Petco reaffirms full-year guidance even as Q1 sales fall

Dive Brief:

Petco on Thursday reaffirmed its full-year financial guidance despite an ongoing trade war.
The move came as the pet goods retailer reported first-quarter sales fell 2.3% year over year to $1.5 billion — in line with the company’s expectations, CEO Joel Anderson said on a call with analysts. Comparable sales fell 1.3% from the year-ago period.
Anderson said Petco “overdelivered on our profitability goals” in the period. The retailer posted an operating income of $16.4 million from a loss of $16.8 million last year, and improved its net loss to $11.7 million from $46.5 million.

Dive Insight:

Despite sales declines, Anderson said Petco has “a unique opportunity to reinvent our iconic brand for the future and position the business to regain share in the large, highly fragmented and resilient pet market.”

The retailer is executing on a turnaround after ushering in fresh leadership. Anderson himself was named CEO last July, while Sabrina Simmons was appointed CFO in February. As part of its turnaround initiative, Petco is currently focused on its merchandise and aligning its product offering with customer demand. Part of that effort has included resetting its cat and dog product assortments.

The turnaround, however, comes at a time when tariffs are causing uncertainty in the industry. Anderson noted, though, that “the current environment has served as a catalyst to accelerate work that was already underway as we strengthen our operating fundamentals.”

“We are working towards building best-in-class product cost management, pricing capabilities and centralized operating principles to our product import process, just to name a few,” Anderson said. “Our ability to reiterate our full-year outlook despite absorbing the impact of tariffs currently in place illustrates the meaningful progress we’ve made.”

Petco’s most direct tariff exposure is with its owned brands, according to Simmons. Previously, the retailer’s owned brand inventory purchases from China, Canada and Mexico were about 5% of its total merchandise cost of goods sold. After recent changes in tariff policy, Petco’s exposure sits at 7%, Simmons said on Thursday’s call.

But even as uncertainties linger, Petco reaffirmed its full-year guidance, projecting net sales to be down low-single-digits year over year and adjusted EBITDA to be between $375 million and $390 million. Capital expenditures are expected to range from $125 million to $130 million.

“Assuming tariffs remain at today’s current level and no higher, we believe we can still deliver on the outlook we provided at the start of the year,” Simmons said.