Petco Health And Wellness Company Inc ((WOOF)) has held its Q4 earnings call. Read on for the main highlights of the call.
Petco Health and Wellness Company Inc.’s recent earnings call paints a mixed picture of the company’s current standing and future prospects. While the call highlighted strong EBITDA performance and strategic leadership changes aimed at fostering long-term growth, it also brought to light several challenges, including net store closures, increased SG&A expenses, and a modest sales outlook. The sentiment from the call balances positive strategic initiatives and operational improvements against the backdrop of current market challenges.
Revenue and EBITDA Performance
Petco Health and Wellness Company Inc. reported a revenue of $1.55 billion for the fourth quarter, aligning with prior expectations. However, the company exceeded expectations with an adjusted EBITDA of $96.1 million. Looking ahead, Petco is optimistic about achieving double-digit growth in adjusted EBITDA year over year by 2025.
Gross Margin Improvement
The company reported a significant improvement in its gross margin, which increased by 180 basis points to 38% in the fourth quarter. This improvement was attributed to lapsing an inventory and impairment charge from the previous year, as well as progress in margin management.
Positive Cash Flow and Cash Balance
In 2024, Petco achieved $50 million in positive free cash flow and improved its cash balance to $182 million, signaling a stronger financial position moving forward.
Leadership and Strategic Vision
Petco has restructured its leadership team with new appointments, focusing on strengthening retail fundamentals, cost control, and long-term growth strategies to reinvigorate the brand.
Expansion in Pet Services
The company is leveraging its leadership in pet services, which is the fastest-growing area of the pet category. This includes expanding grooming and veterinary locations.
Net Store Closures
Petco closed 25 net locations in 2024 and plans to close an additional 20 to 30 locations in 2025. This reflects ongoing challenges in optimizing the store fleet.
SG&A Increase
Total SG&A expenses increased by approximately 60 basis points to 36.8% of net sales, driven by consulting fees and incentive compensation related to ongoing transformation efforts.
Flat Comparable Sales
The fourth quarter saw comparable sales increase by only 50 basis points year over year, indicating a challenging sales environment.
Downward Sales Outlook
Petco anticipates a decline in overall net sales by low single digits in 2025, excluding any potential tariff impacts.
Forward-Looking Guidance
During the earnings call, Petco outlined its strategic plan for 2025, which includes stabilizing profitability, implementing operational efficiencies, and preparing for long-term growth. The company projects a revenue decline in the low single digits and an adjusted EBITDA between $375 and $390 million. Petco also aims to expand gross margin rates each quarter and leverage SG&A to enhance earnings power. Additionally, plans to close 20 to 30 locations in 2025 and target a debt-to-EBITDA leverage ratio below two times were highlighted.
In conclusion, Petco Health and Wellness Company Inc.’s earnings call reflects a balanced sentiment of optimism and caution. While the company is making strides in improving profitability and strategic leadership, challenges such as store closures and a modest sales outlook remain. Investors will be keenly watching how Petco navigates these challenges while capitalizing on growth opportunities in the pet services sector.