Why Petco Stock Popped Today
Key Points
Petco's profits surged in the third quarter.
The pet food supplier is on a path to sustainable earnings growth.
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Shares of Petco (NASDAQ: WOOF) climbed on Wednesday after the pet products provider reported substantial progress toward its profitability targets.
By the close of trading, Petco's stock price was up more than 14%.
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Petco's transformation is progressing
Petco's net sales declined by 3.1% year over year to $1.5 billion in its fiscal third quarter, which ended on Nov. 1. The pet food supplier closed underperforming stores and moved away from unprofitable product lines to improve its profit margins.
These efforts are bearing fruit. Petco's gross margin improved by 75 basis points to 38.9%. A sharp reduction in selling, general, and administrative expenses further helped to drive a more than sevenfold increase in the company's operating income to $29.2 million.
On an adjusted basis, Petco's earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 21% to $98.6 million.
"We delivered on Petco's profitability goals as we continue to execute on our multi-phased transformation," CEO Joel Anderson said.
Management lifted its full-year profit forecast
These promising results prompted Petco to raise the midpoint of its 2025 adjusted EBITDA guidance by $6 million to between $395 million and $397 million.
"We've continued to strengthen the foundation of our operating model to improve retail fundamentals and position Petco for sustainable, profitable growth over the long term," Anderson said.
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Joe Tenebruso 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.
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