Petco rallies 14% on improved profitability in 3Q25 and upgraded guidance

Shares of Petco Health & Wellness, the small-cap retailer of pet products, surged 14.5% yesterday, November 26, after the company posted results that signaled progress in its turnaround and raised its full-year outlook. Wall Street still sees room for further gains.

Petco shares climbed 14.5% to $3.40 per share on the Nasdaq yesterday to mark a one-month high. That move lifted the company’s market capitalization to $955 million.

Investors were reacting to the release of the retailer’s third-quarter results. As Motley Fool contributor Joe Tenebruso notes, Petco’s net sales declined 3.1% year over year to $1.5 billion, but the company has been closing underperforming stores and moving away from unprofitable product lines to improve its profit margins. These efforts are bearing fruit: the gross margin expanded 75 basis points to 38.9%, operating income increased more than sevenfold to $29.2 million, and adjusted EBITDA rose 21.3% to $98.6 million.

Petco reported net income of $11.6 million for the quarter, versus a loss of $88.0 million for the same period in 2024.

The results allowed Petco to significantly improve its revenue guidance for fiscal 2025, which ends in late January. The retailer had previously expected sales to decline by "single digits"; it has now provided a range for the drop, at 2.5-2.8%. The company also raised its estimate for adjusted EBITDA to $395-397 million from $385-395 million.

CEO Joel Anderson commented: "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."

Petco’s problems began in late 2023. The company reported growth in net revenue and same-store sales in the second quarter of that year, but three months later the former was down year over year and the latter was flat. The backdrop was a difficult consumer environment, but the company was taking “swift and decisive action” to improve performance, then-CEO Ron Coughlin said.

Petco has since reshuffled its management team, with two CEOs, a CFO, and a chief revenue officer in the last two years. The goal of the new team is to achieve double-digit growth in adjusted EBITDA in 2025 and “set the business up for sustainable profitable growth,” Anderson, the current CEO, indicated in the 2024 results.

After the quarterly results, Evercore ISI raised its target price on Petco shares by 33% to $4 per share, according to Yahoo Finance data. The new target is almost 18% above the November 26 closing price, even after the stock’s sharp rise.

Wall Street’s consensus stance remains cautious. The average target price of $3.69 per share implies upside of 8.5%, MarketWatch data shows. Eight analysts recommend “hold” on Petco stock, three recommend “sell,” and only two “buy.”