Petco (NASDAQ:WOOF) Beats Q1 Sales Targets, Stock Soars

Radek Strnad /
2024/05/22 7:09 am EDT

Pet-focused retailer Petco (NASDAQ:WOOF) beat analysts' expectations in Q1 CY2024, with revenue down 1.7% year on year to $1.53 billion. The company expects next quarter's revenue to be around $1.53 billion, in line with analysts' estimates. It made a non-GAAP loss of $0.04 per share, down from its loss of $0.01 per share in the same quarter last year.

Is now the time to buy Petco? Find out by accessing our full research report, it's free.

Petco (WOOF) Q1 CY2024 Highlights:

  • Revenue: $1.53 billion vs analyst estimates of $1.51 billion (1.1% beat)
  • Adjusted EBITDA: $75.6 million vs analyst estimates of $69.0 million (9.6% beat)
  • EPS (non-GAAP): -$0.04 vs analyst estimates of -$0.06
  • Revenue Guidance for Q2 CY2024 is $1.53 billion at the midpoint, roughly in line with what analysts were expecting (adjusted EBITDA and EPS (non-GAAP) guidance for next quarter also roughly in line)
  • Gross Margin (GAAP): 37.8%, down from 38.9% in the same quarter last year
  • Free Cash Flow was -$41.06 million compared to -$24.4 million in the same quarter last year
  • Same-Store Sales were down 1.2% year on year
  • Market Capitalization: $660.5 million

Historically known for its window displays of pets for sale or adoption, Petco (NASDAQ:WOOF) is a specialty retailer of pet food and supplies as well as a provider of services such as wellness checks and grooming.

Specialty Retail

Some retailers try to sell everything under the sun, while others—appropriately called Specialty Retailers—focus on selling a narrow category and aiming to be exceptional at it. Whether it’s eyeglasses, sporting goods, or beauty and cosmetics, these stores win with depth of product in their category as well as in-store expertise and guidance for shoppers who need it. E-commerce competition exists and waning retail foot traffic impacts these retailers, but the magnitude of the headwinds depends on what they sell and what extra value they provide in their stores.

Sales Growth

Petco is larger than most consumer retail companies and benefits from economies of scale, giving it an edge over its competitors.

As you can see below, the company's annualized revenue growth rate of 8.8% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was mediocre despite closing stores, implying that growth was driven by higher sales at existing, established stores.

Petco Total Revenue

This quarter, Petco's revenue fell 1.7% year on year to $1.53 billion but beat Wall Street's estimates by 1.1%. The company is guiding for a 0.4% year-on-year revenue decline next quarter to $1.53 billion, a reversal from the 3.4% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months.

Here at StockStory, we certainly understand the potential of thematic investing. Diverse winners from Microsoft (MSFT) to Alphabet (GOOG), Coca-Cola (KO) to Monster Beverage (MNST) could all have been identified as promising growth stories with a megatrend driving the growth. So, in that spirit, we’ve identified a relatively under-the-radar profitable growth stock benefitting from the rise of AI, available to you FREE via this link.

Same-Store Sales

A company's same-store sales growth shows the year-on-year change in sales for its brick-and-mortar stores that have been open for at least a year, give or take, and e-commerce platform. This is a key performance indicator for retailers because it measures organic growth and demand.

Petco's demand within its existing stores has been relatively stable over the last eight quarters but fallen behind the broader consumer retail sector. On average, the company's same-store sales have grown by 2.4% year on year. Given its declining store count over the same period, this performance stems from higher e-commerce sales or increased foot traffic at existing stores, which is sometimes a side effect of reducing the total number of stores.

Petco Year On Year Same Store Sales Growth

In the latest quarter, Petco's same-store sales fell 1.2% year on year. This decline was a reversal from the 5.1% year-on-year increase it posted 12 months ago. We'll be keeping a close eye on the company to see if this turns into a longer-term trend.

Key Takeaways from Petco's Q1 Results

We were impressed by how significantly Petco blew past analysts' EPS expectations this quarter. We were also glad next quarter's revenue, adjusted EBITDA, and earnings guidance were roughly in line with Wall Street's estimates, showing that the company remains on track with no surprises. Zooming out, we think this was a solid quarter that should please shareholders. The stock is up 8.5% after reporting and currently trades at $2.67 per share.

Petco may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.