The Covid pandemic taught Americans that pet stores weren’t really essential when it comes to food, toys, and other pet supplies. Amazon and Chewy, along with Target, Walmart, and local grocery chains, met people’s needs, making a trip to a pet store more a luxury than a need.

In many ways, what happened mirrored the path followed by bookstores when books first went digital. People still liked browsing a bookstore, having a cup of coffee, and maybe reading a magazine, but when they just needed a book, Amazon met that need just fine. 

Pet stores may not be quite as fun as bookstores, but they’re still destinations. People like to see the animals up for adoption, put their hands on toys, and browse other items they might buy while perhaps bringing their pet in for a medical or grooming service. 

That has forced Petco to make difficult decisions. 

The chain has already closed 24 locations as part of its transformation and plans to close up to 30 more. CEO Joel Anderson laid out the company’s broader plan that includes closing stores during its second-quarter earnings call.

Petco is in transformation mode

Anderson seemed excited with his company’s progress.

“Let’s turn to our results. In the fourth quarter, we delivered revenue of $1.55 billion, in line with our prior outlook and adjusted EBITDA of $96.1 million, which was ahead of our expectations. Our results demonstrate the progress we’ve made to return the business model to retail operating excellence and drive structural cost out,” he shared.

Petco Q2 by the numbers:

• Net sales decreased 2.3% year over year in line with the company’s second quarter outlook. 
• Comparable sales decreased 1.4% year over year.
• Gross profit margin expanded approximately 120 basis points to 39.3% as a percentage of net sales.
• Operating income improved to $43 million.
• GAAP net income improved $38.8 million to $14 million.
• Adjusted EBITDA increased to $30.3 million to $113.9 million.

Source: Petco earnings release

Anderson gave more color on the company’s results during the call.

“As we enter the back half, we continue to execute on Phase 2 of our transformation and expect to make improvements to our bottom line and overall performance versus last year. It is with this confidence in our ability to deliver improvements that we are able to raise our guidance and at the same time, begin thoughtful reinvestment behind the business as we set the stage for Phase 3 of our journey, returning to profitable sales growth.”

He also made it clear that the chain wants to give people a reason to visit its stores.

“The key for us to successfully move to Phase 3, a return to growth, is to bring this to life through compelling marketing, improved merchandising, engaging creative and stronger store execution, giving customers a reason to step away from their screens and shop with their pets,” he added.

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Closing stores is part of Petco’s solution

New Petco CFO Sabrina Simmons shared the company’s closure plans during its fourth-quarter earnings call. 

“With that, for the full year, we expect overall net sales to be down low-single digits to last year. Of note, we closed 25 net locations in 2024 and ended the year with 1,398 pet care centers in the U.S. In 2025, we expect to close between 20 to 30 net locations,” she shared. 

The closures are strategic and based on each store’s specific circumstances. Anderson shared more about how the chain plans to bring people back to its stores during the Q2 call. 

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That started with a new marketing plan.

“It quickly became obvious we needed to bring back a more emotional element to how we go to market and connect with pet parents,” he said. “…As part of our 60th celebration, we reintroduced our beloved ‘Where the Pets Go’ tagline, returning to the heart and soul of our brand with a fresh approach designed to increase relevancy.”

Those efforts, he shared, have been working to bring customers back to brick-and-mortar stores.  

“As part of the campaign relaunch, we reintroduced unique in-store events and experiences for all members of pet families. In July, we hosted several experiences like Free Pet Food Tasting and Meet the Critters, where families had the opportunities to meet our companion animals while learning from our knowledgeable and friendly pet experts. And personally, one of my favorites, in honor of Shark Week, we hosted a Feed the Sharks event, allowing families to get up close and personal with our freshwater fish. Petco truly is where the pets go in real life.”

Petco playing catch-up to PetSmart

While it has struggled, Petco holds a clear second place in the brick-and-mortar retail space, according to data from Placer.ai. 

• From January to May 2024, PetSmart commanded 62.1% of pet-store foot traffic, while Petco held 37.9%. PetSmart maintained a strong lead across most U.S. regions, though in areas like New England and the Pacific region, Petco was more competitive.
• During the first part of 2024, some 21.1% to 21.8% of PetSmart visitors visited the chain at least twice each month – compared to 18.1% to 19.0% for Petco. 
• PetSmart’s enhanced loyalty may be driven in part by the greater selection of in-house pet services offered by the chain.

Both chains are also fighting against Chewy.com and its subscription services. 

“The pet e-retailer is likely ‘taking share from competitors such as food, drug, and specialty retailers,’ though larger retailers like Amazon and Walmart remain formidable competitors, UBS analysts led by Michael Lasser said in a research note,” RetailDive reported.

New customers, he noted, will raise their spending with the online retailer.

“These new customers are being added to the base while only contributing a small amount to sales initially. This means that as customers ramp up the maturity curve, their wallet share…should increase. We think this will likely happen,” Lasser added.  

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