Petco Swings to Profit on Cost Cuts, Despite Sales Dip

TL;DR

**WOOF is barking up the right tree with cost cuts, but top-line sales are still a leash around its neck.**

AI Summary

Petco Health & Wellness Company, Inc. (WOOF) reported a significant turnaround in net income for the thirteen weeks ended August 2, 2025, achieving a net income of $13.972 million, a substantial improvement from a net loss of $24.823 million in the prior-year period. This positive shift was driven by a notable increase in operating income, which surged to $43.022 million from $2.468 million year-over-year. Despite this, total net sales decreased by 2.3% to $1.488 billion from $1.523 billion, primarily due to a decline in product sales from $1.263 billion to $1.225 billion. Services and other revenue, however, saw a slight increase to $262.924 million from $260.006 million. The company also reduced selling, general, and administrative expenses by 6.2% to $542.297 million, contributing to improved profitability. Cash and cash equivalents increased to $188.748 million as of August 2, 2025, up from $165.756 million at February 1, 2025, reflecting improved cash flow from operations, which rose to $70.438 million for the twenty-six weeks ended August 2, 2025, compared to $60.956 million in the prior year.

Why It Matters

Petco's return to profitability, marked by a $13.972 million net income, signals a potential stabilization for investors after a period of losses, demonstrating the effectiveness of its cost-cutting initiatives. For employees, the improved financial health could alleviate concerns about job security and potentially lead to better resource allocation for store operations. Customers might see a more focused service offering, though the decline in product sales suggests competitive pressures from larger retailers and e-commerce platforms like Amazon continue to challenge Petco's market share. The broader market will watch if Petco can sustain this profitability while addressing declining product revenue in a highly competitive pet care industry.

Risk Assessment

Risk Level: medium — While Petco achieved net income, total net sales declined by 2.3% for the thirteen weeks ended August 2, 2025, and by 2.3% for the twenty-six weeks ended August 2, 2025, indicating ongoing revenue challenges. The company's significant goodwill of $980.064 million and trade name of $1.025 billion on its balance sheet also present an impairment risk if future performance does not meet expectations, as noted in the 'Risk Factors' section.

Analyst Insight

Investors should monitor Petco's next earnings report closely for signs of revenue stabilization or growth, particularly in product sales, to confirm the sustainability of its profitability. While cost controls are effective, sustained top-line pressure could limit long-term upside. Consider a 'hold' position until a clear trend in revenue recovery emerges.

Financial Highlights

revenue

$1.488B

operating Margin

2.89%

net Income

$13.972M

eps

$0.05

cash Position

$188.748M

revenue Growth

-2.3%

Revenue Breakdown

Key Numbers

• $13.972M — Net Income (Swung from a $24.823M loss in prior year for the thirteen weeks ended August 2, 2025)
• $1.488B — Total Net Sales (Decreased by 2.3% from $1.523B in prior year for the thirteen weeks ended August 2, 2025)
• $43.022M — Operating Income (Increased significantly from $2.468M in prior year for the thirteen weeks ended August 2, 2025)
• $542.297M — SG&A Expenses (Reduced by 6.2% from $578.257M in prior year for the thirteen weeks ended August 2, 2025)
• $188.748M — Cash and Cash Equivalents (Increased from $165.756M at February 1, 2025)
• $70.438M — Net Cash Provided by Operating Activities (Increased from $60.956M in prior year for the twenty-six weeks ended August 2, 2025)
• $980.064M — Goodwill (Remained unchanged, representing a potential impairment risk)
• $1.025B — Trade Name (Remained unchanged, representing a potential impairment risk)
• 2.3% — Decline in Product Sales (For the thirteen weeks ended August 2, 2025, from $1.263B to $1.225B)
• 0.05 — Basic EPS (Swung from a loss of $0.09 in prior year for the thirteen weeks ended August 2, 2025)

Key Players & Entities

• Petco Health & Wellness Company, Inc. (company) — Registrant
• $13.972 million (dollar_amount) — Net income for thirteen weeks ended August 2, 2025
• $24.823 million (dollar_amount) — Net loss for thirteen weeks ended August 3, 2024
• $1.488 billion (dollar_amount) — Total net sales for thirteen weeks ended August 2, 2025
• $1.523 billion (dollar_amount) — Total net sales for thirteen weeks ended August 3, 2024
• $542.297 million (dollar_amount) — Selling, general and administrative expenses for thirteen weeks ended August 2, 2025
• $578.257 million (dollar_amount) — Selling, general and administrative expenses for thirteen weeks ended August 3, 2024
• $980.064 million (dollar_amount) — Goodwill as of August 2, 2025
• $1.025 billion (dollar_amount) — Trade name as of August 2, 2025
• Nasdaq Stock Market LLC (regulator) — Exchange where Class A Common Stock is registered

FAQ

Risk Factors

• Goodwill and Intangible Asset Impairment [medium — financial]: The company holds $980.064 million in goodwill and $1.025 billion in trade names. These balances remained unchanged in the current period, indicating a potential risk of impairment if future performance does not support these carrying values.
• Dependence on Product Sales [medium — operational]: Total net sales decreased by 2.3% to $1.488 billion, primarily driven by a decline in product sales from $1.263 billion to $1.225 billion for the thirteen weeks ended August 2, 2025. This highlights a significant reliance on product revenue, which is currently under pressure.
• Interest Rate Volatility [low — market]: Petco has entered into interest rate cap agreements to mitigate exposure to variable-rate debt tied to Term SOFR. These agreements expired on December 31, 2024, leaving the company exposed to potential increases in interest expenses if rates rise.

Industry Context

Petco operates in the pet specialty retail sector, which has seen increased competition and evolving consumer preferences towards services and premium products. The industry is influenced by discretionary spending and the humanization of pets, driving demand for both products and wellness services.

Regulatory Implications

As a publicly traded company, Petco is subject to SEC regulations and reporting requirements. Changes in accounting standards or disclosure requirements could impact financial reporting. The company's use of derivative instruments also requires adherence to specific financial regulations.

What Investors Should Do

1. Monitor the trend in product sales: The continued decline in product sales, despite an overall increase in net income, warrants close observation to understand the sustainability of the business model.
2. Assess goodwill and intangible asset risk: Given the significant carrying values of goodwill ($980.064M) and trade names ($1.025B), investors should watch for any indicators of impairment that could lead to future write-downs.
3. Evaluate the impact of interest rate changes: With the expiration of interest rate caps, the company's profitability could be affected by rising interest rates on its variable-rate debt.

Glossary

Term SOFR

Secured Overnight Financing Rate as published by CME Group, a benchmark interest rate. (Petco uses this rate for a portion of its variable-rate debt and has entered into derivative instruments to manage its exposure.)

Cash Flow Hedges

A hedging strategy used to offset the risk of cash flow variability caused by fluctuations in interest rates or other variables. (Petco accounted for its interest rate cap agreements as cash flow hedges, indicating an effort to manage interest rate risk.)

GAAP

Generally Accepted Accounting Principles, the common set of accounting standards and procedures used in the United States. (The financial statements are prepared in accordance with GAAP, ensuring a standardized and comparable financial reporting framework.)

Year-Over-Year Comparison

For the thirteen weeks ended August 2, 2025, Petco reported a significant turnaround in net income, swinging from a loss of $24.823 million to a profit of $13.972 million, driven by a substantial increase in operating income from $2.468 million to $43.022 million. This was achieved despite a 2.3% decrease in total net sales to $1.488 billion, primarily due to lower product sales. Selling, general, and administrative expenses were reduced by 6.2%, contributing to the improved profitability. Cash and cash equivalents increased, and net cash provided by operating activities also saw an uptick compared to the prior year.

Key Financial Figures

• $0.001 — tered Class A Common Stock, par value $0.001 per share WOOF The Nasdaq Stock Mar

Filing Documents

• woof-20250802.htm (10-Q) — 2147KB
• woof-ex10_1.htm (EX-10.1) — 110KB
• woof-ex31_1.htm (EX-31.1) — 17KB
• woof-ex31_2.htm (EX-31.2) — 17KB
• woof-ex32_1.htm (EX-32.1) — 10KB
• woof-ex32_2.htm (EX-32.2) — 10KB
• 0001826470-25-000015.txt ( ) — 6864KB
• woof-20250802.xsd (EX-101.SCH) — 868KB
• woof-20250802_htm.xml (XML) — 957KB

Financial Statements (Unaudited)

Financial Statements (Unaudited) 4 Consolidated Balance Sheets 4 Consolidated Statements of Operations 5 Consolidated Statements of Comprehensive Loss 6 Consolidated Statements of Equity 7 Consolidated Statements of Cash Flows 8 Notes to Unaudited Consolidated Financial Statements 9 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 24 Item 4.

Controls and Procedures

Controls and Procedures 24 PART II. OTHER INFORMATION 26 Item 1.

Legal Proceedings

Legal Proceedings 26 Item 1A.

Risk Factors

Risk Factors 26 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26 Item 3. Defaults Upon Senior Securities 26 Item 4. Mine Safety Disclosures 26 Item 5. Other Information 26 Item 6. Exhibits 27

Signatures

Signatures 28 1

Forward-Looking Statements

Forward-Looking Statements This Quarterly Report on Form 10-Q (this "Form 10-Q") contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are not statements of historical fact, including, but not limited to, statements regarding: our expectations with respect to our revenue, expenses, profitability, and other operating results; our growth plans; our ability to compete effectively in the markets in which we participate; the execution on our transformation initiatives; and the impact of certain macroeconomic factors, including tariffs, inflationary and interest rate pressures, consumer spending patterns, global supply chain constraints, and global economic and geopolitical developments, on our business. Forward-looking and other statements in this Form 10-Q may also address our progress, plans, and goals with respect to sustainability initiatives, and the inclusion of such statements is not an indication that these contents are necessarily material to investors or required to be disclosed in our filings with the U.S. Securities and Exchange Commission (the "SEC"). Such plans and goals may change, and statements regarding such plans and goals are not guarantees or promises that they will be met. In addition, historical, current, and forward-looking sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. Such forward-looking statements can generally be identified by the use of forward-looking terms such as "believes," "expects," "may," "intends," "will," "s

—FINANCI AL INFORMATION

PART I—FINANCI AL INFORMATION

Financi al Statements

Item 1. Financi al Statements. PETCO HEALTH AND WELLNESS COMPANY, INC. CONSOLIDATED BA LANCE SHEETS (In thousands, except per share amounts) August 2, 2025 February 1, 2025 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 188,748 $ 165,756 Receivables, less allowance for credit losses ($ 725 and $ 1,594 , respectively) 34,524 40,425 Merchandise inventories, net 608,506 653,329 Prepaid expenses 60,387 53,515 Other current assets 47,393 60,594 Total current assets 939,558 973,619 Fixed assets 2,311,922 2,265,915 Less accumulated depreciation ( 1,624,417 ) ( 1,540,477 ) Fixed assets, net 687,505 725,438 Operating lease right-of-use assets 1,314,618 1,302,346 Goodwill 980,064 980,064 Trade name 1,025,000 1,025,000 Other long-term assets 206,537 187,963 Total assets $ 5,153,282 $ 5,194,430 LIABILITIES AND EQUITY Current liabilities: Accounts payable and book overdrafts $ 423,269 $ 492,878 Accrued salaries and employee benefits 130,688 157,460 Accrued expenses and other liabilities 192,249 177,079 Current portion of operating lease liabilities 306,902 306,400 Current portion of long-term debt and other lease liabilities 5,458 5,346 Total current liabilities 1,058,566 1,139,163 Senior secured credit facilities, net, excluding current portion 1,580,688 1,578,091 Operating lease liabilities, excluding current portion 1,047,757 1,037,206 Deferred taxes, net 220,992 217,712 Other long-term liabilities 106,176 108,628 Total liabilities 4,014,179 4,080,800 Commitments and contingencies (Notes 4 and 8) Stockholders' equity: Class A common stock, $ 0.001 par value: Authorized - 1.0 billion shares; Issued and outstanding - 242.1 million and 239.1 million shares, respectively 242 239 Class B-1 common stock, $ 0.001 par value: Authorized - 75.0 million shares; Issued and outs

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1 . Summary of Significant Accounting Policies Basis of Presentation Petco Health and Wellness Company, Inc. (together with its consolidated subsidiaries, the "Company") is a pet specialty retailer focused on improving the lives of pets, pet parents, and its own partners. The Company manages its business as one reportable operating segment. In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary for a fair presentation as prescribed by accounting principles generally accepted in the United States ("GAAP"). All adjustments were comprised of normal recurring adjustments, except as noted in these Notes to Consolidated Financial Statements. There have been no significant changes from the significant accounting policies disclosed in Note 1 of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 2025. The accompanying consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Interim financial results are not necessarily indicative of results anticipated for the full year. The accompanying consolidated financial statements and these Notes to Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 2025 , from which the prior year balance sheet information herein was derived. Use of Estimates The preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions tha