Petco Health and Wellness Company(WOOF 1.88%) reported results on July 29, 2025, with adjusted EBITDA reaching $114 million and operating income improved by over $40 million. Management raised full-year adjusted EBITDA (non-GAAP) guidance for fiscal 2025 (period ending Jan. 31, 2026) to a midpoint of $390 million, up approximately 16% year over year, while net sales (GAAP) declined 2.3% year over year due to strategic store closures and an exit from unprofitable sales, as the company progresses through the second phase of its transformation plan.

Operating margin expands as Petco Health and Wellness Company shifts focus

Gross margin increased by more than 120 basis points to 39.3% in the second quarter of 2025, driven by changes in promotional strategy, pricing discipline, and operational improvements in both products and services. The company closed 35 net stores from 2024 through the second quarter of 2025, reducing its U.S. store base to 1,388 locations at the end of the second quarter.

"Our top-line results primarily reflect the decisions we are making to move away from unprofitable sales, shifting instead to promotional strategy, better retail execution, and enhanced customer experience. This work resulted in gross margin expansion of more than 120 basis points versus last year to 39.3%, with gross margin in both products and services expanding once again this quarter."
-- Sabrina Louise Simmons, Chief Financial Officer

This deliberate reduction of unprofitable revenue channels in favor of margin expansion signals a business model reset, enhancing long-term earnings quality and lowering operating risk as the company manages for profitability rather than undisciplined growth.

Transformation yields free cash flow and inventory progress

Free cash flow exceeded $50 million, up substantially year over year compared to the prior year, while inventory declined 9.5% year over year with higher in-stock rates. The balance sheet ended the quarter with $190 million in cash and total liquidity of $684 million, including the availability on the undrawn credit revolver.

"Inventory continues to be well managed, with ending inventory 9.5% below last year, all while achieving higher in-stock for our customers. Free cash flow for the quarter was over $50 million, and year to date was about $10 million. Both the quarter and year to date were well above the prior year. We ended the quarter with a cash balance of $190 million and total liquidity of $684 million, including the availability on our undrawn revolver."
-- Sabrina Louise Simmons, Chief Financial Officer

Maintaining positive free cash flow and tight inventory discipline demonstrates effective operational execution, positioning the company with meaningful flexibility to reinvest for growth and withstand macro or tariff-related headwinds (includes reference to non-GAAP financial measures as discussed on the call).

Petco Health and Wellness Company revamps merchandising and deepens customer engagement

The company relaunched its "where the pets go" brand campaign and introduced new in-store experiential marketing events, while also expanding shelf space for high-turnover SKUs and launching a first-ever human-oriented product line based on customer insights. Customer satisfaction, as measured by Net Promoter Score (NPS), has improved sequentially since year-end, driven by in-store experiences and upgraded partner engagement.

"Survey respondents highlighted partner friendliness and helpfulness, with an average satisfaction rating above 90%, which speaks to our ability to deliver experiences that pets and their people aren't getting anywhere else. In addition, several of our store managers reported people waiting outside our doors before we opened for in-store events. This is simply evidence the marketing message is breaking through the clutter, and our pet parents want to engage and have in-store experiences with our store partners."
-- Joel D. Anderson, Chief Executive Officer

Enhanced experiential retail and differentiated merchandising create competitive advantages against pure-play e-commerce rivals.

Looking ahead

Management raised full-year adjusted EBITDA (non-GAAP) guidance to $385 million to $395 million for fiscal 2025 (period ending Jan. 31, 2026), up roughly 16% year over year at the midpoint, with net sales (GAAP) expected to decline in the low single digits for fiscal 2025 due to ongoing store optimization efforts. For the third quarter, adjusted EBITDA (non-GAAP) is guided to $92 million to $94 million, up nearly 15% year over year, as tariff impacts intensify toward year-end and selective investments resume. Positive comparable sales are not expected until 2026, with new merchandise, omnichannel initiatives, and loyalty program upgrades to drive the next growth phase.