Shares of Petco (NASDAQ: WOOF) were moving higher today after the pet products retailer posted better-than-expected results in its first-quarter earnings report, although the company is facing challenges with declining revenue and profits.
As of 11:37 a.m. ET, the stock was up 30.6%.
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A Beacon of Hope Emerges for Petco
Pet retailers’ stocks have struggled since the pandemic boom, transitioning from a surge in pet adoption during the lockdown to an extended period of slow growth. Petco, amid the headwinds, seems to be gradually climbing out of a deep hole.
In the first quarter, revenue declined by 1.7% to $1.53 billion, surpassing analysts’ expectations of $1.51 billion. The company experienced a drop in gross margin from 38.8% to 37.8% due to a rise in service costs by 8%, potentially fueled by increased labor expenses.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) plummeted from $111 million in the previous year to $75.6 million. Adjusted earnings per share shifted from $0.06 to a loss of $0.04 per share.
Interim CEO Mike Mohan expressed optimism, stating, “In Q1 we made meaningful progress against our strategy to reposition the business for sustainable and profitable growth.”
The Uphill Climb for Petco’s Future
For the second quarter, Petco anticipates similar performance. It foresees revenue of $1.525 billion, indicating approximately flat growth compared to the previous year and aligning with analysts’ forecasts. On the earning side, the company expects an adjusted EBITDA of $80 million and an adjusted per-share loss of $0.02, in line with analysts’ estimates.
While Petco still faces challenges, the projection of stagnant revenue growth may suggest that the worst is over for the company. Yet, a return to profitable growth remains a critical milestone for full recovery.
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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.