Petco Health and Wellness (NASDAQ:WOOF) executives said the company ended fiscal 2025 with results in line with its expectations for sales and ahead of its quarterly Adjusted EBITDA goal, while also laying out a “phase three” plan aimed at returning to sustainable top-line growth in 2026.
Chief Executive Officer Joel Anderson said the company’s 2025 focus on strengthening its “economic model and improving retail fundamentals” translated into higher profitability and cash flow. Chief Financial Officer Sabrina Simmons added that the company expanded gross margin and leveraged SG&A in each quarter of the year, enabling stronger operating income, positive GAAP net income, and significant free cash flow improvement.
Full-year 2025: margin expansion, cash flow growth, and lower leverage
Free cash flow improved 276% versus the prior year to $187 million, according to Simmons. She said those results supported progress on deleveraging, with net debt to EBITDA improving from 4.2x at the start of the year to 3x at fiscal year-end. Simmons also said Petco ended the year with $257 million in cash, up $91 million year-over-year, and that the company voluntarily paid down $95 million of debt.
On refinancing, Simmons said the company executed an “opportunistic” transaction with “favorable terms,” replacing a fully variable debt structure with a mix of fixed and floating debt and extending maturities to 2031.
Fourth quarter: sales declines tied to “unprofitable” volume exits, profitability improves
For the fourth quarter, Simmons said net sales fell 2.4% to $1.52 billion, with comparable sales down 1.6%. She attributed the decline to Petco’s decision during 2025 to “move away from unprofitable sales.” She also noted the gap between total sales and comparable sales was driven by net store closures—25 net closures in 2024 and an additional 16 in 2025. Petco ended the quarter with 1,382 U.S. stores.
Gross profit in the quarter was $581 million and gross margin expanded 37 basis points to 38.3%, which included “the sequential increase in tariff impact” the company said it anticipated. SG&A was $549 million, or 36.2% of net sales, leveraging 62 basis points. Simmons said the year-over-year expense decline partly reflected lapping prior-year consulting costs, while marketing expense increased $7 million in the quarter.
Improved gross margin and expense leverage helped drive operating margin expansion of 98 basis points, with operating profit up $14 million, or 83%, in the quarter, Simmons said. Adjusted EBITDA increased 10.6% to $106 million, and Adjusted EBITDA margin expanded 82 basis points to 7%.
Inventory ended the quarter down 9.7% compared with a 2.4% sales decline. Simmons said disciplined inventory management was one driver of improved cash flow.
2026 outlook: flat-to-modest sales growth and higher Adjusted EBITDA
Management said it is entering 2026 from a “position of strength,” while still navigating a “bumpy macro backdrop.” Simmons said first-quarter guidance assumes fuel prices normalize by the end of the quarter. For the first quarter, Petco expects net sales down 1% to flat year-over-year, with comparable sales roughly flat at the midpoint, and Adjusted EBITDA of $92 million to $94 million.
For fiscal 2026, Petco guided for net sales flat to up 1.5% versus 2025 as growth initiatives “take hold and build over the course of the year.” The company expects 15 to 20 net store closures in 2026, weighted to the back half, and estimated the full-year spread between total sales and comp sales at about 50 basis points, implying positive comp sales for the year.
Adjusted EBITDA is expected to be $415 million to $430 million. Simmons also provided additional modeling items, including net interest expense of about $125 million, capital expenditures of about $140 million, and depreciation and amortization of about $200 million. She said stock-based compensation is expected to rise by a low double-digit percentage versus last year but remain “well below years prior to 2025.”
“Reach for the Sky”: four growth pillars and a push for newness, services, and omni-channel
Anderson said Petco is entering the third phase of its turnaround plan, internally called “Reach for the Sky,” focused on driving sustainable top-line growth. He described four pillars the company will execute against in 2026:
- Compelling product, including more “newness,” national brand launches, and expansion of owned brands.
- Services at scale, leveraging Petco’s “wholly owned” ecosystem of vet, grooming, vaccination clinics, and training.
- Trusted store experience, designed to increase traffic, engagement, and basket size.
- Integrated omni-channel, aimed at improving convenience, loyalty, and repeat behavior.
In consumables, Anderson called out fresh food as a key opportunity and said Petco is adding more than 1,000 incremental freezers during 2026. He said customers who buy fresh food make “over four more trips per year” and spend “over 50% more annually” than dry food-only dog customers. He also said the company plans to increase the frequency of product “drops” rather than relying on a single annual reset, and to expand owned brands, which he said represent about 20% of sales today and carry “significantly above” national-brand margins.
In services, Anderson said the company is committed to veterinary care as a growth engine and is focused on improving productivity across its approximately 300 in-store hospitals, including roughly 25 “underutilized” locations. He said Petco paused new hospital construction in 2025 and expects to “start growing our hospitals in 2027.” He also said Petco plans to add technology later in 2026 and into 2027 to better support cross-selling and customer engagement.
On the store experience, Anderson said Petco reorganized operations to unify store and services leadership and is emphasizing store events, customer engagement, and cross-selling. He cited internal efforts to provide groomers more visibility into customers’ purchase history and said about half of Petco’s dog customers do not currently buy dog food from the company, representing an opportunity to grow share of wallet.
On omni-channel, Anderson said Petco improved e-commerce fill rates and page load time in 2025 and intends to “turn up the dial in marketing” in 2026, including new creative tied to its brand positioning, “Where the Pets Go to Live their Best Lives.” He also said Petco plans to relaunch its loyalty program later in 2026 after pilots, and highlighted a new capability for repeat delivery customers to pick up orders in-store.
Q&A highlights: pricing discipline, inventory investment, and assortment positioning
During the question-and-answer session, Anderson said growth efforts will be pursued “simultaneously” across all four pillars, though he noted product initiatives can take longer to flow through due to existing inventory and timing of new items. He said Petco expects about 25 new brands or flavors launching during the year, with many introduced in the first half.
On pricing, Anderson said the company began work in 2024 and feels it “got our pricing right throughout 2025,” while remaining dynamic. Simmons said Petco intends to remain competitive and participate in promotions “where appropriate,” while also using mix—such as shifting toward owned brands—to support margin goals.
On inventory, Simmons said Petco cleaned up inventory in 2025, including becoming more disciplined about cutting “the unproductive tail of SKUs,” and expects to invest in inventory to support growth in 2026. However, she said the company aims to keep inventory growth at or below sales growth.
Management also addressed assortment strategy, with Anderson saying Petco has “widened the aperture” to serve both affordability-driven customers and those seeking premium and specialized offerings. He added that customer research showed Petco skews about five percentage points higher than some pet retailers in the 18–34 demographic and said that group’s preference for in-store shopping supports Petco’s store model.
About Petco Health and Wellness (NASDAQ:WOOF)
Petco Health and Wellness Company, Inc (NASDAQ: WOOF) is a leading U.S. pet specialty retailer focused on delivering products, services and solutions that improve the health and well-being of pets. The company operates a network of retail locations that provide high-quality pet food, supplies and accessories, along with a growing digital platform that supports online ordering, subscription delivery and telehealth consultations for pets.
In addition to its retail offerings, Petco has built a full suite of in-store and virtual services, including grooming, training, dog daycare and veterinary care.
