Petco Cites Consumer Spending Pressures, Cuts 2023 Guidance

Petco Health and Wellness (WOOF) beat revenue and met earnings expectations for the second quarter but said that a shift in consumer spending and pressures on its discretionary business led it to issue a full-year profit warning.

The pet supply retailer’s stock fell on the news by over 15% at the start of the today’s trading session.

For the quarter ended July 29, Petco reported revenue of $1.53 billion, up 3.4% compared to a year ago. It posted a net loss of $14.6 million compared to net income of $13.5 million in the prior year. The company cited increased year-over-year interest expense for the loss.

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The sales increase was primarily driven by ”ongoing strength in consumables and services, particularly in vet,” but was partially offset by weakness in its supplies and companion animal business, the company said.

Comparable-store sales rose 3.2% compared to the prior year, resulting in the 19th consecutive quarter of positive growth.

Petco CEO Ron Coughlin said in a statement that discretionary spending continues to be pressured and that the company is taking numerous steps to strengthen the business. These include initiatives that target $150 million in cost savings and productivity enhancements by the end of fiscal 2025. 

“These actions, combined with the enduring competitive advantages of our differentiated offering, will position us even better to deliver sustainable and profitable growth for the long term," Coughlin said.

Solid top-line results

"In Q2, we delivered solid top-line results and strong free cash flow," said Petco CFO Brian LaRose. "That said, the shift in consumer spending and pressures on our discretionary business mean we're revising our guidance accordingly.”

Petco reduced its guidance for 2023 and now forecast revenue in the range of $6.15 billion to $6.275 billion, adjusted EBITDA of $460 million to $480 million, and adjusted EPS of $0.24 to $0.30. Previously, Petco guided to the same revenue range but projected adjusted EBITDA of $520 million to $540 million and adjusted EPS of $0.40 to $0.48.

Meanwhile, the company has been making several strategic moves to drive sales, including expanding its partnership with DoorDash, signing exclusive deals with new brands such as Ollie pet food, expanding its store-in-store concept with Lowe’s to 300 locations, updating its app and adding payment options.

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