Dive Brief:
- Proving the resilience of the pet sector of retail, Petco on Wednesday reported fourth-quarter net revenue grew 4.2% year over year to $1.6 billion, while comparable sales increased 5.3%, marking its 17th consecutive quarter of growth in that measure.
- The pet retailer recorded its 16th consecutive quarter of customer growth, adding about 70,000 net new customers in Q4 and 1 million net new customers in 2022.
- Petco’s operating income in Q4 fell 6% year over year to $77.6 million, while its net income grew 20% to $32.7 million. For the full year operating income fell 15% to $225.6 million, while net income decreased 44% to $89.9 million.
Dive Insight:
The pet sector of retail has historically been resilient to economic uncertainty. Leaning into health and service offerings is further helping Petco maintain its position.
The retailer on Wednesday announced it formed a partnership with pet food brand Freshpet to offer a customized fresh pet food subscription.
The companies said that the partnership represents the first fresh pet food subscription offering from a brick-and-mortar retailer. After completing a questionnaire, consumers will receive a personalized meal plan for their pets catered to breed, age, body type, activity level and other factors. Subscription meal plans start at $3 a day, according to a company press release.
"It's exciting to see the demand for fresh pet food continue to grow," Scott Morris, co-founder and president of Freshpet, said in a statement. "As shoppers seek healthier, real food for their pets, they're also looking for solutions that provide added convenience. Our partnership with Petco allows us to deliver on both – creating customized healthy meal plans delivered to consumers' doorsteps."
The partnership builds on Petco’s commitment to offering healthier options for pets. The retailer in 2018 announced it would no longer sell products with artificial ingredients, and has placed greater emphasis on fresh and frozen foods, which Petco CEO Ron Coughlin said on Wednesday is a category expected to reach $6 billion within the next four years. Petco in 2019 opened Just Food For Dogs kitchen in its New York City flagship.
The retailer continues to build out its veterinary presence as well, ending 2022 with around 250 vet hospitals and around 58,000 vet clinics. Coughlin said on a call with analysts Wednesday that its pet care centers and hospitals “continue to see a mid-single digit center store lift, are growing faster and have higher profit dollars compared to locations without hospitals. Vet customers are also demonstrating a 2.3 times higher lifetime value than non-vet customers.”
Petco, which saw a sales boost early in the pandemic as a result of increased pet adoptions, isn’t seeing demand slowing down. Pet adoptions in 2021 remained elevated above 2021 levels, with Gen Z and millennials driving that growth, according to Coughlin. That cohort also is the highest spending, he added.
To expand its reach and access customers where they’re shopping, the retailer has opened new store concepts over the years, including a SoHo flagship for its Reddy private label, shop-in-shops within Lowe’s and Canadian Tire, and its new rural concept, Neighborhood Farm & Pet Supply.
In the year ahead, Petco plans to open between 50 and 55 vet hospitals and 10 to 15 rural locations, Chief Financial Officer Brian LaRose said on the call. The company expects fiscal 2023 net revenue — which includes 53 weeks versus 52 weeks in 2022 — to be between $6.2 billion and $6.3 billion, with adjusted EBITDA to be down $10 million on the lower end and up $10 million on the higher end. Capital expenditures are projected to be between $225 million to $250 million.
