Petco surges 16% as pet retailer boosts full-year outlook after strong profit beat

Investing.com -- Petco Health and Wellness Company shares surged more than 16% in premarket trading Friday after the pet retailer reported better-than-expected second-quarter earnings and raised its full-year outlook, despite a slight decline in sales.

The company posted adjusted earnings per share of $0.05 for its fiscal second quarter, exceeding analyst estimates of $0.01.

Revenue came in at $1.5 billion, slightly above the consensus estimate of $1.49 billion, though it represented a 2.3% decrease YoY. Comparable sales declined 1.4% compared to the same period last year.

Despite the sales decline, Petco’s profitability metrics showed significant improvement. Gross profit margin expanded by approximately 120 basis points to 39.3% of net sales.

Operating income improved by $40.6 million to $43.0 million, while adjusted EBITDA increased by $30.3 million to $113.9 million, significantly ahead of the $92-$94 million guidance.

"For the second quarter we once again delivered against our commitments, enabling us to raise our earnings outlook for the full year," said Joel Anderson, Petco’s Chief Executive Officer.

"The first half of this year established a solid foundation for our transformation as we continued to strengthen our economic model and improve retail operating fundamentals."

Looking ahead, Petco raised its full-year (FY25) adjusted EBITDA guidance to between $385 million and $395 million, up from its previous forecast of $375 million to $390 million. The midpoint of the new guidance ($390 million) exceeds the analyst consensus estimate of $384.6 million.

"2Q’s strong adj-EBITDA performance (>20% beat) prompted an upward revision to FY25 guidance," Baird analyst Peter S. Benedict said. 

While comparable sales remain negative, Petco “continues to over-deliver on its profit improvement plans while preserving flexibility to reinvest in the business as it sets the stage for Phase 3 (returning to growth)," Benedict added. 

He noted the near-term revenue outlook remains challenging given tougher third-quarter comparisons, but raised their price target to $4.00, or roughly 6x FY26 adjusted EBITDA. The analyst added that there is “further re-rating/upside potential should the business generate positive comps in FY26.”

For the third quarter, the company expects adjusted EBITDA of $92 million to $94 million, above the consensus estimate of $86.9 million.

The company maintained its capital expenditure forecast of $125 million to $130 million for the year.

(Senad Karaahmetovic contributed to this report.)