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Petco Health & Wellness Company, Inc. (WOOF)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered margin-led earnings strength: gross margin expanded to 39.3% (+120 bps YoY), operating income rose to $43.0M, GAAP net income swung to $14.0M, and Adjusted EBITDA increased to $113.9M, all while net sales fell 2.3% and comps declined 1.4% .
  • Management raised FY 2025 Adjusted EBITDA guidance to $385–$395M (from $375–$390M), maintained net sales outlook (“down low-single digits”), and set Q3 Adjusted EBITDA outlook at $92–$94M, citing continued operational improvements and planned targeted reinvestments .
  • Q2 results were ahead of the prior quarter’s Q2 guidance for EBITDA ($92–$94M vs. actual $113.9M), indicating stronger-than-expected margin execution; net sales were in line with the outlook .
  • Key stock narrative catalysts: elevated margin discipline and SG&A leverage, raised FY EBITDA guide, tariffs expected to be a more meaningful headwind in H2, and a 2026 timeline for returning to positive comps as the company transitions from Phase 2 (foundation) to Phase 3 (growth) .

What Went Well and What Went Wrong

What Went Well

  • Gross margin expansion (+120 bps YoY to 39.3%) driven by tighter pricing/promo governance and improved merchandising/process discipline; margin expansion occurred in both products and services .
  • SG&A leveraged by >150 bps with ~$36M YoY reduction; benefits included employee benefits optimization, store labor efficiencies, and expense control, supporting a $41M YoY increase in operating profit to $43M .
  • Free cash flow improved to $53.8M in Q2 and YTD FCF reached ~$9.9M versus prior year ~$0.9M, reflecting stronger profitability and working capital execution .

What Went Wrong

  • Top-line softness persisted: net sales down 2.3% and comps down 1.4%, reflecting intentional pullback from “empty calorie” promotions and e-commerce softness during retooling .
  • Tariffs were minimal in Q2 but expected to be “sequentially more meaningful” in Q3 and more significant in Q4, creating a headwind to margin trajectory in H2 .
  • Transactions lagged; while baskets and units per transaction were healthy, traffic remains a focus area as marketing/events ramp to invite customers back in-store ahead of a membership relaunch in 2026 .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Net Sales ($USD Billions)$1.552 $1.493 $1.489
GAAP Diluted EPS ($)-$0.05 -$0.04 $0.05
Operating Income ($USD Millions)$17.4 $16.4 $43.0
GAAP Net Income ($USD Millions)-$13.8 -$11.7 $14.0
Adjusted EBITDA ($USD Millions)$96.1 $89.4 $113.9
Adjusted EBITDA Margin (%)6.2% 6.0% 7.6%
Gross Margin (%)—38.2% 39.3%
Comparable Sales (%) YoY+0.5% -1.3% -1.4%

Segment breakdown (Net Sales):

Segment ($USD Millions)Q4 2024Q1 2025Q2 2025
Products$1,310.2 $1,241.9 $1,225.6
Services & Other$241.9 $251.5 $262.9
Total$1,552.1 $1,493.4 $1,488.5

KPIs:

KPIQ4 2024Q1 2025Q2 2025
Free Cash Flow ($USD Millions)—-$43.9 $53.8
Cash Balance ($USD Millions)$165.8 (FY-end) $133.3 $189.7 (cash, cash equivalents & restricted cash)
Liquidity ($USD Millions)——$684 incl. undrawn revolver

Vs prior guidance (execution check):

ItemPrior GuideActualResult
Q2 2025 Adjusted EBITDA ($M)$92–$94 $113.9 Beat (significant)
Q2 2025 Net SalesDown LSD YoY -2.3% YoY In line

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA ($M)FY 2025$375–$390 $385–$395 Raised
Net SalesFY 2025Down low single digits Down low single digits Maintained
Net Interest Expense ($M)FY 2025~$130 ~$130 Maintained
Capital Expenditures ($M)FY 2025$125–$130 $125–$130 Maintained
Depreciation & Amortization ($M)FY 2025~$200 ~$200 Maintained
Net Store ClosuresFY 2025~20–30 ~25 Refined
Adjusted EBITDA ($M)Q3 2025—$92–$94 New/Specific
Net SalesQ3 2025—Down low single digits New/Specific

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Margin discipline (AUR/AUC, promo governance)Initiated multi-phased reset; margin +30 bps in Q1; governance on pricing/markdowns Gross margin +120 bps; continued pricing/promo rigor; both products/services expanded Improving
SG&A leverage & cost mindsetSG&A leverage ~160–180 bps in Q1; permanent discipline vs one-time cuts >150 bps leverage; ~$36M savings; benefits reserves optimization and store labor Improving
Tariffs/macroTariffs embedded; exposure ~7% of owned-brand COGS; mitigation underway Minimal Q2 impact; expected meaningful in Q3 and more in Q4 Deteriorating in H2
E-commerce retoolIdentified friction points; leadership additions; loyalty revamp planned for 2026 Profitability improved; focus on speed, page load, appointment scheduling, repeat delivery, media optimization In progress
Store resets & merchandisingCat reset complete; dog reset started; end-cap strategy overhaul Resets completed; higher on-shelf capacity, improved in-stocks and productivity; human-themed products under $20 Improving
Services moat (grooming/vet)Software upgrades; online scheduling flexibility; services fastest-growing Continued productivity gains; services growth stronger than reported as paid loyalty is deprioritized pre-relaunch Strengthening
Customer traffic/transactionsTransactions drag; plan to invite customers back; events and marketing evolution Transactions remain focus; NPS and engagement up; in-store events resonating Early positive signs

Management Commentary

  • CEO: “For the second quarter we once again delivered against our commitments, enabling us to raise our earnings outlook for the full year… strengthen our economic model and improve retail operating fundamentals” .
  • CEO: Reintroducing “Where the pets go” tagline and in-store events to increase relevancy; NPS up and customers “waiting outside our doors” for events .
  • CFO: “Gross margin expansion was driven by a more disciplined approach to both average unit cost and average unit retail… minimal tariff impact in the second quarter” .
  • CFO: “We are raising our adjusted EBITDA outlook for 2025… expect adjusted EBITDA [Q3] between $92M and $94M” .
  • CFO: Liquidity of $684M including undrawn revolver; inventory down 9.5% vs last year with higher in-stocks .

Q&A Highlights

  • Timeline to positive comps: Management expects the comp inflection in 2026 as Phase 3 growth initiatives take hold; Q3 is the toughest compare .
  • Gross margin and tariffs: Margin beat driven by pricing/promo discipline; tariffs were rounding in Q2 but will be meaningful in Q3 and most significant in Q4; pricing lever remains surgical and consumer-first .
  • E-commerce retool: New leader, focus on speed, scheduling, repeat delivery, media optimization; e-com profitability improved despite sales pullback .
  • Transactions vs basket: UPT and basket healthy; transactions lag remain the biggest opportunity, with events/marketing to drive traffic .
  • Guidance cadence: Q4 EBITDA may be pressured by tariffs and selective reinvestment; management maintaining dry powder given macro volatility .

Estimates Context

  • Wall Street consensus estimates via S&P Global were unavailable at this time due to access limitations. As a result, estimate comparisons (Revenue/EPS/EBITDA vs consensus) cannot be shown. If required, we can refresh when access is restored and update the recap with beats/misses versus consensus.

Key Takeaways for Investors

  • Margin-led earnings strength: Q2 Adjusted EBITDA of $113.9M and 7.6% margin signal effective pricing/promo governance and SG&A discipline, even amid modest sales declines .
  • Guide raise is notable: FY 2025 Adjusted EBITDA raised to $385–$395M, reflecting confidence in operational improvements and cost discipline .
  • H2 headwinds: Tariffs expected to weigh more heavily in Q3/Q4; Q3 EBITDA seasonally lower ($92–$94M) and comps lap the toughest prior-year compare .
  • Strategic pivot to growth (Phase 3) in 2026: Expect positive comp trajectory next year as merchandising newness, services scaling, store experience, and omnichannel improvements mature .
  • Near-term trade: Focus on margin resilience and Q3 execution vs tariff headwinds; the significant Q2 EBITDA beat versus guidance could support sentiment, but macro/tariff risks temper H2 expectations .
  • Medium-term thesis: Services moat and merchandising differentiation plus disciplined pricing/promotions and inventory governance underpin sustainable profitable growth potential .
  • Liquidity and balance sheet: $684M total liquidity and inventory down 9.5% YoY improve optionality for targeted reinvestments while maintaining financial flexibility .

Notes: Financials and guidance sourced from Q2 2025 press release and 8-K, prior quarter releases, and the Q2 2025 earnings call transcript .