Petco Health and Wellness Co Inc (WOOF) is having a pretty good day. Shares jumped over 15% Wednesday after the pet retailer posted earnings that beat expectations and raised its profit outlook for the year. Turns out, you can shrink your way to profitability if you're strategic about it.
The Numbers Tell an Interesting Story
Petco earned 3 cents per share in the third quarter, which doesn't sound like much until you realize analysts expected exactly zero. It's also a turnaround from the 2-cent loss the company posted a year ago, so there's actual progress happening here.
Revenue came in at $1.464 billion, slightly below the $1.472 billion Wall Street wanted but down 3.1% from last year's $1.511 billion. Net sales fell 3.1% year-over-year, which management had guided for, and comparable sales dropped 2.2%. Not great, but here's the interesting part: gross profit margins expanded about 75 basis points to 38.9% of net sales. The company is making more money on each dollar of sales even as total sales decline.
"Once again, we delivered on Petco's profitability goals as we continue to execute on our multi-phased transformation," said Joel Anderson, Petco's CEO. "Rebuilding the base of our economic model has been a priority in 2025. This strengthened base sets the foundation for a return to growth during fiscal 2026."
Looking Ahead
Petco raised its full-year adjusted EBITDA guidance, lifting the midpoint by $6 million. The company now expects fiscal 2025 net sales to fall 2.5% to 2.8%, with adjusted EBITDA between $395 million and $397 million. Net interest expense should hit around $125 million, while capital spending is planned at $125 million to $130 million. The company also plans to close roughly 20 stores during the year.
For the fourth quarter, Petco expects net sales to decline in the low-single digits, with adjusted EBITDA between $93 million and $95 million.
Following the results, Evercore ISI Group maintained an In-Line rating on WOOF but raised its price target from $3 to $4. Shares were trading at $3.42 Wednesday, up 15.17%.
