Petco’s third quarter drew a positive market response, reflecting management’s focus on operational discipline and foundational improvements. CEO Joel Anderson credited enhanced retail fundamentals and disciplined expense management for driving better profitability, despite a year-on-year sales decline. The company’s strategy to streamline operations included shifting away from unprofitable sales and strengthening in-store execution. CFO Sabrina Simmons highlighted an expanding operating margin and improved cash flow, stating, “Savings were achieved across the board, in especially in G&A areas,” while also noting that marketing spend remained flat. This disciplined approach supported a notable increase in adjusted EBITDA and free cash flow.

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While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.

Our Top 5 Analyst Questions From Petco’s Q3 Earnings Call

• Simeon Gutman (Morgan Stanley) asked about the mix of wants versus needs in Petco’s assortment. CEO Joel Anderson explained the shift toward dynamic, discovery-driven merchandising, emphasizing both consumables and discretionary items.
• Oliver Wintermantel (Evercore ISI) inquired about the sustainability of working capital improvements. CFO Sabrina Simmons pointed to ongoing inventory discipline and a continuous focus on optimizing free cash flow.
• Michael Lasser (UBS) questioned the size and timing of potential investments needed for top-line growth. Simmons clarified that recent profit gains provide flexibility for targeted investments in marketing and labor, with no major changes expected in capital intensity.
• Kendall Toscano (Bank of America Global Research) asked about tariff impacts and consumer price sensitivity. Simmons noted the initial meaningful impact in Q3 and a manageable but increasing effect in Q4, particularly in private label supplies.
• Steve Forbes (Guggenheim Securities) sought clarity on the integration of services and stores. Anderson described how better data integration and a new membership program will drive higher customer spending across channels.

Catalysts in Upcoming Quarters

In the quarters ahead, the StockStory team will closely watch (1) the pace and scale of Petco’s membership program pilot and broader digital enhancements, (2) further improvements in service utilization and integration with retail operations, and (3) management’s ability to navigate tariff headwinds while maintaining margin gains. Execution on product assortment changes and customer engagement strategies will also be critical markers of progress.

Petco currently trades at $3.04, up from $2.97 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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