Petco Health and Wellness Company, Inc. Q4 FY2025 earnings call

In 2025, Petco successfully strengthened its economic model and improved retail fundamentals, achieving significant growth in cash flow and profitability. In 2026, the Reach for the Sky strategy is centered around four growth pillars. Compelling product: driven by increased newness, brand launches, own brand expansion. For consumables, focus on fresh food expansion, launching new national brands, increasing product drop frequency, ramping own brands business. Services at scale: continuing to grow wholly - owned services business, improving productivity of existing vet hospitals, adding technology and functionality to enable cross - selling. Trusted store experience: leverage stores to build community, excitement, and customer loyalty through frequent newness, customer engagement events, and cross - selling initiatives. Integrated omnichannel model: overhaul media buying mix, relaunch loyalty program, enable repeat delivery customers to pick up orders in - store to drive traffic, conversion, and basket size.

For 2025, adjusted EBITDA increased 21% to $408 million and operating cash flow increased 77%. Full - year gross margin rate expanded 66 basis points to 38.7%. Fourth quarter net sales were $1.52 billion, down 2.4% with comp sales down 1.6%. Fourth quarter gross profit dollars were $581 million, and gross margin rate expanded 37 basis points to 38.3. Adjusted EBITDA for the fourth quarter increased 10.6% to $106 million. Ending inventory in Q4 was down 9.7% versus Q4 sales decline of 2.4%. For the year, free cash flow was $187 million, an increase of $137 million or 276% versus last year.

2026 first quarter: net sales expected to be down 1% to flat versus prior year, comp sales roughly flat at midpoint of range. 2026 full year: net sales expected to be flat to up to 1.5% growth versus last year; adjusted EBITDA expected to be between 415 and 430 million; net interest expense about $125 million; capital expenditures about $140 million; depreciation and amortization about 200 million; stock comp to increase by a low double - digit percent versus last year; net store closures between 15 and 20, weighted toward back half of the year.

Forward - looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties include those set out in our earnings materials and SEC filings.

Q: Michael Lasser with UBS asked how to think about what will lead growth and pricing.

A: Joel said they are working on all four pillars simultaneously, product will take time with new brands and resets starting this quarter, and pricing is dynamic with focus on healthy margins. Sabrina added focus on mix towards own brands to support healthy margins.

Q: Oliver Wintermantle from Evercore ISI asked about drivers of gross margin increase and inventory impact.

A: Sabrina and Joel said they focus on pricing, promos, and mix for gross margin; inventory was cleaned up in 2025, they will invest in inventory behind growth but remain disciplined in managing it with growth in inventory at or below sales growth.

Q: Kamil Gajewala with Jefferies asked about brand assortment and Gen Z shopping preference.

A: Joel said they widened the aperture to be there for all customers, and Gen Z's preference for in - store shopping fits with their customer demographic as they skew higher in that age group and like shopping in stores.

Q: Stephen Forbes with Guggenheim Securities asked about services engagement and Passionate Explorer cohort.

A: Joel said Passionate Explorers value discovery, expertise, innovation, and service is important for them; services like vet and grooming have room to grow, and new merchandise strategy resonates with them.

Q: Simeon Gutman with Morgan Stanley asked about capturing dog customers not buying dog food and Phase 3 implementation.

A: Joel said they enable groomers with technology to see customer purchase history for cross - selling; very little of Phase 3 is seen by customers from what they see, but work streams are on all outlined initiatives.

Q: Peter Benedict with Baird asked about fuel cost comment and fresh effort.

A: Sabrina said they incorporated fuel cost volatility into forecasts with base assumption of normalization after Q1; for fresh, they are making capital investments like adding freezers and expect growth with new lines coming out.

Q: Zach Fadum with Wells Fargo asked about broader category assumption and share relative to peers, and Q1 comps.

A: Joel said they focus on overall top line growth with initiatives in all aspects, will start to gain market share back; in Q1, they took into account various macro factors in their guidance considering pluses and minuses like tax refunds and weather volatility