Why Petco Stock Popped Today
Key Points
Petco is closing underperforming stores as it prioritizes free cash flow production.
Management expects sales to rebound in 2026.
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Shares of Petco (NASDAQ: WOOF) surged on Thursday after the pet food purveyor reported strong profit gains and issued an upbeat forecast for the year ahead.
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A renewed focus on profitability
Petco's net sales declined by 2.4% year over year to $1.5 billion in its fiscal 2025 fourth quarter, which ended on Jan. 31. The pet supplies retailer closed seven underperforming stores during the quarter, placing its total at 1,382 locations at the end of January.
Comparable sales, which measure revenue at stores open for at least one year, fell 1.6%, as Petco pared back some lower-margin products.
Yet while Petco's efficiency initiatives contributed to a dip in sales, they also helped to drive its profit margins sharply higher. The pet care provider's operating income soared 83% to $32 million.
Petco's cash generation also improved markedly over the course of 2025. The company's full-year free cash flow rocketed 276% higher to $187 million. That enabled Petco to bolster its cash reserves while also paying down debt.
A return to growth
Petco sees its net sales growing by up to 1.5% in 2026, even as it closes an additional 15 to 20 stores.
"We are confident that our focus on driving product newness and innovation, as well as leveraging our differentiated, high-touch store ecosystem, will help us to grow market share," CEO Joel Anderson said.
Investors are clearly enthused by Petco's improved profitability, but long-term profit gains will require rising sales at existing stores. Fortunately, management expects just that.
"Our outlook reflects our strategic initiatives and assumes a return to positive comps in 2026," 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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