Petco sharpens profitability playbook amid Q2 sales dip

After reporting a 2.3% drop in net sales in the second quarter of fiscal 2025, Petco bets on a phased transformation to boost profitability. 

At the Goldman Sachs 32nd Annual Global Retailing Conference, CEO Joel Anderson said its second phase focuses on execution and has shown impact on Q1 and Q2 results. “Specifically, phase two was about improving the bottom line. That’s really where we’ve been focused. That’s where you’ve seen the movement.”

Next phase

While still in phase 2, Petco has already mapped out phase 3 of its transformation, with outcomes expected to emerge in 2026. Anderson said the plan is anchored on four pillars: enhancing store experience, merchandise differentiation, services, and omnichannel capabilities. 

On merchandise, Petco is placing greater emphasis on product development and private-label offerings to drive higher basket sizes. 

Services remain a priority as the company looks to optimize its existing veterinary fleet of 300 locations without significant new capital investments. 

“While strategically we have made many acquisitions and grown hospitals very fast, we have a big opportunity as part of our growth to take all our services to scale. Services are tough. They are hard to do, but in many ways, that is our moat,” says Anderson.

Finally, Petco is strengthening its omnichannel strategy by integrating stores and digital platforms to improve speed and convenience, including features such as online appointments and loyalty point management.

“Our stores will play a key role as we start to grow e-commerce again, same-day deliveries, two-hour deliveries, buy online and pick up in store,” he adds.

Retail strategy

The company currently operates 1,400 stores. As part of its profitability measures, Petco is expecting to close about 25 of them this year. 

“First and foremost, we look at the financial performance of the store, bottom line profitability, labor rates, things like that. The second thing we look at is the market. Is this a node we want to be in? Maybe it’s just in the wrong location. We look at that,” says Anderson.

These store closures are expected to moderate by next year and grow again by 2027.

In addition, Petco is pursuing initiatives to boost sales per square foot. With the average store spanning about 13,000 square feet, the company sees further opportunity to optimize performance. Nearly half of its store base is up for lease renewal within the next two years, allowing it to adjust locations as needed.

Promotions targeted

Anderson noted that prior to the current management team, Petco had allowed “excessive promotional stacking” — customers could combine coupons with markdowns and additional discounts —, quickly eroding margins often beyond what shoppers even expected.

“We know to play in retail effectively these days, you have to be very value conscientious. You have to offer value, play in the holidays, do promotion. What we’ve been doing is not trying to take away any of that promotional cadence, but more responsibly execute it,” he added.

According to the CEO, a team is now working on inventory and merchandising planning while also managing the margins. “So that each promo we do, we have an opportunity to look at depth of promo and perhaps get the same lift without having to go so deep.”