By Kelly Cloonan

Petco Health & Wellness's turnaround is starting to see some green shoots under new management, analysts say.

The pet-supply company expects to improve its bottom line in fiscal 2025 as it deepens its focus on higher-margin products and store closures. On Wednesday, the company reported a narrower loss and an increase in same-store sales in the fourth quarter.

Wall Street reacted positively to Petco's fourth-quarter results and outlook. Shares were up 29% as of late Thursday afternoon, trading at $3.14. Over the past 52 weeks, shares have gained 43%.

Petco's new Chief Executive Joel Anderson is redoing in-store merchandising and focusing on best sellers, while leaning into growth opportunities like in-store veterinarian services. Anderson said during a call with analysts that the company is making progress to lower costs and refine its business model.

It seems the company's path toward losing share and profitability is likely changing direction, RBC Capital Markets' Steven Shemesh said.

"Maybe you don't totally buy into the fact that they can turn it around, but where this stock is, there in theory would be a lot of upside," Shemesh said.

However, analysts warn that Petco could still be far from a full recovery.

Improving its bottom line via better execution and store closures "will only carry the model for so long, in our view," UBS analyst Michael Lasser wrote, adding that the company will need to show it is stabilizing its market share to maintain investor confidence.

Petco must be able gain market share by showing it can compete with online retailers like Chewy that offer convenience and value, analysts say. Chewy on Wednesday said it notched market-share gains last quarter, as sales rose 15% on active customer growth, particularly to its automated-shipping program.

Market share in the pet retail market tends to be sticky, so if Chewy continues to gain autoship customers, it will be tough for brick-and-mortar stores like Petco to win them back, Shemesh said. Petco's delivery partnership with Uber Technologies' Uber Eats, announced Thursday, could help such market-share losses stagnate, he said.

"I am confident we are going to reset our long-term economic model starting this year and are well-positioned to build on this early momentum," Anderson said on the analyst call.

Write to Kelly Cloonan at kelly.cloonan@wsj.com

(END) Dow Jones Newswires

March 27, 2025 15:27 ET (19:27 GMT)

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