Petco’s business continues to shrink, but it still topped analysts’ estimates.
Shares of Petco (WOOF 24.49%) were moving higher today after the pet products retailer posted better-than-expected results in its first-quarter earnings report, though the company is still struggling with declining revenue and profits.
As of 11:37 a.m. ET, the stock was up 30.6%.
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Petco starts to climb out of a deep hole
Pet retailers’ stocks have struggled since the pandemic boom as a spike in pet adoption during the lockdown period has given way to an extended period of slow growth, and Petco has been unable to escape those headwinds.
However, the shares have apparently fallen far enough that investors are reacting positively to the business still shrinking.
In the first quarter, revenue fell 1.7% to $1.53 billion, but that topped analysts’ consensus estimate of $1.51 billion.
Petco’s gross margin dropped from 38.8% to 37.8% as costs to provide services rose 8%, which could have been driven by higher labor expenses.
On the bottom line, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell from $111 million in the year-ago period to $75.6 million, and adjusted earnings per share swung from $0.06 to a loss of $0.04 per share.
Interim CEO Mike Mohan said, “In Q1 we made meaningful progress against our strategy to reposition the business for sustainable and profitable growth.”
Can Petco keep climbing?
For the second quarter, Petco expects similar results. Revenue of $1.525 billion should equal roughly flat growth versus a year ago and match the analyst consensus. On the bottom line, it sees adjusted EBITDA of $80 million and an adjusted per-share loss of $0.02, which is in line with analysts’ estimates.
Petco still has a lot of work to do, but the guidance for flat revenue growth could signal that the worst is behind the business. Still, the company will need to find a way to return to growth on the bottom line to make a full recovery.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.