Petco Posts 36% Profit Jump in Fiscal Q2

Key Points

• Profitability surged, as diluted earnings per share (GAAP) swung to $0.05 from a loss of $(0.09) in the prior-year period.

• Revenue (GAAP) slipped 2.3% to $1,488,529,000 but was in line with guidance.

• Adjusted EBITDA (non-GAAP) grew 36.4% year over year to $113.9 million, prompting a raised full-year profit outlook.

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Petco Health and Wellness (NASDAQ:WOOF), a national pet care and retail chain, published its second-quarter fiscal 2025 results on August 28, 2025. The report showed expanding profit margins. Free cash flow improved year over year, and Operating income surged year over year, even as sales modestly declined. Revenue (GAAP) landed at $1.49 billion, down 2.3% compared to last year and matching prior expectations. Earnings per diluted share (GAAP) turned positive to $0.05 from a loss last year. Notable cost discipline drove a 36.4% year-over-year increase in adjusted EBITDA to $113.9 million, which led management to lift its annual profit guidance. The quarter marked a clear step forward on profitability and execution, though sales trends remain under pressure.

Company Overview and Strategic Pillars

Petco Health and Wellness is a nationwide pet retailer with stores and a growing ecommerce platform. It offers a range of pet products, grooming, and training services at more than a thousand U.S. locations. In recent years, it has focused on combining digital shopping with in-store options, growing its veterinary services, and building the Vital Care membership program to keep customers engaged. The company also invests in developing its workforce to provide consistent customer service, referring to employees as "partners" and offering career development programs.

The business is working to differentiate itself through integrated services and flexible shopping methods. Recent strategy centers on expanding services within stores, optimizing its assortment to match customer preferences, and increasing efficiency at all levels. The Vital Care program, offering regular pet care and perks via membership, is central to its long-term plan for building loyalty and encouraging spending across both products and services.

Quarter In Review: Profitability, Revenue, and Segment Performance

Revenue (GAAP) dipped 2.3%, landing squarely within management’s prior forecast for a modest decrease. Comparable sales slipped 1.4% Product revenue dropped 3.0% year over year on a GAAP basis. Service and other revenue edged up 0.8% year over year (GAAP). Services remain the fastest-growing business line.

Profitability improvement was the standout. Gross profit margin rose 1.2 percentage points to 39.3%, marking the second consecutive quarter of margin gains. Operating income (GAAP) hit $43.0 million, making a dramatic reversal from near-flat results a year ago. Free cash flow (non-GAAP) improved to $53.8 million, supported by disciplined expense management and well-controlled inventory levels, which ended at $608.5 million, down from $653.3 million at FY2025 year start. Cash and cash equivalents also climbed to $188.7 million.

Underlying this shift, management worked to reduce costs and improve pricing across product categories. Product cost of sales (GAAP) fell by about $40 million year over year.

Store closures continued, with management planning approximately 25 net closures for FY2025—a move aimed at optimizing profitability but one that could weigh on future sales capacity.

Petco’s Service Portfolio and Product Mix

Services offered at Petco locations include veterinary care—covering checkups, vaccinations, and surgeries—along with grooming and training. These services expand the company’s reach beyond typical retail sales and shield the business from some pressures that affect purely product-driven retailers.

On the product side, the company continues to adapt its offerings and pricing to keep shoppers engaged, especially as economic pressures shift where consumers spend. Adjustments have included adding more national brands and reducing less popular products, known as SKUs (stock keeping units). This realignment aims to appeal to value-conscious customers. In the past, Petco’s leadership highlighted improvements to appointment booking software and operational processes in the services group—a trend that appears to continue, supporting margin gains.

Looking Ahead: Guidance and Watchpoints

Management again expects revenue for FY2025 to decline in the low single digits, reaffirming its prior sales outlook. However, improved profitability in the first half led the company to raise full-year adjusted EBITDA (non-GAAP) guidance to a range of $385 million to $395 million for FY2025, up from the earlier forecast of $375 million to $390 million. For Q3 FY2025, guidance calls for adjusted EBITDA (non-GAAP) of $92 million to $94 million. No new quantitative targets were provided for sales or margins beyond these figures.

No forward-looking revenue inflection is visible in the company’s FY2025 guidance, keeping expectations measured through year-end. Investors will likely watch for further updates on store closures, progress in core digital initiatives, and new details about the relaunch of the Vital Care membership program, which remains pushed out to 2026. With gross margin expansion and cost controls driving most of the current-year gains, the key question for future quarters is when—or if—these gains can be paired with a return to growth in top-line sales.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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