Pet-focused retailer Petco (NASDAQ: WOOF) met Wall Street’s revenue expectations in Q4 CY2025, but sales fell by 2.4% year on year to $1.52 billion. The company expects next quarter’s revenue to be around $1.49 billion, close to analysts’ estimates. Its non-GAAP profit of $0.04 per share was in line with analysts’ consensus estimates.

Is now the time to buy WOOF? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Petco’s fourth quarter results were met with a positive market reaction as management emphasized notable improvement in profitability and operational discipline despite a year-over-year sales decline. CEO Joel Anderson highlighted that the company’s focus on eliminating unprofitable sales, optimizing inventory, and closing underperforming stores contributed to a healthier economic model. The leadership team pointed to their “North Star” strategy and recent executive hires as critical to driving these improvements, with Anderson stating, “Our healthier EBITDA and opportunistic debt paydown drove a meaningful reduction in our leverage ratio at year end.”

Looking ahead, Petco’s guidance is shaped by a renewed focus on expanding its product assortment, scaling owned services, and advancing its omnichannel capabilities. Anderson outlined plans for fresh food expansion, new brand launches, and technology investments in stores and services to capture greater share of wallet from existing customers. CFO Sabrina Simmons noted that growth initiatives are designed to be “self-help in nature,” reducing reliance on broader industry tailwinds. While management was clear that macroeconomic volatility remains, their strategy is centered on leveraging operational improvements and targeted investments to drive sustainable growth.

Key Insights from Management’s Remarks

Petco’s management attributed the quarter’s margin gains and improved cash flow to disciplined cost controls, store optimization, and a renewed commercial strategy focused on profitable sales and customer engagement.

• Store Closures Drive Profitability: Management attributed improved margins and cash flow to the closure of underperforming stores and renegotiated leases, with Simmons noting that favorable rent negotiations allowed some locations to remain open with better economics.
• Inventory Discipline: The company undertook significant inventory cleanup, focusing on eliminating unproductive products, which helped drive a nearly 10% reduction in inventory and contributed to the improvement in free cash flow.
• Own Brands and Product Mix: Petco increased emphasis on its own brands, which now represent about 20% of sales and deliver higher margins than national brands. The focus for 2026 includes expanding these lines and leveraging private label strength to improve profitability.
• Services as a Differentiator: Growth in wholly owned services—such as veterinary hospitals, grooming, and dog training—was a notable contributor. Management sees services as a key competitive moat, with increased technology enabling better cross-selling between services and retail.
• Customer Segmentation Shapes Strategy: Insights from a comprehensive customer segmentation identified “Passionate Explorers” as a core segment, helping to inform assortment, experience, and targeted marketing efforts aimed at driving frequent visits and higher spend per customer.

Drivers of Future Performance

Management’s outlook for the coming quarters centers on expanding product offerings, scaling services, and leveraging omnichannel initiatives to drive both revenue growth and margin improvement.

• Fresh Food Expansion: Petco plans to significantly expand its fresh food offering by adding over 1,000 new freezers in stores, aiming to increase customer visits and share of wallet as fresh food buyers typically shop more frequently and spend more than average customers.
• Omnichannel and Loyalty Investments: The company is relaunching its loyalty program and enhancing digital capabilities, including linking repeat delivery customers to in-store pickup, with management expecting these moves to boost customer retention and drive higher basket sizes.
• Margin Focus Amid Macro Volatility: Management highlighted ongoing risks from fuel prices and macroeconomic uncertainty but pointed to a continued emphasis on cost discipline, product mix optimization, and selective promotional activity as ways to protect margins and deliver targeted EBITDA growth.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) the impact of fresh food expansion and new product launches on store traffic and sales, (2) the effectiveness of the revamped loyalty program and omnichannel features in boosting repeat business and customer spend, and (3) margin resilience as cost discipline and product mix improvements are tested against external headwinds. Progress in growing services and cross-selling to existing customers will also be important signposts.

Petco currently trades at $2.53, up from $2.45 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free).

Stocks That Trumped Tariffs

ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.

Find out which 5 stocks it's flagging for this month — FREE. Get Our Top 5 Growth Stocks for Free HERE.

Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.