Petco Posts First Comparable-Sales Gain in Over a Year
The pet retailer's adjusted EBITDA of $97.3 million topped its own guidance as services revenue accelerated.
Petco Health & Wellness Company (WOOF) posted its first quarter of positive comparable-store sales in more than a year, as the pet retailer's services business continued to outpace its struggling product segment.
Comparable sales rose 0.7% in the fiscal first quarter ended May 3, reversing declines of 1.6% in both the prior quarter and full fiscal year 2025. The return to growth marks a potential inflection for a company that had seen customer traffic erode amid broader consumer spending pressures on discretionary pet goods.
Net sales edged up 0.2% year over year to $1.497 billion, ending a streak of quarterly revenue declines that included a 2.4% drop in the fourth quarter of fiscal 2025 and a 2.5% full-year contraction. Gross margin expanded 21 basis points to 38.4%, extending a multi-quarter improvement trend. Operating income surged 50.5% to $24.6 million, though the result represented a sequential pullback from the $31.9 million earned in the holiday quarter.
Services and other revenue grew 6.8% to $268.6 million, accelerating from 5.8% growth in the prior quarter, while product revenue declined 1.1% to $1.228 billion — a narrower drop than the 3.9% product decline recorded in the fourth quarter. The divergence underscored management's strategy of leaning on grooming, veterinary and membership offerings to offset softer demand for food and supplies. SG&A expenses fell 0.7% to $549.8 million, continuing a cost discipline effort that saw full-year fiscal 2025 SG&A drop 5.7%.
Adjusted EBITDA rose 8.8% to $97.3 million, topping Petco's own guidance of $92 million to $94 million, while net sales also exceeded the company's forecast for flat-to-down-1% revenue. The bottom line, however, was weighed down by an $11.8 million loss on debt extinguishment tied to a February refinancing that replaced the prior term loan with a $900 million variable-rate facility and $600 million in fixed-rate senior secured notes due 2031 at 8.25%. Net loss widened to $15.1 million from $11.7 million a year earlier. Total debt declined to $1.482 billion from $1.593 billion a year ago following the transaction.
For the second quarter, Petco projected net sales up roughly 0.3% and adjusted EBITDA of $110 million to $112 million, a sequential step-up that faces a difficult comparison because a roughly $9 million favorable actuarial true-up boosted second-quarter fiscal 2025 results. The company reaffirmed its full-year outlook for flat-to-1.5% sales growth and adjusted EBITDA of $415 million to $430 million, noting the forecast now incorporates elevated fuel prices for the full year rather than just the first quarter and reflects a partial IEEPA tariff refund received in May.
Free cash flow remained negative at $69.1 million, wider than the $43.9 million outflow in the year-ago quarter, as capital spending rose to $38.2 million from $28.4 million. Inventory fell 1.9% year over year, extending a reduction effort that saw stock levels drop 9.7% in fiscal 2025. Petco closed a net four stores during the quarter, ending at 1,378 locations, in line with plans for 15 to 20 net closures for the full year.