performance we expected in the second quarter. We were pleased with our ability to deliver value to devoted pet lovers, competitive wholesale pricing to franchisees, and return capital to our shareholders through our active dividend and share repurchase programs.

With that, I'll turn it over to Linda to dive into the numbers.

Thank you, Greg. I'm pleased to report strengthening financial performance in the second quarter, which was a direct reflection of the planned actions we shared with you back in May. While consumer demand remained challenged from ongoing macro headwinds and higher fuel costs, our calibrated commercial approach and improvements on SG&A leverage delivered a positive inflection in our adjusted EBITDA margin, giving us greater confidence in achieving our full year guidance.

Let me walk through some of the key financial highlights before sharing a few thoughts on our outlook for the second half. Starting with our system-wide metrics, total sales increased 2% to $377 million, supported by contributions from 45 new stores opened over the last 4 quarters, including 7 in Q2. On a same-store basis, sales were essentially flat year-over-year, similar to the trend seen in Q1. We saw improved basket growth trends driven by purposeful adjustments to our commercial plan in the quarter, as well as the lapping of some prior year pricing actions. At the same time, transactions were impacted by a stronger comp, lower nonloyalty traffic, and further trip consolidation following the spike in fuel prices. Same-store performance by category was similar to recent trends.

Q2 revenue was $291 million, representing growth of 3.6%, near the high end of our annual guidance. Higher wholesale penetration once again helped us deliver revenue growth ahead of system-wide sales, showcasing our ability to deliver solid top line growth despite a tepid sales environment.

Gross margin was 32.5%, compared to 33.6% last year, after excluding minor nonrecurring costs related to the supply chain transformation in the comparable period. The decline in rate was mainly attributable to price investments made in late 2025 and higher occupancy costs tied to greater corporate store count, partially offset by distribution cost efficiencies. Importantly, our Q2 margin represents a meaningful sequential improvement of 110 basis points from Q1, demonstrating the effectiveness of our commercial strategy focused on delivering a better balance of sales and margin dollars.

Excluding share-based compensation and costs not indicative of business performance, SG&A expenses were $49 million, or 16.8% of revenue, an improvement of 150 basis points from last year. Rate benefited from greater corporate resale activity with 11 store sales in the quarter compared to 1 in Q2 last year. Without these gains, rate would have been similar to last year, an improvement from the year-over-year pressure we saw in Q1 as our work to tighten costs across our business offset the natural pressure from our higher corporate store count.

Adjusted EBITDA was $65 million, an increase of 8% from last year. Adjusted EBITDA margin was 22.4%, up 100 basis points from last year, driven by the favorable SG&A rate improvement I just mentioned. Year-to-date, our adjusted EBITDA margin sits at 20.9%, in line with our full year guidance.

Net income was $25 million, up 14% from $22 million last year. Excluding share-based compensation and items not indicative of our underlying performance, adjusted net income was $28 million or $0.41 per diluted share, representing year-over-year growth of 7% and 8%, respectively.

Turning to our balance sheet and cash flow. Our financial position remains strong with $175 million in liquidity and net debt leverage of 2.3x, including our net lease obligations consistent with recent trends. As expected, inventory levels improved in Q2, ending the quarter at $134 million, down 5% from last year, driven by strong sell-through to franchisees. Our merchandising and replenishment teams continue to adapt to evolving demand signals, maintaining healthy inventory levels across our DCs and stores while deploying our working capital more efficiently.

Net capital expenditures in the quarter were an inflow of $2 million due to $7 million collected from asset sales, consisting primarily of corporate store resales. At the same time, we continue to invest in new stores, renovations, and other maintenance activities.

We generated $33 million in free cash flow in the quarter versus $27 million last year, benefiting from lower capital requirements and higher proceeds from corporate store resales. On a trailing 4-quarter basis, free cash flow conversion improved slightly to 42%, once again showcasing the strong cash conversion capabilities of our business model. Strong visibility into these cash flows supports our continued emphasis on capital returns to our shareholders. We deployed $38 million in the quarter, including $20 million in share repurchases under our NCIB and $18 million through dividends. So far into Q3, we have repurchased another $6 million of our shares as we continue to view buybacks as an attractive use of our excess capital.

Now turning to our 2026 outlook, which we have reiterated today. Looking at our results for the first half, we are tracking well against each of our key financial targets. Year-to-date, we have grown revenue by 3.4% towards the high end of our 2% to 4% guidance range. Adjusted EBITDA margins are in line with the 21% target, and our adjusted net income per diluted share is similar to last year. At the same time, evolving macro dynamics, such as those related to fuel and trade, are contributing to the ever-present uncertainty in the current environment. While our sourcing and operations limit the direct impact from several of these dynamics, they nonetheless shape demand from devoted pet lovers.

And so, our teams are managing through this by focusing on the elements we can control, promoting responsibly, leveraging our scale and world-class assets, controlling and mitigating costs, prioritizing high conviction investments, and returning capital to our shareholders. Incorporating these factors, we have strong confidence in achieving our full year outlook. It reflects the environment as we see it today, while encompassing the many benefits of the actions well within our control.

Before turning the call back to Greg, I'd like to provide a few comments on the second half of the year. We continue to expect revenue growth to remain within our targeted range of 2% to 4% on a comparable week basis. We also anticipate similar corporate store resale gains in the back half of the year as those seen year-to-date, but spread between Q3 and Q4. Altogether, this puts us in a strong position towards achieving our full year guidance.

And with that, back to you, Greg.

Thanks, Linda. Looking back on the successes we saw in Q2, these were only made possible because of our ACEs and franchisees. As our environment evolves around us, I am continually impressed with the speed and professionalism of our people to adapt, as well as incredibly grateful for the enduring commitment they place on our mission to be Canada's preferred pet retailer. An important element of this mission is the impact we and our franchisees have on the communities we serve. This continues to be an important strength for us, with several highlights in the quarter, including our most successful Pet Appreciation Month this past June, with $2.6 million in donations raised, our focus with shelters on adoption events, and the support our stores provided to communities impacted by wildfires.

Thank you to all our ACEs and franchisees for delivering the expertise and compassion devoted pet lovers need and deserve to help them with the health and happiness of their pets.

In closing, I want to reiterate the strong conviction we have in our 2026 outlook based on clear actions well within our control, and look forward to updating you as we progress through the second half of the year.

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

[Operator Instructions] Our first question will come from the line of Irene Nattel with RBC Capital Markets.

It sounds as though you're starting to see some traction with some of the adjustments you've made on your commercial programs. Can you talk through what adjustment you've made and what we should expect in the second half? And then as a follow-up to that, what needs to happen in order to see an acceleration in same-store sales into solidly positive territory?

Irene, thank you for the question. Overall, the shape of demand in Q2 remained relatively consistent to recent trends. Demand for pet products remained resilient but very intentional, given the pressure we've seen in consumer discretionary spending. Devoted pet lovers are turning to the specialty pet retailers that can offer them the best combination of convenience, quality, value, and expertise, which is why you see us sharpening our appeal on each of these fronts. With greater convenience through our network expansion and full digital offering, high-quality led by market-leading specialty brands and our investments into culinary, enhanced value through our sharp everyday prices, our established proprietary brand, and our great loyalty program, and expert advice from our animal care experts. And because of this, we continue to win the most valuable monthly intentional shop. With our loyalty program capturing 90% of our sales, we have strong visibility into this and can see a higher proportion of monthly visitors.

The main change that drove the inflection in our results -- in our Q2 results tied back to how we adapted to this environment, collaborating our commercial plan and applying a greater focus on cost management.

On the commercial plan and the changes we made in Q2, for competitive reasons, I'm going to keep this at a high level. Essentially, we made the appropriate changes given the current environment, resulting in a better balance of sales and margin dollars in Q2. The biggest change came from how we approached our promotional plan, where we leveraged the insights from Q1 to be more successful at delivering value and earning margin in this environment. A great example of this is our Item of the Month program for hardlines that I referenced in my prepared remarks. This continues to build momentum month-over-month, generating continuous excitement in store and giving customers an easy reason to add to their basket.

Additionally, we worked with vendors to manage costs in the pipeline while also managing our own expenses very closely. There remains uncertainty in the environment for sure, but we're happy with how we leverage both our tools and talent to adjust to this environment and to deliver our Q2 results.

And that will come from the line of Martin Landry with Stifel.

Perhaps just to follow-up on Irene's question, I think your traffic or your transaction volumes were down this quarter. Just trying to understand when you expect traffic and transaction volume to inflect back to positive territory.

Thanks, Martin. When you take a closer look at our transactions in Q2, we saw many of the same trends that we discussed last quarter. We're seeing a higher proportion of trips from our loyalty customers, and in particular, our monthly shoppers, and fewer trips from those not on our loyalty program, who typically buy more on promotion and have smaller basket sizes. We're also continuing to see some trip consolidation in light of higher fuel costs. I'd also call out that we lapped our strongest transaction comp of 2025 last quarter, which coincided with general buy Canada tailwinds. We were pleased with the improved basket growth we saw in the quarter. And as Linda mentioned in her remarks, this ties back to the adjustments we've made in our commercial plan, as well as the easing impact of last year's price reductions as we lap those actions such as Performatrin Prime in April of last year.

Okay. So I understand that you're talking about the consolidation of trips and higher basket. Do you monitor like traffic on a per customer basis? Or I mean, with your loyalty program, you probably have some data that you can assess traffic on a per customer basis. Just trying to understand a little bit what dynamics are at play that you can, what drivers you have at your disposal to maybe toggle traffic up a little bit?

Thanks, Martin. Great question. So we do. With the breadth and strength of our loyalty program covering 90% of our sales, we have great visibility into our monthly shoppers. We saw that increase in the quarter. Where we saw some decreases was our nonloyalty customers who are more promotionally focused. We were quite happy with the amount of loyalty customer trips and loyalty customers that we saw in the quarter and the tonnage that they bought, as with consolidated trips, they stocked up and bought more.

And that will come from the line of Chris Li with Desjardins.

Sorry if I missed it earlier, but can you talk a little bit about what you're seeing in terms of the competitive intensity or the promotional penetration in the industry, and what's sort of your outlook for the rest of the year?

Thanks, Chris. I'll start with us. With regards to us, you've heard us talk about the adjustments we've made to our commercial plan, and that's really designed to encourage a stable trading environment. We're comfortable with the changes we've made and our plans heading into the back half.

As for our specialty peers, it's still a bit early to really read into any changes there. We will get a better sense as time passes. But one key message that I want to share is that, while we have seen a general uptick in promotional activity since last fall, the overall environment remains rational and consistent with the expectations that we built into our outlook for the remainder of the year.

Great. Okay. And maybe a follow-up for Linda. Despite the strong Q2 performance and presumably more tailwinds to come in the second half from more corporate store sale gains and lapping pricing investments, your full year guidance seems to imply rather limited improvement in the second half. I know you mentioned obviously there's still a lot of uncertainty with respect to macro and the consumer. Is that the main reason? Or do you guys expect to maybe make more investments in margins to try to maintain that top line improvement in the second half? I just want to square those 2 together.

Yes. Thanks, Chris, and I appreciate the comments on Q2. So we are tracking very well against our guidance year-to-date. And as I think about the back half, there are a few elements that I would highlight. First, we do expect revenue growth to remain within our 2% to 4% guidance range, supported by the same drivers in the first half, including the new stores, momentum in e-commerce, and the higher wholesale penetration.

And second, we're confident in the elements we can control in the current environment, including our commercial plan and maintaining the tight cost management. That said, the macro dynamics continue to evolve, particularly on fuel and trade. So there are still external factors we're mindful of that could impact the demand and cost environment.

And last, we expect a similar level of corporate store retail gains in the second half of the year as we deliver in Q2, though spread across our 2 remaining quarters. So layering in all of that, we do have strong conviction on our ability to achieve the full year outlook, especially as it's not dependent on any material improvement in the environment as we see it today.

And that will come from the line of Vishal Shreedhar with [ NBCCM ].

Maybe a bit early to ask this, but we'll have to consider it nonetheless. As we review our 2027 forecasts, SG&A was benefited by these refinancing gains, which may not occur in every year, at least the same cadence. So is the Q2 number with the benefit of the refranchising gains for SG&A, is that a good base to use for 2027? Or when we think about 2027, should we just back out these refranchising gains and use that as the base?

Vishal, it's Greg. I'll start, and then I'll hand over to Linda. Corporate store resales, it's a long-established practice of ours. First started when we began franchising stores back in the late '80s, and we have a great pipeline of new and existing franchisees looking for an established, mature location that they can hit the ground running in. With over 250 corporate locations, we always have a subset available for sale and to feed this demand, and we expect to continue that practice next year and into the future. Linda?

Yes. I'll just add a couple of points. First, the gains we realize on stores can vary store to store, depending on things like location, profitability, age of store. And then longer term, from an SG&A perspective, I think about it as inclusive of corporate resales and expect slight leverage over time.

Okay. And just to clarify, these corporate store sales that you're benefiting from in the quarters, the degree to which you're going to do them in 2026, was that contemplated in your plan? Or is that going to be a little bit more in 2026 than initially anticipated?

Yes, it was contemplated in our plan, Vishal. So, yes, as Greg just highlighted, it is a recurring part of our business. And so, from a -- we did talk -- there was a shift from Q1 into Q2, so we had heightened store resales in Q2. But if I look at it at first half, I think that's a good trend, and you'll see the similar amounts in Q3 and Q4, but split differently.

I see. And just if I can squeeze one last one. In terms of the revenue impact, when you sell a corporate store, that helps your SG&A, but it would hurt your revenue because you're converting the corporate store sales into the franchise component sales that you get. Is that correct? And if so, can you quantify the impact in the quarter?

It's generally correct. Again, it depends. So there's a lot of dynamics, obviously, between our wholesale channel versus our retail channel. So there's only 11 stores out of our significant base, so not meaningful.

And that will come from the line of Michael Glen with Raymond James.

Maybe just to start, Greg, you're making reference to working with the vendors. And then you're also referencing some of the inflationary impact as well to think about. In terms of product cost and maybe fuel or freight in cost of goods sold, can you just comment on, are you seeing inflation on those 2 items overall?

Michael, I'll start and then hand to Linda. From an inflation perspective, so year-over-year, we continue to see some deflationary pressure, really driven by our price investments that we made at the end of Q3 last year. That said, the deflationary pressure was not as meaningful in Q1, given the adjustments we made to the commercial plan that you just referenced through the second quarter. And importantly, we aren't feeling as much deflationary pressure as we see in the industry right now. Linda?

Yes, and then specifically on fuel. So we did see some cost inflation, carefully managed that in the quarter, leveraging both the scale and relationships with our national brand partners. Fuel costs are likely contributing to some of that, alongside other factors. The team did a really good job managing the business through the elevated fuel cost environment in Q2, and our baseline assumption is that the environment remains the same for the balance of the year. And we have plans on how to manage through that with discipline.

Okay. And just on a couple of the comments regarding, you had strong traction with the loyalty customers stocking up on product. Was there any behavior in the quarter that would have triggered some prebuying promotions that might have an impact in Q3?

Michael, it's Greg. No, what we saw in Q2 was still a bit of trip consolidation and because of that, some stock-up as customers came. Because they came -- loyalty customers came a little less often in the quarter, even though the amount of loyalty customers we saw was up. So we don't see anything that indicates that there was any material forward buying.

And that will come from the line of Adrienne Yih with Barclays.

This is Mike Vu on for Adrienne Yih. As you continue to invest behind marketing promotions on the loyalty program, can you talk about what you're seeing geographically by income and age cohorts and retention qualities for new customers?

Michael, it's Greg. Thanks for the question. So we're seeing strong growth in our loyalty customers, given the strength of the loyalty program we have. We're also seeing strong growth in our e-commerce business, led by Click & Collect and our online delivery platforms, which really tie in the strength of our large network of stores. And within that, we are seeing growth in AutoShip, which we're quite happy about, and good retention rates on our AutoShip program.

Great. And then as a follow-up, I know you mentioned further savings coming from the supply chain and all those efficiencies there. Can you quantify the remaining supply chain efficiency opportunities and how long that will last?

Michael, it's Linda. So we are really pleased with the efficiency benefits we've realized through the supply chain investment. It's consistently been one of the largest tailwinds in our margins over the last 4 quarters, which has helped us offset the transitory pressure we've experienced in recent periods. I'm not going to quantify specifically the benefits from the supply chain, but as Greg mentioned earlier, we expect these aspects to deliver further improvements over the coming quarters and years, on top of the benefits that should flow naturally from the fixed cost leverage.

[Operator Instructions] Our next question will come from the line of Cheryl Zhang with TD Cowen.

I guess the first one, I think in the press release, aside of market share gains, curious if you can comment on where that comes from. And I think, a little earlier, you published a study on pet parents, and one of the findings is that the pet specialty channel still leads, but consumers shop around across different channels. I'm curious what you're seeing in terms of the competition with other channels, such as like club or e-commerce, and especially with the launch of some lower priced products in those channels. Are you seeing any pockets of share movement, maybe in certain categories?

Cheryl, thanks for the question. As you know and reference, we work with a third-party that leverages data from multiple sources to triangulate a more accurate view of the market and market share. Based on their analysis, we continued to gain share in the quarter, and that's really tied back to both our network expansion and the strong retail experience we offer to devoted pet lovers, both in store and online, which has been a growth avenue for us. We continue to win the monthly consumables-led shopping trip, which drives reoccurring visits and a regular opportunity to deepen the relationship with our customers and grow their share of wallet. And I think this really underscores the great work from our teams through the quarter, adjusting our commercial plans to deliver stronger margins while maintaining momentum in our market share gains.

Overall, the trends remain consistent within the total market as to what we've recently shared. The pet specialty channel remains resilient, representing roughly half the market, and we're consolidating within that channel. We also see some share takers and donors within the mass channel, but those are very similar to what we would have referenced in 2025. But more importantly, almost no leakage between mass and specialty.

That's very helpful color. And then I'm curious on your new store openings in 2026. What are you seeing in terms of this cohort performing compared to the prior cohort? And curious if you have any insight on the store pipeline.

Yes. Great question, Cheryl. I'll take this one. So as we have said in the past, when we open a store, whether it's a franchise or a corporate store, we're making a 10-year plus commitment to that location and the community it serves. And that duration captures a full economic cycle. We continue to see opportunities for us to operate 1,200 or more stores across Canada. We still got a ways to go there. Where we're focused today in this current environment is opening locations and growth pockets across Canada, which means areas such as Alberta, Quebec, and rural communities coast to coast. Those stores that we've opened in the last year have had good starts. We're happy with the return profiles on them. And we believe that these investments will pay dividends over the years to come, especially the stores that are in more rural locations without pet specialty peers there, where we're filling white space, while some of our other competitors are taking a pause.

That's very helpful. And then if I may squeeze one in, I'm not sure if this was already touched on earlier, but curious if you could help us quantify how much was the gain on refranchising in a quarter.

So you can look to our cash flow statement for it. It's around $4.5 million.

And we do have a follow-up question that will come from the line of Irene Nattel with RBC Capital Markets.

Sorry, just a couple of follow-ups, if I may. Linda, you said -- you noted in your commentary that the gains in the back half of the year on the refranchising would be similar, but split between Q3 and Q4, rather. Is there anything else you want to call out just on a sequencing Q3, Q4, whether it's gross margin or SG&A, anything that we should be keeping in mind?

Yes. So I think from adjusted EBITDA margins, I'd start by grounding expectations in our full year outlook. So as you know, we're guiding adjusted EBITDA margins of approximately 21%, so our year-to-date performance is essentially at that level, implying a similar rate in the back half.

On gross margins, we saw a nice improvement in the rate from Q1 to Q2. And I'd say we are working to maintain that balance for the rest of the year.

And then on SG&A, we talked about the gains on the corporate store retail, as you just mentioned. So splitting that more evenly across Q3 and Q4, and then I'd say net-net, we expect adjusted SG&A growth inclusive of these gains to more closely match revenue growth in the back half.

That's helpful. And just was there anything in last year, like the timing of last year, was there anything specific in Q3 and Q4 on the gains? Or we can just not worry about that from a prior year perspective?

I would say the latter, Irene. Nothing to call out there from last year.

That's great. And then just one more. You did mention that you are seeing some nice growth online, AutoShip, Click & Collect. Where is your penetration sitting today? And how are you thinking about the path forward from here?

Thanks, Irene. It's Greg. We continue to be very happy with the performance of our digital channel, and the growth in our digital channel is outgrowing the digital growth that we're seeing in the industry, which really ties back to the strength of our omnichannel offering and particularly the store network and the breadth of our store network that I mentioned earlier. Our delivery sales continue to be driven by the online delivery platforms and Click & Collect, which leverages the network. We don't break out our online sales as a portion of sales, but we've been very happy with the growth rate and the ability to be able to match or beat the growth rate in the industry there.

And we do have another follow-up, and that will come from the line of Martin Landry with Stifel.

Just a follow-up, maybe changing gears a little bit. Looking at your CapEx cycle, it is abating. So I was wondering if you would consider acquisitions, maybe perhaps looking at small regional chains as tuck-in acquisitions. And if so, what would be the main criteria that you would be looking for when assessing potential M&A?

Martin, it's Greg. We don't see any -- we are happy with our ability to be able to consolidate share within the specialty channel. But we do not see anything on the horizon that we'd highlight to you on acquisition.

Yes. I'd just add one thing. Obviously, we grow stores every year in the range of 40 new stores, and so acquiring stores outside of that would have to hurdle the rate that we would get on our own organic investments.

I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Greg Ramier for any closing remarks.

Thank you all for joining us today, and we look forward to updating you as we progress through 2026.

This concludes today's program. Thank you all for participating. You may now disconnect.

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.