Petco Health and Wellness (WOOF) Financials

Petco Health and Wellness (NASDAQ: WOOF) continues to show signs of operational improvement in the most recent quarter, but the business is still under pressure from heavy leverage, weak free cash flow, and inconsistent profitability. In Q1 2026, revenue was essentially flat year over year, margins held up, and the company posted a much smaller loss than in some prior periods. However, operating cash flow turned negative again after a strong Q4 2025, and the balance sheet still carries a large debt load relative to equity.

• Revenue held steady year over year. Q1 2026 revenue was $1.497 billion, compared with $1.493 billion in Q1 2025, showing the top line is at least stable.
• Gross profit remained solid. Gross profit in Q1 2026 was $574.4 million, nearly unchanged from $570.0 million a year ago, suggesting pricing and merchandise economics are not collapsing.
• Operating income improved versus the prior year quarter. Q1 2026 operating income was $24.6 million, up from $16.4 million in Q1 2025.
• SG&A stayed disciplined. Selling, general and administrative expense was $549.8 million in Q1 2026, slightly better than $553.6 million a year earlier, which helped margins.
• Q4 2025 showed the company can still generate meaningful operating cash flow. Operating cash flow reached $153.5 million in that quarter, a strong result relative to recent history.
• Quarterly cash balance improved versus a year ago. Cash and equivalents were $166.8 million at the end of Q1 2026, up from $133.3 million at the end of Q1 2025.
• Net income remains volatile. Petco swung from a $15.1 million loss in Q1 2026 to $9.3 million of profit in Q3 2025, then back and forth across breakeven in other quarters. That inconsistency makes earnings quality hard to underwrite.
• Depreciation and amortization remain large non-cash add-backs. This helps reported cash flow, but it also reflects a capital-intensive business with a meaningful asset base.
• Inventory remains a large working-capital item. Inventories were $632.9 million in Q1 2026, which means execution on stock management remains important for cash generation.
• Equity value remains thin relative to liabilities. Total common equity was $1.16 billion against total liabilities of $3.93 billion in Q1 2026, highlighting a leveraged capital structure.
• Q1 2026 operating cash flow was negative. Cash from operations was -$31.0 million, reversing the positive trend seen in Q4 2025.
• Free cash flow remains strained by capital spending. Petco spent $38.2 million on capex in Q1 2026, and after investing outflows the quarter ended with a net cash burn of $101.5 million.
• Debt remains elevated. Q1 2026 long-term debt was $1.46 billion, with another $13.2 million of short-term debt, leaving the company sensitive to interest expense and refinancing risk.
• Interest expense is still a major burden. In Q1 2026, interest expense was $44.6 million, which exceeded operating income and pushed the company back into a net loss.
• Operating cash flow has been inconsistent over the last year. It ranged from negative $15.5 million in Q1 2025 to positive $153.5 million in Q4 2025, then back to negative in Q1 2026.
• Historical results show significant volatility, including a major impairment hit in Q3 2023. That kind of charge underscores that the business has faced real asset and earnings pressure over time.

Bottom line: Petco’s recent quarters suggest the business is stabilizing operationally, but not yet on solid financial footing. Investors should watch for sustained positive operating cash flow, lower leverage, and continued margin discipline before calling the turnaround durable.