Petco's Q4 Earnings Beat Estimates, Sales Decrease 2.4% Y/Y

Core Insights - Petco Health and Wellness Company, Inc. (WOOF) reported fourth-quarter fiscal 2025 results, with both top and bottom lines exceeding the Zacks Consensus Estimate, although net sales decreased year over year [1] Quarterly Performance - Petco reported a loss of 1 cent per share, which is an improvement compared to the Zacks Consensus Estimate of a loss of 2 cents per share and narrower than the loss of 3 cents per share in the same quarter last year [2] - Net sales reached $1,515.1 million, down 2.4% year over year from $1,552.1 million, but exceeded the Zacks Consensus Estimate of $1,509 million [2] Comparable Sales and Store Count - Comparable sales declined 1.6% year over year, better than the Zacks Consensus Estimate's expected dip of 2%, attributed to the company's exit from unprofitable sales [3] - The company ended the quarter with 1,382 stores in the U.S., surpassing the Zacks Consensus Estimate of 1,378 stores, having closed 16 stores in 2025 [3] Margin and Cost Performance - Gross profit fell 1.4% year over year to $580.8 million from $589.3 million, while the gross margin rate increased by 37 basis points to 38.3% [4] - Selling, general and administrative (SG&A) expenses decreased by 3.9% year over year to $548.9 million, with SG&A as a percentage of net sales reaching 36.2%, reflecting a 62 basis points leverage from the previous year [4] Operating Profit and EBITDA - Operating profit grew 83.2% year over year to $31.9 million from $17.4 million, with the operating margin expanding by 98 basis points to 2.1% [5] - Adjusted EBITDA increased 10.6% year over year to $106.3 million, with the adjusted EBITDA margin rising 82 basis points to 7% of sales [5] Segmental Performance - In the fiscal fourth quarter, net sales for the Consumables category reached $759 million, declining 2.8% year over year and missing the Zacks Consensus Estimate of $766 million [6] - Supplies and Companion Animals net sales fell 5.5% year over year to $500 million, slightly below the Zacks Consensus Estimate of $503 million [6] - Conversely, the Services and other categories recorded growth, with net sales rising 5.8% year over year to $256 million, surpassing the Zacks Consensus Estimate of $241 million [7] Financial Health Snapshot - For the fiscal year, free cash flow reached $187 million, rising 276.3% year over year [8] - Cash and cash equivalents totaled $256.7 million, up $91 million despite a voluntary $95 million debt repayment [8] - The company expects FY26 sales to be flat to up 1.5%, with EBITDA projected between $415 million and $430 million [8] FY26 Guidance - For fiscal 2026, net sales are expected to be flat to up 1.5% compared to the previous year, with anticipated net store closures of 15–20, primarily in the latter half of the year [9] - Adjusted EBITDA is expected to be in the range of $415 million to $430 million, with capital expenditures around $140 million [9] Q1 FY26 Projections - For the first quarter of fiscal 2026, net sales are projected to decline by 1% to remain flat year over year, with comparable sales expected to be roughly flat at the midpoint [10] - Adjusted EBITDA is anticipated to be between $92 million and $94 million [10]