Petco's stock falls 4% after posting another quarterly loss as CEO Ron Coughlin steps down

By Ciara Linnane

Petco is struggling in a weak pet segment as price-sensitive customers trade down to cheaper pet food

Petco Health & Wellness Co. Inc.'s stock surrendered early gains to trade down 4% Wednesday, after the operator of pet-care centers and mobile veterinary clinics posted another quarterly loss, offsetting better-than-expected sales for its fiscal fourth quarter.

The company (WOOF) also announced that Chief Executive Ron Coughlin is stepping down and will be replaced by R. Michael Mohan, previously a lead independent director, as interim CEO.

Mohan told analysts on the company's earnings call that he was confident the troubled company will benefit in the long term from the dual trends of humanization and premiumization in a business expected to approach $200 billion in sales by the end of the current decade.

Like other companies operating in the pet wellness and pet-health business, Petco is struggling with a cutback in spending amid inflationary pressure, a slowdown in pet adoptions and trade down to value pet foods.

Mohan also acknowledged missteps, including the company's failure to adapt to changes in consumer preferences.

"First, we did not anticipate the magnitude of the shift to value in both our consumables and discretionary business; and second, we did not expect customers to pull back as quickly as they have and for this duration when spending on discretionary items," Mohan said, according to a FactSet transcript. "As a result, our in-store and omnichannel offering was not appropriately aligned with our customers' needs."

The San Diego-based company posted a net loss of $22.6 million, or 8 cents a share, for the quarter to Feb. 3, after income of $32.7 million, or 12 cents a share, in the year-earlier quarter. Excluding one-time items, per-share earnings came to 2 cents, matching the FactSet consensus.

Sales rose 6% to $1.675 billion from $1.578 billion a year ago, ahead of the $1.629 billion FactSet consensus.

Petco had already swung to a surprise a loss in its fiscal third quarter and promised "swift and decisive action" to address the challenging consumer environment.

The company introduced a line of national cat- and dog-food value brands, which is expected to compress margins. The company announced a $150 million cost-reduction program but said it didn't expect merchandise and supply-chain actions to boost earnings until the second half of 2024.

Petco returned to public markets in 2021 for the third time, keen to take advantage of the increase in pet ownership spurred by the pandemic. The company was founded in 1965 as a mail-order veterinary business and was taken private twice, most recently in 2006.

But the pandemic boost has faded as consumers are pinched by rising the prices of human food and essentials - and many have since returned pets to shelters.

Comparable sales fell 0.9% in the fourth quarter, while FactSet was expecting a rise of 5.3%.

Given the change in leadership, the company said Wednesday it's not offering full-year EPS and revenue guidance for now, but expects a fiscal first-quarter adjusted loss of 6 cents on revenue of $1.5 billion. The FactSet consensus is for EPS of 5 cents and revenue of $1.4 billion.

Chief Financial Officer Brian LaRose said the company is not expecting a major change to the underlying demand environment, including for discretionary goods, in 2024. But it does expect profitability to stabilize as the year progresses.

The stock has fallen 73% in the last 12 months, while the S&P 500 has gained 34%.

-Ciara Linnane

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

03-13-24 1351ET

Copyright (c) 2024 Dow Jones & Company, Inc.