Pet store chain Petco Health and Wellness Co. (NASDAQ: WOOF) shares showed little excitement on the announced appointment of a new CEO on July 18, 2024. The stock initially gapped to $3.69 but sold off 6% in the following days. This is likely due to the fact that the new CEO, Joel Anderson, was formerly the CEO of Five Below Inc. (NASDAQ: FIVE), which recently had an earnings warning, sending shares down 63% year-to-date (YTD). The company is in a turnaround which requires a seasoned CEO spearheading the movement. The market may be underestimating the merits of Anderson.
Petco operates in the retail/wholesale sector and competes with pet supply retailers like Chewy Inc. (NYSE: CHWY), Amazon.com Inc. (NASDAQ: AMZN), Target Co. (NYSE: TGT) and Walmart Inc. (NYSE: WMT).
New CEO’s Impressive Track Record
Joel Anderson has been in the retail industry for over 30 years. He served as President and CEO of Walmart.com, the eCommerce unit, from 2011 to 2014 and as divisional Senior Vice President prior to that. He was most recently CEO of Five Below from early 2025 until his resignation announcement on July 16, 2024. Anderson led the expansion of Five Below from 366 to more than 1,500 stores, making Five Below a household name.
He helped grow revenues from $500 million to over $3.5 billion, surging the stock price by more than 650% during his tenure. In a similar situation, FIVE stock was stagnant before Anderson’s appointment, which is what’s happening with WOOF stock as well. Anderson will commence his role as CEO of Petco on July 29, 2024, replacing interim CEO Mike Mohan.
Chart Analysis Points to Growth Potential
The daily candlestick chart on WOOF illustrates a rectangle channel pattern. Prior to the rectangle, WOOF triggered a pennant breakout on its Q1 2024 earnings release, which saw shares surge to a peak of $4.38 before forming the rectangle channel. Meme stock influencer Roaring Kitty’s position in CHWY also helped spur some sympathy buying in WOOF shares. The rectangle range is comprised of a horizontal upper trendline resistance of $4.14 and lower trendline resistance of $3.13. The daily relative strength index (RSI) has been chopping between the 50-band and 60-band during this time. Pullback support levels are at $3.13, $2.70, $2.34, and $2.15.
Strong Q1 2024 Earnings Performance
Petco reported a Q1 2024 EPS loss of 4 cents, beating consensus estimates by 2 cents. Revenues fell 1.7% YoY to $1.53 billion, beating $1.51 billion consensus estimates. Comparable sales fell 1.2% YoY but increased 4.1% over two years. GAAP net loss was $46.5 million, compared to $1.9 million in the year-ago period. Adjusted EBITDA was $75.6 million compared to $111 million in the year-ago period. Liquidity remains strong at $617 million, driven by its increasing line of credit on its revolver.
Future Growth Strategies and Guidance
Its veterinary hospitals, grooming services, and mobile clinics help drive Services & Other growth by 4% YoY and Services & Vet up 10% YoY, respectively. While Consumables sales were flat, Fresh Frozen sales jumped 11% YoY. Supplies and companion animal sales rose 7% YoY. The company is on track to deliver on its target of $150 million in run-rate savings by the end of fiscal 2025, with $40 million in the first year.
Looking Ahead: Promising Guidance
The company sees a Q2 2024 EPS loss of 2 cents, matching consensus estimates. Petco sees Q2 2024 revenues of around $1.525 billion versus $1.52 billion consensus estimates. Adjusted EBITDA is expected to be around $80 million. Full-year 2024 net interest expense should be around $145 million, and capital expenditures of $140 million.
Strategic Turnaround Initiatives
Interim CEO Mike Mohan provided analysts details on the improvements at Petco on its way towards returning to profitability. The company has rolled out new store operating models at its pet care centers. The model promotes prioritization and increases customer face time empowering store partners to create world-class customer service.
The company is undergoing an end-to-end review and rationalization of its pricing and assortment strategy with the goal of improving traffic, basket, and quality of sales. Petco is recalibrating its marketing to be more effective at the lower funnel to actively engage pet parents to grow traffic to its brick and mortar stores. Inventory management is a priority as the company seeks efficiency across its complete supply chain.
Mohan concluded, “As I close, I want to reinforce that despite the immense change we’re driving throughout the organization, we remain committed to our long-term strategy. Our ecosystem comprised of a fully integrated services offering, one of the most comprehensive nutrition and merchandising assortments in the market and a powerful omnichannel delivery model remains a competitive differentiator from online-only and mass players.”
Petco Health and Wellness analyst ratings and price targets are at MarketBeat.