Q3 2025 Earnings Summary
- Vet hospitals and services are strong growth drivers, with sales up 17% in the last quarter for hospitals and Vetco , ,. The company is focusing on improving utilization rates and profitability of the existing vet hospital fleet, indicating significant potential for further growth and margin improvement ,.
- Consumables category is improving, driven by better in-stock levels due to the implementation of a new inventory management system, improved shelf utilization, and competitive pricing. The fresh frozen segment was up 20% year-over-year, showing strong customer demand in this area.
- The company is actively managing costs and driving efficiencies, with cost-out initiatives that are not just one-time savings but designed to fundamentally change the way they think and work, unlocking long-term value. They have significant cost-out opportunities expected to strengthen profitability without immediate reinvestment, positioning the company for sustainable growth.
- The company's services and companion animal segment declined by 3%, indicating continued softness in discretionary spending.
- The focus on cost reductions without reinvesting may limit growth opportunities necessary for sustainable same-store sales growth.
- Flat pet adoption rates suggest the company cannot rely on market growth to drive sales, potentially limiting future revenue growth.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q4 2024 | Approximately $1.5 billion | Approximately $1.55 billion | raised |
Adjusted EBITDA | Q4 2024 | Between $76 million to $80 million | Between $90 million to $95 million | raised |
Adjusted EPS | Q4 2024 | Between negative $0.03 and negative $0.04 | Between $0.00 and $0.02 | raised |
Net Interest Expense | FY 2024 | Approximately $145 million | Approximately $140 million | lowered |
Weighted Average Fully Diluted Shares | FY 2024 | 272 million | 273 million | raised |
Capital Expenditures | FY 2024 | $140 million | $130 million | lowered |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Veterinary hospitals and pet services | Highlighted as a key growth driver, with double-digit growth across Q4 2024, Q1 2025, and Q2 2025; focus on ramping up new vet hospital capacity and improving operational efficiencies. | Continues to show strong growth (9% services revenue growth, 17% vet hospital/mobile clinics growth) and remains a strategic focus for profitability improvement. | Recurring strong performer; ongoing margin and utilization improvements expected. |
Consumables and fresh/frozen | Was addressed in prior calls with moderate growth: consumables generally up slightly or flat; fresh/frozen performing well yet affecting margin mix. | Consumables grew 3% YOY, with fresh/frozen up 20% YOY, driven by improved inventory management and competitive pricing. | Recurring topic; stable growth continues, with fresh/frozen as a strong subcategory. |
Cost transformation and operational efficiencies | Emphasis on $150 million in run-rate savings by end of 2025, permanent cost-out measures, and improved supply chain/merchandising across Q4 2024, Q1 2025, and Q2 2025. | Continuing structural cost reductions, renegotiating vendor contracts, improving store labor productivity, and professionalizing procurement. | Recurring with improved sentiment; long-term structural changes still in progress. |
Market share dynamics and competition | Discussed losing some share in Q4 2024, focusing on profitability over share in Q1 2025, and emphasizing competitiveness and differentiation in Q2 2025. | Emphasizes a “self-help” strategy, cutting costs, and improving fundamentals without relying on market tailwinds. | Recurring topic; focus on internal fixes rather than market-driven share gains. |
Leadership transitions and governance | Multiple changes: new interim CEO in Q4 2024, search for permanent CEO Q1 2025, introduction of Joel Anderson as CEO in Q2 2025. | Added new executives Joe Venezia as Chief Revenue Officer and Dan Calista as Chief Strategy and Transformation Officer to accelerate transformation. | Continued executive shifts to reinforce strategy and governance structure. |
Pet adoption rates and companion animal demand | Mixed mentions: Q2 2025 cited slower adoptions, no specific data in Q1 2025 or Q4 2024. | Flat pet adoption rates, soft supplies/companion animal category (down 3% YOY), but some sequential improvement. | Not consistently discussed; newly re-emphasized in Q3 with flat demand outlook. |
Profitability challenges and margin outlook | Persistently discussed across Q4 2024–Q2 2025 with gross margin pressures from product mix and discretionary softness; targeted cost actions to mitigate. | Gross margin up 130 bps YOY to 38.1%; continued focus on cost cuts and services-driven margin gains despite discretionary headwinds. | Recurring topic; margin improving through cost measures and services growth. |
Retail fundamentals and merchandising | Acknowledged need for better in-store execution, assortment discipline, and pricing optimization in Q4 2024–Q2 2025. | Focus on permanent cost-outs, improved labor models, and stronger vendor negotiations. Enhanced merchandising resets and pricing strategies. | Recurring emphasis; improvement in basics and assortment for profitability. |
Liquidity, free cash flow, and capital allocation | Stressed the importance of earnings for FCF; guided $140 million in CapEx for the year, with disciplined investments and inventory optimization in Q4 2024–Q2 2025. | Reported $644 million in liquidity. Negative $10 million free cash flow, notably improved YOY, with reduced CapEx and disciplined inventory levels. On track for positive FCF in fiscal 2024. | Recurring focus on FCF improvement, disciplined CapEx, and stabilizing liquidity. |
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Cost Savings and Reinvestment
Q: How much cost savings is there, and will they need reinvestment?
A: Joel Anderson stated they have significant cost-saving opportunities that are permanent and don't require reinvestment at this time. Their focus is on structurally removing costs from the business, and as they progress, they may consider reinvesting in areas like marketing to drive top-line growth. -
Gross Margin Improvement
Q: What drove the gross margin improvement this quarter?
A: Brian LaRose explained that gross margin improved by 130 basis points year-over-year, mainly due to cost actions taking hold and improvements in the services business. Despite a negative mix from supplies and companion animal categories, the maturation of vet hospitals, strong Vetco Mobile performance, and robust grooming services contributed to the margin expansion. -
Vet Hospitals Growth and Profitability
Q: Can you discuss efficiency improvements and margin potential in vet hospitals?
A: Joel Anderson highlighted significant progress in vet hospitals, with sales in hospitals and Vetco up 17% last quarter. They are improving profitability through better staffing and utilization rates and see substantial room for margin improvement as the hospitals mature. They are also enhancing merchandising efforts, especially in prescription services and connecting vets with store offerings. -
Vendor Negotiations and Merchandising
Q: How receptive have vendors been to your merchandising efforts?
A: Joel Anderson noted that discussions with vendors have been well received, emphasizing transparency and openness. They are successfully building joint business plans for 2025 and are pleased with the progress made by their merchant teams. -
Consumables Sales Improvement
Q: What's driving the improvement in consumables sales?
A: Joel Anderson attributed the consumables improvement to being in stock, supported by their new inventory management system, better inventory flow, and competitive pricing. Brian LaRose added that fresh frozen categories were up 20% year-over-year, contributing to strong sales. -
Discretionary Categories Trend
Q: Can you elaborate on the improving trend in discretionary categories?
A: Joel Anderson mentioned a 200 basis point sequential improvement in discretionary categories. By focusing on innovation and trend-right products to drive impulse buying, alongside ensuring strong consumables inventory, they are improving both sides of the business. -
Pet Adoption Trends
Q: Are you seeing improvements in pet adoption trends?
A: Joel Anderson stated that the market is rather flat from their perspective. They are not relying on market improvement for business growth, focusing instead on self-help initiatives, and any market growth would be an added benefit. -
Market Share and Customer Engagement
Q: How do you plan to regain market share and re-engage customers?
A: Joel Anderson expressed confidence that focusing on retail fundamentals sets them up for growth in 2025 and beyond. Specific plans will be outlined in March, but he is excited about the progress made in a short time. -
Vet Hospital Rollout Plans
Q: What's the timeline for expanding vet hospitals?
A: Joel Anderson affirmed that vet hospitals are a key growth driver and differentiator, as they are all Petco-owned. Detailed growth plans will be shared in March, but expansion is expected to continue. Brian LaRose added that opening fewer hospitals this year was to strengthen the balance sheet and position the company to invest in high-ROI projects going forward. -
Current Quarter Trends
Q: How is the business trending in Q4 and holiday season?
A: Joel Anderson indicated they are pleased with the start of the quarter, and their guidance reflects a sequential improvement from Q3. They have momentum heading into the back half of the quarter.