Petco makes a profit and raises forecast citing customer growth, but stocks fall

The Petco Health and Wellness Company reported first-quarter earnings on Thursday that beat Wall Street estimates as a surge in pet adoption continues to help the retailer attract new customers.

Despite the better-than-expected performance and a higher earnings forecast, Petco stock fell nearly 3% on Thursday.

“We’re attracting new customers and gaining market share in a growing category,” said Ron Coughlin, chairman and managing director, in a press release.

According to Refinitive Consensus Estimates, for the first fiscal quarter ended May 1, the company reported the following:

  • Earnings per share: 17 cents adjusted compared to 9 cents expected
  • Revenue: $ 1.4 billion versus $ 1.27 billion expected

For the quarter, Petco reported net income of $ 7.56 million, or 3 cents per share, compared to a loss of $ 31.2 million, or 15 cents per share, a year ago.

With no items, the company earned 17 cents per share. Analysts surveyed by Refinitiv had expected a profit of 9 cents per share.

Total revenue increased 27% from $ 1.11 billion a year ago to $ 1.41 billion, beating estimates of $ 1.27 billion.

Petco’s sales in the same store increased 28% year over year.

Petco announced it gained 1.2 million net new customers in the quarter, which is a multi-year high.

“The acceleration of the category coupled with a strengthening of our customer base gives us the confidence to improve our guidance for the full year,” said Coughlin.

The retailer expects sales for this year to be between $ 5.48 billion and $ 5.58 billion, up from a previous forecast of $ 5.25 billion to $ 5.35 billion.

The earnings outlook has been raised from an earlier forecast from 63 cents to 66 cents per share to 73 to 76 cents per share.

Petco said its partnership with DoorDash to offer customers same-day delivery has enabled it to compete with online retailers like Chewy as Petco’s cost of delivery from its stores is lower than the cost of shipping.

“It’s a competitive advantage that our competitors have not been able to replicate,” said Coughlin on Petco’s call for a prize.

Pet adoption increased during the pandemic as consumers spent more time at home, which gave them the opportunity to take on the new chores associated with pet ownership. But unlike other pandemic trends, Petco doesn’t expect the surge to subside. The company said pet adoption will mean a long-term increase in sales due to recurring pet expenses.

“You could get a peloton one time, you could renew your garage once, but once you have a new furry friend they need to be fed, they need to be looked after, they need to be vaccinated for a decade or more,” Coughlin told CNBC’s “Squawk on the Street “. “We call it the furry pension.”

The company also saw an increase in demand for pet training services.

The company generated additional revenue from higher spending by Millennial and Gen Z pet owners compared to pet owners in other age groups.

“If you look back in 2020, a lot of these new pets have been adopted by Millennials and Gen Z-er’s and guess what, these Millennials and Gen Z-er’s are spending a lot more on their pets,” said Coughlin.

These younger pet owners are spending their money on more expensive natural pet foods and luxury pet clothing, including products like leather collars and puffer vests for pets.

“We have premium deliveries that meet the needs of these customers,” Coughlin said in a separate interview with CNBC. “”[The more-natural food options] also have higher prices and more travel frequency, which is good for our business. “

Petco saw that Americans who moved from cities to suburbs and rural areas during the pandemic could adopt larger dogs.

“The move to the suburbs and rural areas, some of which we believe will be sustained, has resulted in larger dogs. And that’s positive for us as bigger dogs have bigger bowls of more food,” said Coughlin .

With a view to future growth, the company is working to improve the goods and services offered at its locations.

“We are very pleased with our presence and are even seeing some expansion in some of our high-growth markets,” said Coughlin. “But the main area we focus on is increasing the foot per location by adding the vet, adding and adding a fair amount of food for the dog’s pantry [our premium apparel and supplies line.]””

Correction: Petco has exceeded Wall Street earnings expectations.

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