Petco is inflation-proof, CEO says

Petco CEO Ron Coughlin on Wednesday said the specialty retailer has a key advantage in an uncertain environment: Americans spend on pets, even when their budgets tighten.

At an investor day in New York City, he said the pet category is “resilient to economic downturns, resilient to inflation.”

Plus, he said, more people adopted pets during the pandemic, as they moved into larger homes with yards and spent more time working from home. He compared the dynamic to a baby boom, saying the need for food, vet care and more will outlast the global health crisis.

Petco wants to grab a bigger piece of the growing market. It estimates that the pet industry drove $72 billion in demand for food and other merchandise last year, and said that will grow by 7% by 2025 — with double-digit growth in premium merchandise. Competitors, including Chewy and Walmart, have also stepped up investments in the pet industry by launching new services from virtual vet visits to pet insurance, in addition to selling pet supplies.

To stand out in a crowded field, Petco has bulked up its private label offerings, expanded vet care and other pet services and wooed customers willing to splurge on everything from fashionable clothes to fresh and organic food as they treat dogs, cats, hamsters and other pets as family members. It is also testing a mini Petco shop inside of select Lowe’s stores.

It had nearly 200 full-service veterinary hospitals at the end of the fiscal year and plans to grow that to 900, Chief Operating Officer Mike Nuzzo said Wednesday. It also encourages customers to get pet supplies and services from its stores through a subscription service called Vital Care, which offers unlimited vet exams and discounts on food and grooming, for $19.99 per month.

On the digital side, the company has leaned on stores to fulfill online orders and offer same-day pickup. Coughlin said that makes the e-commerce business more profitable, especially as gas prices rise and add up to higher costs for delivery companies.

The investor day on Thursday marked Petco’s first since it returned to the public market in early 2021. The brick-and-mortar retailer’s shares have grown about 7% since then.

Its shares were down about 1.5% Thursday morning, amid a broader downturn in the market.

Petco reiterated its prior forecast for the year ahead at the investor day. The company said it expects between 97 cents and $1.00 of adjusted earnings per share on net revenue of $6.15 billion to $6.25 billion.

That represents an increase from Petco’s $5.81 billion of net sales last fiscal year. That growth is roughly in line with Wall Street’s expectations. Analysts expect 99 cents of adjusted earnings per share on revenue of $6.2 billion, according to Refinitiv.