Petco Health and Wellness Company Inc WOOF:NASDAQ

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Petco Expected to Slightly Reduce Fiscal 2022 Outlook as Inflation Curbs Discretionary Spending, Wedbush Says

12:46PM ET 5/12/2022 MT Newswires
Petco Health & Wellness (WOOF) is expected to maintain or slightly reduce its outlook for fiscal 2022 when it releases first-quarter results due to inflation pressures that could deter consumers from making discretionary purchases, according to Wedbush Securities.

The investment firm said in a Thursday note that customer demand has slowed throughout the year with new macro headwinds emerging and rising inflation, while overall core demand is facing obstacles as consumers focus on experiential purchases. The pet retailer is not immune to discretionary spending cutbacks given its mix of hard goods and services, despite being resilient in terms of its exposure to macro headwinds, Wedbush said.

"Combined with a mostly in-line quarter, we believe this would be received positively based on increasingly negative buy-side expectations on the back of weak earnings reports and outlooks from other retailers with low discretionary sales exposure," analysts led by Seth Basham said, citing O'Reilly Automotive (ORLY) and National Vision (EYE).

The company expects its fiscal 2022 adjusted earnings to be in a range of $0.97 to $1 per share and revenue of between $6.15 billion and $6.25 billion, it said in March. Wedbush is expecting EPS of $0.98, a penny below the Capital IQ consensus for $0.99 and revenue of $6.2 billion for the fiscal year.

Petco is scheduled to release fiscal first-quarter results on May 24. For that period, Wedbush is forecasting comparable sales growth of 0.3% versus a sell consensus of more than 3%. However, analysts see an upside for the consensus figure on increasing inflation and traction on loyalty and services initiatives. "From a margin perspective, we see modest downside risk to gross margins in Q1'22 due primarily to mix pressures," they said in the note.

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