Petco Health and Wellness Company, Inc.

What they do

Petco runs approximately 1,400 pet care centers in the U.S. and Puerto Rico, about 150 in Mexico and 2 in Chile through a joint venture, plus petco.com and the Petco app. It sells national brands, owned brands (WholeHearted, Reddy, So Phresh, Well & Good) and exclusive merchandise alongside pet care supplies and companion animals. Services include roughly 300 full-service veterinary hospitals and about 1,600 Vetco clinics run weekly, plus grooming and training.

Revenue drivers

• Consumables and merchandise — Broad assortment of national brands, owned brands and exclusive merchandise across nutrition and supplies; management highlighted growth in consumables in Q2 2026 as evidence the 'Reach for the Sky' strategy is gaining traction.
• Owned brands — WholeHearted, Reddy, So Phresh and Well & Good serve as a significant driver of sales, customer loyalty and repeat purchasing, and were described as a meaningful contributor to enterprise sales in fiscal 2025.
• Veterinary care — Approximately 300 full-service veterinary hospitals integrated into existing pet care centers and approximately 1,600 weekly Vetco clinics; management cites structural advantages, additional basket opportunities and data sharing versus stand-alone providers.
• Grooming and training — Services business integrated with product offerings and delivered by more than 26,000 store employees; company describes these as recurring relationships with pet parents.

Recent performance

Q2 2026 net sales were $1.5 billion, up 0.05%, with comparable sales up 0.6% and a second consecutive quarter of positive comps. Gross profit rose to $591.1 million at a 39.7% margin, up 37 basis points, and operating income increased 11.1% to $47.8 million. Net income was $38.7 million versus $14.0 million, and Adjusted EBITDA was $122.2 million versus $113.9 million; results include a $6.8 million net benefit from IEEPA tariff refunds. Year-to-date operating cash flow was $130.6 million versus $70.4 million, and free cash flow was $60.8 million versus $9.9 million. The company ended the quarter with 1,377 stores after closing 1 net store, cash of $293.5 million and total debt of $1.48 billion.

Strategy

Since fiscal 2025, under new leadership, Petco has pursued a strategy anchored on four pillars: a trusted store experience, new trend-driven products complementing the evergreen assortment, scaling differentiated services, and an integrated omnichannel experience built on a revamped membership offering and repeat delivery. Execution cited in the 10-K includes expanding owned brands and exclusive products, opening new veterinary hospitals, expanding Vetco clinics and enhancing grooming. The company has prioritized profitability and cash flow, and has voluntarily prepaid debt to reduce leverage toward a 2x target.

Risks

• Discretionary spending pressure — Management states it has observed increased competition and softening discretionary spending, creating a challenging operating environment.
• Tariffs and supply chain — Outlook assumes current or planned U.S. tariffs on imports from China and other countries as of September 2, 2026 remain at current levels, and no further IEEPA refunds are received; ongoing supply chain headwinds are expected to be absorbed.
• Macroeconomic factors — Interest rates, inflation, supply chain constraints, tariffs and geopolitical developments have had varying impacts on results that the company says are difficult to isolate and quantify.
• Membership relaunch disruption — Q2 2026 sales reflected disruption from stronger-than-expected points redemption following the membership program relaunch, though sales had been trending ahead of outlook before the relaunch.

Outlook

Petco reaffirmed its full-year 2026 net sales and Adjusted EBITDA outlook and provided third-quarter 2026 guidance. Full-year 2026 net sales are guided flat to up 1.5%, including net IEEPA tariff refunds of $6.8 million. Management says the outlook provides flexibility to keep investing in growth initiatives in the second half while absorbing supply chain headwinds. The company also stated it is progressing toward a 2x leverage target after prepaying $170 million of debt in the past nine months.