Petco shares rally 3% on EBITDA beat despite earnings miss
Pet retailer reduces leverage and raises guidance as profitability focus outweighs EPS shortfall
Petco Health and Wellness Company shares surged 3% in afternoon trading on Tuesday, bucking the initial disappointment of an earnings miss, as investors focused instead on the pet retailer's improving profitability metrics and raised guidance for the upcoming fiscal year.
The San Diego-based company reported fourth-quarter adjusted EBITDA of $106.3 million, a 10.6% increase from the prior year and above its own outlook, while operating income jumped 83%. The strong profit performance helped Petco return to profitability for the full fiscal year 2025, with net income reaching $9.1 million compared to a loss in the previous year, according to corporate results announced March 11.
Net sales for the quarter reached $1.5 billion, exceeding analyst expectations of $1.47 billion despite declining 2.4% year-over-year. For the full fiscal year, revenue totaled $6.0 billion, down 2.5% from the prior year.
The earnings release revealed that Petco has significantly strengthened its balance sheet, reducing its leverage ratio from 4.2 times to 3.0 times adjusted EBITDA. The company also announced a debt refinancing transaction earlier this year, positioning itself to take advantage of lower interest rates and reduce interest expenses.
"Our disciplined execution and focus on profitable growth are driving meaningful improvements in our financial performance," Petco said in its earnings announcement. The company's fourth-quarter results included adjusted EBITDA for the full fiscal year 2025 of $408.2 million, a 21.3% increase that topped its earlier guidance range of $395 million to $397 million.
Looking ahead, Petco raised its outlook for fiscal year 2026, projecting adjusted EBITDA between $415 million and $430 million, an increase from the $408 million guidance provided in prior quarters. The company forecast net sales to be flat to up 1.5% year-over-year, with first-quarter EBITDA expected in the range of $92 million to $94 million.
The stock's 3% rally came on volume of approximately 9.2 million shares, roughly triple its daily average, as investors digested the mixed earnings report. Petco's shares have struggled in recent months, trading near their 52-week low of $2.24 and well below the high of $4.51 reached earlier this year. The company currently has a market capitalization of approximately $655 million.
Analyst sentiment remains cautious toward the stock, with eight hold ratings, one buy, one strong buy, and two strong sell ratings, according to market data. The consensus analyst target price stands at $3.42, offering potential upside from current levels.
Petco's performance highlights the challenges facing specialty retailers in a competitive pet products market, where consumers have increasingly shifted spending toward e-commerce platforms and discount retailers. The company has been working to differentiate itself through its services offerings, including veterinary care and grooming, while also implementing cost controls to improve margins.
The improved EBITDA guidance and leverage reduction suggest that Petco's restructuring efforts are gaining traction, even as top-line growth remains constrained. Investors will be watching closely to see whether the company can sustain its profitability momentum in the coming quarters and whether it can accelerate revenue growth to support further margin expansion.