Petco Reports Decline in Net Sales and Profitability Amid Macroeconomic Challenges

Petco Health & Wellness Company, Inc. reported its financial results for the thirteen and twenty-six weeks ended August 3, 2024, revealing a decline in net sales and profitability compared to the same periods in the previous fiscal year. For the thirteen weeks, net sales reached $1,523.8 million, a decrease of 0.5% from $1,530.7 million in 2023. Similarly, net sales for the twenty-six weeks totaled $3,052.9 million, down 1.1% from $3,086.6 million in the prior year.

Gross profit for the thirteen weeks ended August 3, 2024, was $580.7 million, reflecting a decrease of $12.3 million (2.1%) from $593.0 million in the same period of 2023. The gross profit margin also declined to 38.1% from 38.7%. Operating income fell significantly, with a reported income of $2.5 million for the thirteen weeks, down from $24.0 million in the prior year. The company experienced a net loss attributable to Class A and B-1 common stockholders of $24.8 million for the thirteen weeks, compared to a loss of $14.6 million in 2023.

For the twenty-six weeks, the net loss attributable to common stockholders was $71.3 million, a substantial increase from a loss of $16.5 million in the same period last year. Adjusted EBITDA also decreased from $112.6 million to $83.5 million for the thirteen weeks, and from $159.2 million to $159.2 million for the twenty-six weeks.

Petco's performance was impacted by macroeconomic factors, including rising interest rates and inflation, which affected sales, particularly in discretionary items. However, sales in the consumables category increased by 1.5% for the thirteen weeks and 0.8% for the twenty-six weeks, indicating some resilience in this segment. Service-related sales also grew, driven by veterinary and grooming services.

The company’s total current assets decreased to $941.9 million as of August 3, 2024, from $951.7 million in February 2024. Total liabilities slightly decreased to $4,145.2 million from $4,178.7 million. Petco's accumulated deficit increased to $(1,118.5 million) from $(1,047.2 million) in the previous period.

Strategically, Petco has been active in managing its debt, entering into various interest rate agreements to mitigate risks associated with variable-rate debt. The company amended its ABL Revolving Credit Facility in March 2024, increasing total availability from $500 million to $581 million. As of August 3, 2024, the outstanding principal balance of the First Lien Term Loan was $1,595.3 million.

Overall, Petco's financial results reflect challenges in the current economic environment, with a focus on improving sales through customer retention and service offerings while managing its financial obligations.