Petco Health and Wellness Q2 Earnings Call Highlights

Key Points

• Petco reported modest improvement in Q2 fiscal 2026: Sales reached $1.5 billion, comparable sales rose 0.6% for the second consecutive positive quarter, and adjusted EBITDA was $122 million, or $115 million excluding a $6.8 million tariff-refund benefit.
• The relaunch of Petco Perks created temporary sales pressure, particularly in services, as customers redeemed points faster than expected. Petco said peak redemptions have passed, while its new store format, Autoship expansion, merchandise initiatives and veterinary services showed encouraging results.
• Petco reaffirmed its full-year outlook for flat to 1.5% sales growth and $415 million to $430 million in adjusted EBITDA. The company is also reducing leverage, with debt down $113 million year over year and a planned $75 million repayment bringing nine-month debt reduction to $170 million.

Petco Health and Wellness NASDAQ: WOOF reported second-quarter fiscal 2026 sales of $1.5 billion and adjusted EBITDA of $122 million, as the retailer posted its second consecutive quarter of positive comparable sales and continued efforts to reduce debt.

Comparable sales increased 0.6% in the quarter, while net sales were slightly higher than a year earlier, Chief Financial Officer Sabrina Simmons said. The company’s adjusted EBITDA included a $6.8 million net benefit from tariff refunds. Excluding that benefit, adjusted EBITDA was $115 million, which Simmons said was above the prior-year level and the company’s outlook.

Chief Executive Officer Joel Anderson said Petco’s “Reach for the Sky” strategy gained traction across its strategic priorities, including merchandise innovation, digital capabilities, veterinary hospitals and the integration of services with its retail stores.

Membership Relaunch Created Near-Term Sales Pressure

Anderson said Petco’s nationwide relaunch of its Petco Perks membership program in late January made points easier for customers to redeem. The change produced stronger-than-expected redemption activity, but it also reduced second-quarter net sales, particularly in services.

“Prior to the nationwide membership rollout, our sales and comp run rates were ahead of our Q2 outlook,” Anderson said.

Simmons told analysts that the effect of the program transition was in the mid-single-digit millions of dollars, based on the difference between Petco’s pre-launch sales trajectory and its reported quarterly results. The company implemented guardrails intended to moderate redemption velocity and said peak redemptions are now behind it.

Petco plans to focus on personalization and loyalty features in coming quarters. Anderson said the company expects a positive impact from those capabilities to emerge in 2027.

During the question-and-answer session, Anderson said the company saw its total customer base grow slightly during the second quarter. He also emphasized an opportunity to increase spending among existing shoppers by moving them across Petco’s stores, digital channels and service offerings.

Multi-channel shoppers who use online, store and service channels generate five times higher net spend per active customer, or NSPAC, than single-channel customers, Anderson said. However, customers using all three channels remain a small portion of Petco’s overall customer base.

Merchandise, Services and Store Initiatives

Petco said consumables delivered positive comparable sales growth during the quarter. Anderson attributed the improvement in part to more frequent assortment updates, better in-stock levels and tailoring brands to individual stores.

Cat products were a particular area of strength, with gains across consumables, supplements, bedding and furniture. Petco introduced new cat brands and launched its Cat Candy Shop private-label treats offering. Anderson said the company is growing faster than the overall market in cat, while the dog business remains soft as pet adoptions are down slightly industry-wide.

The company also cited strength in companion animals, especially live reptiles, which helped drive demand for reptile food and supplies. Petco additionally noted growth in pet-oriented gardening products, including potted houseplants and pet-friendly garden seeds.

Petco has rolled out Autoship enrollment capabilities across its physical stores. Autoship represents about half of digital sales, Anderson said, and customers using the service typically spend two to three times more than customers who do not use it.

The company’s veterinary business continued to improve, with double-digit growth in total pet visits and doctor days during the quarter. Petco operates approximately 300 wholly owned veterinary hospitals. The company expects to begin opening additional hospitals in 2027 and said it is working to shorten the maturity curve for newer hospital locations.

Prescription diet sales for dogs and cats both rose by double digits year over year, according to Anderson. Petco also plans to roll out Hill’s Pet Nutrition Science Diet Single Protein dog food rolls during the third quarter, with the broader rollout expected to be completed by year-end. The retailer is adding in-store chillers across most locations to support the fresh-food offering.

Store Test Shows Early Encouraging Results

In May, Petco launched a new store format across a seven-store market test. The format includes interactive companion-animal habitats, exclusive brand collaborations, impulse-purchase opportunities, dedicated front-of-store labor and nutrition advice integrated into grooming salons.

Anderson said the test locations have generated a sizable increase in new and reactivated customers, higher transaction counts, larger baskets, stronger comparable sales and improved margins. Petco also saw net promoter scores improve by hundreds of basis points, he said.

The company plans to continue testing through the remainder of the year, accelerate several additional remodels and open a couple of new stores using the format. Anderson said the format could become the company’s model going forward if the results continue to hold. Simmons added that Petco expects to identify lower- and no-capital changes from the tests that could be applied more broadly across its fleet.

Margins, Cash Flow and Outlook

Second-quarter gross profit was $591 million, and gross margin expanded 37 basis points to 39.7%. Without the $6.8 million tariff-refund benefit, normalized gross margin was approximately flat from a year earlier, Simmons said.

SG&A expense was $543 million, or 36.5% of sales. Despite lapping an approximately $9 million prior-year benefit from an actuarial true-up, expenses increased by only $1 million from a year earlier. Marketing expense rose $2 million, while the company maintained discipline across other expense categories, Simmons said.

• Operating profit was $48 million, compared with $43 million a year earlier.
• Ending inventory declined 1% year over year, following a 9.5% decline in the prior year.
• Year-to-date free cash flow increased by $51 million.
• Cash totaled $293 million, up more than $100 million from the prior-year quarter.
• Total debt was $1.48 billion, down $113 million year over year.

Petco announced a voluntary $75 million debt repayment on Sept. 1. With that payment, the company said its total debt reduction over the past nine months will reach $170 million.

The company reaffirmed its full-year outlook for net sales ranging from flat to 1.5% growth and adjusted EBITDA of $415 million to $430 million. For the third quarter, Petco expects sales growth of 0.4% to 1% and adjusted EBITDA of $100 million to $103 million.

Petco also now expects net interest expense of about $122 million, depreciation and amortization of about $200 million, capital expenditures of about $140 million and net store closures of 15 to 20 for the full year.

About Petco Health and Wellness (NASDAQ:WOOF)

Petco Health and Wellness Company, Inc NASDAQ: WOOF is a leading U.S. pet specialty retailer focused on delivering products, services and solutions that improve the health and well-being of pets. The company operates a network of retail locations that provide high-quality pet food, supplies and accessories, along with a growing digital platform that supports online ordering, subscription delivery and telehealth consultations for pets.

In addition to its retail offerings, Petco has built a full suite of in-store and virtual services, including grooming, training, dog daycare and veterinary care.

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