Petco Health and Wellness Demand Remains Resilient Despite Uncertainty

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Petco Health and Wellness Demand Remains Resilient Despite Uncertainty
Credit: © Reuters.

By Sam Boughedda

Petco Health and Wellness (NASDAQ: WOOF ) reported earnings before the open Wednesday, missing analyst expectations, sending its shares tumbling more than 8% below Tuesday's close.

The pet health company posted second-quarter earnings of $0.19 per share, $0.04 below the analyst estimate of $0.23, with revenue coming in at $1.48 billion versus the consensus estimate of $1.49 billion.

The company said despite economic uncertainty, demand in the pet category remains resilient.

Petco's comparable sales grew 3.8 percent year over year.

"Q2 marks our 15th consecutive growth quarter, demonstrating that Petco's business and customers continue to grow, driven by the strength of our unique end-to-end health and wellness pet ecosystem," said Petco CEO Ron Coughlin.

Looking ahead, Petco sees FY2022 earnings between $0.77 and $0.81 per share versus the consensus of $0.90. In addition, revenue is expected to be between $5.98 billion and $6.05 billion, versus the consensus of $6.13 billion.

Reacting to the report, a Needham & Company analyst, who has a Buy rating and $30 price target on the stock, said the company's guidance was cut as expected on supplies while the pet space backdrop is still "rational."

"Across Consumables (2 year sales accelerated) and Services, 60% of WOOF's business is resilient, with more discretionary Supplies & Companion Animal (40% of sales) staying negative, despite easier compare in 2Q22," said the analyst. "3% sales guidance cut for '22 appears conservative, with low end of the range based on further sales moderation (Supplies & CA staying difficult through year-end), despite easier compares (2H22 is 9 points easier on average than 1H22) and momentum into August (better traffic)."

"'22 EBITDA was lowered by a greater 8%--promotional environment across pet space remains rational, although Supplies & CA is risk factor, if consumer further deteriorates, plus freight remains a headwind (should alleviate in 4Q22). Lower est. --shares are resetting lower, with attractive valuation providing a floor (0.8x EV/ EBITDA and 15x EPS, on '23)," she added.

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