Petco Stock Rips 24% After Robinhood Bros Fall for the “Close Stores = Profit” Math

Petco just reminded Wall Street of an undeniable truth. Americans will skip rent, dodge Sallie Mae, and live off gas station taquitos before they stop spoiling their fur babies.

Shares of Petco (aka WOOF) jumped 24% yesterday after the company shocked investors by cooking up… wait for it, an actual profit. Yes, the same Petco that hosts doggy ice cream socials and “bearded dragon scavenger hunts” (not a joke, look it up) just convinced investors it can actually make money. Although, if you zoom out beyond this year, the chart still looks like a weed stock that forgot which dispensary it came from. But we’ll talk about that later.

The squeaky toy retailer reported earnings of $0.05 per share for Q2… which is a Christmas miracle considering they lost $0.09 per share last year at this time. Analysts were only expecting a single penny. So the upside surprise wasn’t small… it was more like, “Wait… this thing’s still breathing?”

In other words, this wasn’t some one-off lucky break. Petco finally did the obvious: they went on a cutting cost spree, shut down the stores that were dead weight, and pushed harder into higher-margin stuff. Naturally, this resulted in gross margins ticking up 120 basis points to 39.3%. Adjusted EBITDA also hit $113.9 million, easily topping the $94 million forecast, again proving this wasn’t a fluke quarter.

(Source: Benzinga)

Not everything was wagging tails, though. Revenue fell 2.3% year-over-year to $1.5 billion, and same-store sales dipped 1.4%. Store closures totaled 25 last year and 10 this year. (Guess free doggy ice cream wasn’t enough to save those locations.) But, investors don’t really care when the bottom line is looking this thicc. Right now, Wall Street is all about profits over sales growth (unless you’re an AI company), and Petco finally showed up with the goods.

CEO Joel Anderson spun it like only a CEO can, saying Petco had “established a solid foundation for our transformation.” In other words… “We cut costs, closed the weak stores, and somehow convinced millennials to spend $20 on paw balm their dog immediately licked off.” Still, the bigger headline was Petco raising its full-year earnings outlook to $385-$395 million, up from $375-$390 million. That’s the true reason for the stock explosion.

(Source: Investopedia)

The hype also has a lot to do with the pet industry basically being recession-proof. Inflation may have ticked up to 2.9%, and consumers might be skipping out on new cars or delaying vacations, but nobody’s downgrading Mr. Whiskers from Fancy Feast to generic tuna. (Most folks will eat ramen before their golden retriever eats kibble shaped like it came from Dollar General.) The U.S. pet market is worth more than $140 billion a year, and for a lot of owners, pets are the kids.

But let’s all take a chill pill real quick. Revenue is still a huge question mark, Amazon and Chewy are constantly stealing customers (which isn’t stopping anytime soon), and closing stores isn’t exactly the hallmark of a growth rocket last time I checked. Sure, it was a nice and rare win. But all you really need to do is pull up the chart to see why this is probably the last stock you want to buy.

WOOF might be up 17% this year, but zoom out and it’s still down a depressing 85% from its all-time high. So before you start tossing it on your “hidden gem watchlist,” remember this chart is a crime scene. Could it keep bouncing? Sure. Would I mortgage the farm to ride it? Absolutely not… unless the farm is already going under and I wanted a tax write-off.

At the time this article was published Stocks.News holds positions in Amazon mentioned in article.