Petco (WOOF +1.71%) announced fourth-quarter and fiscal year 2021 earnings on March 8. The results showed the pet retailer's streak of double-digit, comparable-store sales growth extended to seven quarters.
Sales boomed for Petco at the pandemic's onset and have not relented. Millions of folks were spending more time at home, away from friends, classmates, and coworkers. The trend fueled an increase in demand for the companionship of a furry friend.
Let's look closer at Petco's Q4 results and what they could mean for investors.
Petco's sales boomed at the pandemic onset as folks craved companionship. Image source: Getty Images.
Petco maintains an impressive streak of growth
Note that comparable-store sales growth includes stores open for at least 12 months and excludes the impacts of new store openings and closings. That said, in its fourth quarter ended Jan. 29, Petco reported comp sales growth of 14%. This marked its seventh consecutive quarter of double-digit growth in the metric.
The streak started in the second quarter of 2020, right as the pandemic worsened in the U.S. In Q1 2020, the quarter before the outbreak, Petco reported comp growth of just 2%. The shift upward highlights the magnitude of the positive effect the pandemic is having on Petco's business.
CEO Ron Coughlin commented on the company's success in the earnings press release:
Our category remains strong and resilient; our competitive moats are deepening, and our world-class team is executing to deliver purpose-driven performance. With an integrated omnichannel infrastructure, robust services offering including 197 veterinary hospitals, and millions of net new customers, we're well-positioned to drive enhanced long-term shareholder value.
At the pandemic's onset, pet adoptions and supplies to accommodate new pets are the categories that surged initially. Now that the world is entering the third year of the pandemic and economies are cautiously reopening, pet adoptions are slowing. Fortunately for Petco and its shareholders, pets are usually a long-term commitment. Pets adopted at the pandemic's onset will get bigger and need to eat more. Further, they will grow out of beds and need new toys to rip through.
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Key Data Points
Petco is seeing this trend evolve in its business. Sales of supplies and companion animals grew by 4.1% year over year in the quarter ended Jan. 29. Meanwhile, consumables like dog and cat food jumped by 18.8%.
What this could mean for investors
Petco's impressive results were not enough to buck the trend of the broader nervousness in the stock market following Russia's invasion of Ukraine. Petco's stock is down roughly 1% following its announcement on March 8.
Overall, Petco is trading at a price-to-sales and price-to-free cash flow of 0.9 and 40.5, respectively, far below its exclusively online competitor Chewy, as shown in the chart.
Valuation metrics for Petco and Chewy. Data by Ycharts.
Admittedly, Chewy is growing faster than Petco, both before and after the pandemic, but investors may prefer Petco at nearly half the valuation.
