What Happened?
Shares of pet-focused retailer Petco (NASDAQ: WOOF) jumped 21.1% in the morning session after the company reported a surprise second-quarter profit and raised its full-year earnings outlook, signaling its turnaround plan is taking hold.
The company reported second-quarter GAAP earnings per share of $0.05, significantly beating analyst expectations, which had forecasted a loss. While net sales of $1.5 billion were down 2.3% year-over-year, the figure was in line with expectations. The positive surprise for investors came from improved profitability, as gross profit margin expanded by approximately 120 basis points. Adjusted EBITDA, a measure of operational profitability, was $113.9 million, easily topping forecasts of $94.17 million.
Looking ahead, Petco raised its full-year 2025 earnings outlook, with its adjusted EBITDA guidance now above consensus estimates. This stronger-than-expected performance in the face of slightly lower sales indicates the company's operational improvements are successfully boosting its bottom line.
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What Is The Market Telling Us
Petco’s shares are extremely volatile and have had 64 moves greater than 5% over the last year. But moves this big are rare even for Petco and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 8 days ago when the stock dropped 3.3% on the news that markets continued to decline, as investors grew cautious ahead of a key speech by Federal Reserve Chair Jerome Powell. The move came as U.S. equity markets recorded a fifth consecutive day of losses for major indexes like the S&P 500, with technology stocks experiencing the largest declines. Investors have grown wary that the sharp rally in the tech sector since April may have advanced too far. The market-wide caution is largely driven by the upcoming Jackson Hole symposium, a meeting of central bankers, where traders are anxiously awaiting Fed Chair Powell's speech on Friday for guidance on the future path of interest rates.
Petco is down 5.6% since the beginning of the year, and at $3.87 per share, it is trading 32.9% below its 52-week high of $5.77 from October 2024. Investors who bought $1,000 worth of Petco’s shares at the IPO in January 2021 would now be looking at an investment worth $131.63.
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