Petco Stock is Ready to Roar

Pet products and services retailer Petco Health and Wellness Company NASDAQ: WOOF stock is starting to bottom out amid stellar Q2 2021 earnings results. The Company is gaining traction especially as the pandemic created more pet owners. As a result, the demand for a one-stop shop for all things pet-related ranging from products, nutrition, prescription food and drugs, veterinary care and pet insurance is growing. The Company is charging on all cylinders and not facings any reversion from the reopening trend as new pet owners continue to spoil their pets. Petco continues to grow both top and bottom line steadily as it expands its synergistic offerings growing from the network effect. Digital revenues rose 14% on one year and 150% on a two-year basis and brick and mortar merchandise sales rose 17% and 21%, respectively. Outsized demand and inflation are both a boon to its omnichannel bottom line with over 1,500 physical stores and 21 million customers. Prudent investors seeking exposure in the pet care industry can watch for opportunistic pullbacks in shares of Petco.  

Q2 Fiscal 2022 Earnings Release

On Aug. 19, 2021, Petco released its Q2 2021 earnings report for the period ending July 2021. The Company reported earnings-per-share (EPS) of $0.25 versus $0.20 consensus analyst estimates for a $0.05 beat. Revenues grew 18.6% year-over-year (YoY) to $1.43 billion versus $1.37 billion consensus analyst estimates. Q2 comparable same-store sales grew for the ninth consecutive quarter rising 20%. Petco CEO Ron Coughlin commented, "With purpose-driven performance at the heart of all we do, our second-quarter results reflect the strength of our differentiated model and continued focus on driving customer acquisition, increasing spend, fueling comp growth of 20 percent year-over-year and 30 percent on a two-year stack. We exited Q2 with strong momentum while lapping robust double-digit comp growth. Looking ahead, we're operating from a position of strength as we move into the second half, which gave us the confidence to raise our guidance. We believe we have significant runway for continued growth as we execute against our proven transformation strategy in multi-year growth areas across services, veterinary care, digital, and owned and premium brands."

Full-Year 2021 Upside Guidance

Petco raised its full-year 2021 EPS guidance to range between $0.81 to $0.85 from, $0.73 to $0.76 versus $0.76 consensus analyst estimates. The Company expects full-year 2022 revenues to come in between $5.6 billion to $5.7 billion from $5.475 billion to $5.575 billion versus $5.58 billion analyst estimates.

Conference Call Takeaways

CEO Coughlin set the tone, “Looking back to a year ago, pundits question whether the behavior shifts related to COVID lockdowns would generate abandonment of physical retail shopping towards digital-only. With reopening at Petco, we now know the story is a very different one. Pet parents have come back to our Pet Care Centers in droves. They've come back to get advice on what's the best food for Ivan the Dobermann. They've come back to get Coco the Maltese groomed. They've come back so that Tango the Tabby can receive high-quality care in one of our vet hospitals or immunizations at our Vetco clinics. And they've come back because their pets just love being in our Pet Care Centers. All of this is driven by incredible, knowledgeable, and passionate partners. But they've also come back because we offer an omni-channel experience like no other in the category. While we have great offerings for all customers, for those 39% of customers stating they want to shop in an omni-channel manner, there is no one that compares to Petco. This provides us with a growth runway for years to come. I couldn't be more proud of how our 27,000-plus partners continue to execute with excellence, rounding together to deliver our 11th consecutive quarter of comp growth. Our transformation from a traditional retailer into a disruptive, integrated omni-channel provider of veterinary care services and premium products is tangibly driving performance.”

Prescription Drugs and Food

CEO Coughlin noted, “The $11 billion prescription drug and food market, where we've historically been underdeveloped, provides us with tremendous headroom for growth. And we're getting after it with 50%-plus growth momentum. Scaling veterinary capability, coupled with our data on pet parents, gives us confidence that we can gain significant share in this market. In prescription food, we're delivering exceptionally high double-digit growth with strong sales online. And in every location where we put a vet hospital, we can now sell prescription food. This will be a predictable and steady growth driver for years to come. In prescription drugs, we're thrilled to have formed a relationship with a best-in-class fulfillment partner in Vetsource, and the early results are promising. In the $2 billion insurance market where we similarly have immense headroom, it's early innings, but we've doubled our business off a small base. We've built domain expertise and developed a compelling offering aimed at both direct-to-consumer and through employee health plans.

Petco Insurance

CEO Coughlin touched upon the Petco Insurance product, “We've more than doubled our policies since the beginning of the year. This includes signing on Salesforce and Cognizant, bringing us to a total of 22 companies offering Petco insurance through their employee benefit plans. The pet health space is large and growing. And we're encouraged by the capability and momentum that we've built. Our integrated multichannel ecosystem is the only offering able to meet all of a pet's needs, something 50% of customers say they want. As a result, pet parents are voting with their wallets.” The Company has over 700,000 members in its loyalty program and app downloads rose 100% YoY to 4.4 million. He concluded, ”We're the only pet specialty player providing 360-degree reminders for all of the pet health and wellness needs, including grooming, flea, tick, vaccinations and merchandise. And we believe that will drive meaningful growth and customer engagement over time.”

WOOF Opportunistic Pullback Levels

Using the rifle charts on a weekly and daily time frame provides a precision view of the landscape for WOOF stock. The weekly downtrend stalled as the 5-period moving average (MA) flattens near the $20.63 Fibonacci (fib) level tightening towards the 15-period MA at $21.64. The weekly stochastic is attempting to form a  mini pup above the 20-band. The weekly market structure low (MSL) buy triggered above $21.28 with another MSL trigger on a breakout through $23.58. The daily rifle chart formed a market structure high (MSH) sell trigger when shares fell under the $24.41 level. The daily rifle chart uptrend has a stalled 5-period MA at $21.44 as the 15-period MA continues to rise at $20.50. The daily stochastic made a full oscillation up to the 80-band with upper Bollinger Bands (BBs) at $22.41.  The daily stochastic may peak or form a mini pup through the 80-band. Prudent investors can watch for opportunistic pullback levels at the $21.31 fib, $20.63 fib, $20.26 fib, $19.35 fib, $18.70 fib, and the $17.86 fib. Upside trajectories range from $25.56 fib up to the $31.93 fib area.