Petco Narrows Sales Guidance, Boosts Profit Outlook as Profitability Improves in Q3 2025
Profitability Leads the Story as Petco Grows Margins and Operating Income in Q3
Petco Health and Wellness Company (NASDAQ: WOOF) reported its third quarter 2025 financial results, highlighting a focused turnaround in profitability. The company delivered net sales of $1.46 billion, a 3.1% decline from last year, but offset this by expanding gross profit margins to 38.9%—a 75 basis-point improvement over the prior period. Operating income saw a notable jump of $25.2 million, reaching $29.2 million for the quarter. Net income also improved significantly to $9.33 million from a $16.67 million loss a year ago.
Petco Upwardly Revises Earnings Outlook and Tightens 2025 Sales Guidance
Looking ahead, Petco narrowed its fiscal 2025 net sales forecast, now expecting a decline of 2.5% to 2.8% for the year. Yet, the company lifted its profit expectations, increasing the midpoint of its Adjusted EBITDA range by $6 million, now projecting $395–$397 million for 2025. This focus on margin and profitability aligns with CEO Joel Anderson's comment: "Rebuilding the base of our economic model has been a priority in 2025. This strengthened base sets the foundation for a return to growth during fiscal 2026."
Cash Generation Rebounds Sharply in Q3, Supporting Stability
One of the standout results is Petco’s cash flow. Free Cash Flow in the latest quarter turned positive at $60.65 million, compared to a negative $10.29 million in the same period last year. Cash and equivalents rose to $237.41 million from $165.76 million at the start of the year, further reinforcing financial flexibility.
| Key Q3 2025 Metrics | Q3 2025 | Q3 2024 | % Change |
|---|---|---|---|
| Net Sales | $1,464.41M | $1,511.44M | -3.1% |
| Gross Margin | 38.9% | 38.2% | +0.7% |
| Operating Income | $29.20M | $3.98M | +633.4% |
| Net Income | $9.33M | -$16.67M | NM |
| Adjusted EBITDA | $98.56M | $81.24M | +21.4% |
| Free Cash Flow | $60.65M | -$10.29M | NM |
Full Year and Q4 Outlook Signals a Stabilization Plan
Petco’s fiscal 2025 outlook calls for:
- Net sales down 2.5%–2.8%
- Adjusted EBITDA: $395–$397 million
- Net interest expense: ~$125 million
- Capital expenditures: $125–$130 million
- About 20 net store closures
For the fourth quarter, the company expects net sales to dip at a low single-digit pace and projects Adjusted EBITDA of $93–$95 million. This disciplined, profitability-first approach positions Petco for improved operational stability and the potential for growth as the industry environment normalizes in 2026.
| FY 2025 & Q4 Guidance | Range / Estimate |
|---|---|
| Net Sales (FY 2025) | Down 2.5%–2.8% |
| Adjusted EBITDA (FY 2025) | $395–$397M |
| Adjusted EBITDA (Q4 2025) | $93–$95M |
| Net Interest Expense (FY 2025) | ~$125M |
| Capital Expenditures (FY 2025) | $125–$130M |
| Net Store Closures | ~20 |
Takeaway: Foundation Set for a Possible 2026 Turnaround
Petco’s third quarter demonstrates that, even with softer top-line sales, meaningful operational progress is possible through margin expansion and cost control. The sharpened full-year guidance and stronger cash flow show a business intent on regaining investor confidence. For those following WOOF, the focus heading into 2026 will be on whether this newly fortified economic base can ignite the sales rebound that management anticipates.
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