Petco’s stock is sinking. “The stocks are probably staying in the niche. »

petco

Health and wellness stocks were on course to close at a record high after the pet retailer delivered its second quarter financial results and said discretionary spending at its stores continues to decline.

Thursday afternoon, sharing of

petco

(teleprinter:

FRAME

) were down 23% at $5.07, which would be the lowest closing price since its IPO in January 2021, according to Dow Jones Market Data. Analysts at

Wells Fargo

were pessimistic about the results.

The problem wasn’t with adjusted earnings, which came in at 6 cents a share, in line with Wall Street expectations. And the problem wasn’t net income, which, at $1.53 billion, was up from a year earlier and beat estimates. At issue was a 9.4% year-over-year decline in revenue from the company’s supplies and pet businesses.

The drop, coupled with concerns over gross margins, prompted Wells Fargo analysts to lower their price target from $11 to $7 in a report released Thursday. They also lowered their earnings forecasts for fiscal 2023 and 2024, but continued to rate the stock as overweight.

Chief Financial Officer Brian LaRose said on a call to discuss the results that while the company expected discretionary spending to stabilize, that’s not the case. The result, he says, is that gross margins are under pressure.

Advertising – Scroll to continue


The company said that for fiscal 2023, it now expects earnings before interest, taxes, depreciation and amortization of between $460 million and $480 million, down from an earlier forecast of $520 million to $540 million. It also lowered its earnings-per-share outlook.

“Now we have cost-cutting measures in place,” LaRose said on the call. “The team is energized. We are already seeing quick wins from these cost reduction measures. Although they will benefit mostly in 2024 and 2025, they will benefit modestly in 2023.”

Wells Fargo analysts are a bit less optimistic, writing that while the pressure may ease and the cost savings will help, further cuts may be needed. “Stocks will likely stay in the niche,” they said.

Advertising – Scroll to continue


Write to Emily Dattilo at emily.dattilo@dowjones.com


Comments

Leave a Reply

Your email address will not be published. Required fields are marked *