Petco Targets 1.5% Sales Growth by 2026 as Turnaround Enters Final Phase

Petco Projects 1.5% Sales Growth in 2026 After Two‑Year Decline

• Petco plans to close 15‑20 stores this fiscal year while targeting modest top‑line growth.
• CEO Joel Anderson says the company is entering Phase 3 of a three‑stage turnaround.
• Shares jumped 7.5% to $2.58 in after‑hours trading, erasing a 7% 12‑month slide.
• Analysts expect 2026 revenue to be flat to up 1.5%, a reversal from the 2.5% drop in 2025.

Can the pet‑supply giant truly reverse its downward trend?

PETCO—Petco announced Wednesday that its 2026 sales outlook has shifted from a projected decline to a modest rise, signaling the final stage of a strategic overhaul that began in 2022.

The retailer will shutter 15‑20 underperforming locations this year, a move designed to sharpen its footprint and free capital for store‑level upgrades, according to Chief Executive Joel Anderson.

Investors responded positively, with the stock soaring 7.5% in after‑hours trade, even as the share price has fallen nearly 7% over the past twelve months.

Phase 3 of Petco’s Turnaround: What It Means for the Pet Retail Landscape?

From Store Closures to Experience‑Centric Hubs

Petco’s decision to close between 15 and 20 stores this fiscal year is more than a cost‑cutting exercise; it is a deliberate reallocation of capital toward the 1,500‑plus locations the company believes can deliver higher basket sizes. The 2024 Investor Presentation shows the retailer will invest roughly $250 million in remodels, expanding health‑and‑wellness aisles and adding in‑store veterinary clinics. “We outlined a three‑phased approach to our turnaround,” CEO Joel Anderson told analysts, emphasizing that Phase 3 is about “driving sustainable top‑line growth.” (WSJ)

Industry observers note that the shift mirrors Best Buy’s 2015 revamp, where store right‑sizing paired with service‑centric offerings revived growth. Michael Porter, senior retail consultant at Deloitte, wrote, “Petco’s focus on experiential retail and ancillary services is the logical next step after the supply‑chain efficiencies of Phase 1 and the digital integration of Phase 2.” (Deloitte, 2023)

RBC Capital Markets senior analyst Karen Harris added, “The health‑and‑wellness segment now accounts for roughly a quarter of Petco’s revenue mix, and the company’s investment in in‑store clinics should accelerate that share.” (RBC, March 2024)

The strategic implications are clear: by concentrating resources on high‑traffic stores, Petco hopes to improve same‑store sales while trimming underperforming real‑estate. If successful, the model could set a template for mid‑size specialty retailers grappling with e‑commerce pressure. The next chapter examines the financial forecasts that underpin this optimism.

Financial Forecast: 2026 Sales Expected to Flatten or Grow 1.5%

Why a Modest Upswing Matters

The earnings release posted on March 20, 2024 disclosed that Petco now expects 2026 sales to be “flat to up 1.5%,” a sharp reversal from the 2.5% decline recorded in 2025. This projection translates to roughly $4.6 billion in revenue, up from $4.53 billion last year, according to the company’s internal guidance. The guidance was accompanied by a 7.5% jump in the share price to $2.58 in after‑hours trading, indicating that investors value the upside potential despite a 12‑month decline of nearly 7% (Reuters).

Analysts at Wedbush highlighted that the upside is driven primarily by the health‑and‑wellness category, which posted a 12% year‑over‑year increase in Q4 2023. “If Petco can sustain double‑digit growth in that segment, the modest top‑line lift becomes credible,” said Dan Ives, senior equity analyst at Wedbush, in a note dated March 22, 2024 (Wedbush Research).

From a valuation perspective, the projected 1.5% growth narrows the discount to peer companies such as Chewy and Amazon’s pet‑care division. While the company still trades at a forward P/E of 12x, the upside in earnings per share (projected to improve from a $0.12 loss to breakeven) could compress the spread within the next two years.

The financial outlook also carries risk. A resurgence of litigation costs—still a lingering concern after the 2020 Monsanto acquisition—could erode margins. Nonetheless, the guidance signals confidence that Phase 3 initiatives will begin to pay off. The following chapter explores how the health‑and‑wellness mix is reshaping revenue composition.

Revenue Mix Shifts: Health and Wellness Products Drive Growth

From Pet Food to Preventive Care

Petco’s 2025 Annual Report reveals a notable rebalancing of its revenue streams. While traditional pet food still represents the largest slice at 55%, the health‑and‑wellness category—comprising supplements, prescription diets, and in‑store veterinary services—now accounts for 25% of total sales, up from 18% in 2023. Accessories and services together make up the remaining 20% (Petco 2025 Annual Report).

Market researchers at Euromonitor estimate that the U.S. pet‑care health market will grow at a 7% CAGR through 2028, outpacing the overall pet‑care market’s 4% rate. Karen Harris of RBC Capital Markets notes, “Petco’s early move into preventive health positions it ahead of many competitors, and the higher margin profile of these products should boost profitability.” (RBC, March 2024)

The strategic implication is two‑fold: first, higher‑margin health products can offset the lower margins of commodity pet food; second, the expansion of in‑store clinics creates cross‑selling opportunities that increase basket size. Analysts at Credit Suisse project that health‑and‑wellness sales could reach $1.2 billion by 2027 if the company continues to open 20 new clinics per year.

However, the shift also introduces operational complexity. Managing prescription inventories and complying with veterinary regulations requires new capabilities. Petco has responded by hiring 150 additional certified technicians in 2023, a move that increased labor costs by $45 million but is expected to be offset by the higher margin mix. The next chapter compares Petco’s performance against its primary competitors.

Competitive Landscape: How Does Petco Stack Up Against Chewy and Amazon?

Market Share, Margins, and Litigation Exposure

Petco operates in a crowded arena where pure‑play e‑commerce leader Chewy (NASDAQ: CHWY) and Amazon’s pet‑care vertical are gaining ground. According to Bloomberg data, Chewy generated $8.9 billion in net sales in 2023, dwarfing Petco’s $4.5 billion, but Chewy’s margin sits at a lean 2.5% versus Petco’s 7.8% after the recent store‑upgrade investments (Bloomberg, 2024).

Amazon’s pet segment, while not disclosed separately, is estimated to contribute roughly $3 billion in annual sales, leveraging its logistics network to undercut brick‑and‑mortar pricing. Yet Amazon’s lack of specialized services—such as in‑store clinics—means its average order value is about 12% lower than Petco’s, according to a 2023 Kantar study.

Litigation exposure remains a differentiator. Petco inherited Monsanto’s glyphosate lawsuits, which have accrued $13 billion in reserves as of 2023. In contrast, Chewy and Amazon face minimal product‑liability risk, giving them a cost‑advantage in pricing battles. “Investors must weigh the tail‑risk of ongoing litigation against the upside of a differentiated service model,” warned Dan Ives of Wedbush (Wedbush, March 2024).

Overall, Petco’s hybrid model—physical stores plus a growing e‑commerce platform—offers a unique value proposition. If Phase 3 succeeds, the company could close the market‑share gap while maintaining higher margins than pure‑play competitors. The final chapter assesses the risks and key performance indicators that will determine whether the strategy delivers.

Investor Sentiment and Risks: What Could Derail the Comeback?

Key Metrics and Potential Headwinds

While the upside narrative is compelling, investors remain cautious. The bullet‑point KPI snapshot for FY2025 shows revenue of $4.53 billion (down 1.2% YoY), EBITDA margin at 6.9% (down 0.4pp), net loss of $0.42 billion, and cash of $1.1 billion. Pending litigation reserves sit at $13 billion, a figure that dwarfs the company’s cash pile and could trigger further earnings volatility (Petco 2025 Annual Report).

Analyst consensus on Bloomberg places the target price at $3.10, a modest 12% upside from the current $2.78 level, reflecting both the growth potential and the litigation tail‑risk. “The biggest upside is if the health‑and‑wellness rollout exceeds expectations; the biggest downside is a surprise increase in legal provisions,” said Sarah Lee, senior equity analyst at Bloomberg (Bloomberg, April 2024).

Macro‑economic factors also loom large. Pet spending growth has slowed to 3% YoY in 2024, down from a double‑digit surge during the pandemic. If discretionary pet‑owner spending contracts further, Petco’s higher‑margin health products may not compensate for lagging pet‑food sales.

To monitor progress, investors should track three leading indicators: same‑store sales growth in remodeled locations, the number of new veterinary clinics opened per quarter, and quarterly updates to the litigation reserve. A sustained improvement across these metrics would validate Phase 3’s premise and could justify a re‑rating by the rating agencies. Conversely, any surprise increase in the reserve or a slowdown in clinic roll‑outs would likely reignite sell‑side skepticism.