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Petco: Petco's Q3 2025 Earnings: A Strong Foundation for Future Growth

Petco's third-quarter 2025 results showed a net sales decline of 3.1%, with comp sales down 2.2%, primarily due to 34 net store closures. Despite the sales decline, the company reported an adjusted EBITDA of $98.6 million, a 21% increase year-over-year, driven by a disciplined approach to pricing and promotional strategies, which expanded gross margin by 75 basis points to 38.9%. The company's operating margin also expanded over 170 basis points, and EPS came in at $0.05, beating estimates of $0.01642. Free cash flow for the quarter was $61 million, and year-to-date was $71 million.

WOOF

USD 2.96

0.34%

A-Score: 3.4/10

Publication date: January 8, 2026

Full Report

Author: Analystock.ai

📋 Highlights
  • EBITDA Growth and Margin Expansion: Adjusted EBITDA surged 21% to $98.6M, with margin expanding 140 bps to 6.7% despite sales declines.
  • Updated 2025 EBITDA Outlook: Raised guidance to $395–$397M, reflecting 18% YoY growth at the midpoint, driven by margin discipline and operational efficiency.
  • Operational Efficiency Gains: SG&A costs fell $32M, and operating margin expanded over 170 bps, offsetting 34 store closures impacting sales by 3.1%.
  • Free Cash Flow Strength: Generated $61M in Q3 and $71M YTD, supported by inventory discipline and margin expansion, with sustainable growth planned.
  • 2026 Growth Strategy: Phase 3 focuses on four pillars (product differentiation, store experience, services, omni-channel) to drive comp growth, with services and digital as key differentiators.

Segment Performance and Outlook

The Services segment has seen some headwinds due to the deprioritization of a program, but a new membership program is on track for a 2026 rollout. The company views services as a key differentiator and moat, with a halo effect on the overall business. As Joel Anderson mentioned, "We're growing pet EBITDA market share, with EBITDA up despite sales being down." The company expects a return to growth in consumables and supplies, driven by its four pillars: delivering compelling product and merchandise differentiation, a trusted store experience, winning with integrated services at scale, and serving customers with a seamless omni experience.

Valuation and Cash Flow

Petco's current valuation metrics indicate a relatively low P/S Ratio of 0.14 and an EV/EBITDA of 6.41. The company's free cash flow yield is 15.58%, suggesting a strong ability to generate cash. With a focus on investing in the business, debt paydown, and leverage reduction, Petco is prioritizing cash usage. The company's net debt to EBITDA ratio is 3.72, indicating some leverage, but the improving free cash flow profile should help reduce this metric.

Guidance and Future Expectations

The company raised its adjusted EBITDA outlook for 2025 to between $395 million and $397 million, an 18% year-over-year increase at the midpoint. For the fourth quarter, net sales are expected to be down low single digits, with adjusted EBITDA between $93 million and $95 million. Analysts estimate next year's revenue growth at 0.6%. While the company is not providing detailed guidance for 2026, it expects a gradual ramp in sales growth, driven by its four pillars, with fewer net store closures than in 2025.

Petco's A-Score