Petco (NASDAQ: WOOF) reported fiscal Q2 2026 net sales of $1.489 billion, up 0.05% year over year, while diluted EPS increased to $0.13 from $0.05. Gross margin and adjusted EBITDA improved, although a $6.8 million net tariff-refund benefit accounted for much of the reported profitability gain. Quarterly free cash flow rose to $129.9 million, supporting further debt reduction after the quarter.
Core Financial Results
For the 13 weeks ended August 1, 2026, comparable sales increased 0.6%, marking Petco’s second consecutive quarter of positive comparable growth. Reported sales were nearly unchanged because higher-than-anticipated point redemptions following the membership program relaunch disrupted sales during the quarter.
Operating income grew faster than revenue as gross profit increased while selling, general and administrative expenses remained nearly flat. Net income rose more sharply, helped by a $15.7 million income tax benefit.
| Metric | Q2 2026 | Q2 2025 | YoY Change |
|---|---|---|---|
| Net sales | $1,489.2 million | $1,488.5 million | +0.05% |
| Gross profit and margin | $591.1 million; 39.7% | $585.3 million; 39.3% | +1.0%; +37 bps |
| Operating income and margin | $47.8 million; 3.2% | $43.0 million; 2.9% | +11.1%; +32 bps |
| Net income attributable to common stockholders | $38.7 million | $14.0 million | About +177% |
| Diluted EPS | $0.13 | $0.05 | +160% |
| Adjusted EBITDA | $122.2 million | $113.9 million | +7.3% |
| Operating cash flow | $161.6 million | $85.9 million | About +88% |
| Free cash flow | $129.9 million | $53.8 million | About +142% |
Adjusted EBITDA and free cash flow are non-GAAP measures. The cash-flow figures in the table cover the 13-week quarter rather than the first half.
Product and Services Performance
Services and other revenue increased 3.6%, offsetting a 0.7% decline in product sales. Management also reported growth in consumables, but the company did not provide a separate revenue figure for that category.
| Revenue Category | Q2 2026 | Q2 2025 | YoY Change |
|---|---|---|---|
| Products | $1,216.9 million | $1,225.6 million | About -0.7% |
| Services and other | $272.4 million | $262.9 million | About +3.6% |
Petco closed one net store during the quarter and ended the period with 1,377 stores.
Tariff Refund Lifted Margins, While a Tax Benefit Magnified Net Income
The quarter included a $6.8 million net benefit from substantially all IEEPA tariff refunds related to tariffs paid in 2025 and 2026. That figure was net of investments in repositioning new assortments and, to a lesser extent, incremental fuel and tariff expenses.
The refund was important to interpreting the margin improvement. Reported gross margin rose 37 basis points to 39.7%, but Petco said normalized gross margin was approximately flat year over year without the benefit. Similarly, adjusted EBITDA was $122.2 million as reported but $115.4 million excluding the refund, compared with $113.9 million a year earlier.
The increase in GAAP net income also exceeded the improvement in operating performance. Pretax income before equity-method earnings was $17.7 million, up from $10.6 million, while the company recorded a $15.7 million income tax benefit versus a $0.7 million tax expense in the prior-year quarter. Income from equity-method investees also increased to $5.2 million from $4.1 million.
Cash Flow, Inventory, and Deleveraging
Quarterly operating cash flow increased to $161.6 million, while free cash flow reached $129.9 million after $31.6 million of capital spending. For the first 26 weeks of fiscal 2026, operating cash flow was $130.6 million, compared with $70.4 million a year earlier, and free cash flow was $60.8 million, up from $9.9 million.
Cash and cash equivalents ended the quarter at $293.5 million, an increase of $104.8 million from the prior-year level. Inventory declined 1.1% year over year even as net sales were approximately flat, limiting the amount of cash tied up in merchandise.
Total debt was $1.48 billion at quarter-end, down from $1.59 billion a year earlier, while net debt declined to $1.19 billion from $1.40 billion. After the quarter, Petco prepaid another $75 million of debt, bringing voluntary prepayments over the preceding nine months to $170 million. The post-quarter payment is not reflected in the August 1 balance-sheet figures.
Fiscal 2026 Guidance
Petco reaffirmed its full-year net sales and adjusted EBITDA outlook and issued quantitative guidance for the third quarter. The full-year outlook includes the $6.8 million net tariff-refund benefit already recognized and assumes no additional IEEPA refunds during the remainder of the year.
| Scope | Metric | Latest Outlook | Status |
|---|---|---|---|
| FY 2026 | Net sales growth | Flat to +1.5% | Reaffirmed |
| FY 2026 | Adjusted EBITDA | $415 million to $430 million | Reaffirmed |
| FY 2026 | Net interest expense | Approximately $122 million | Maintained |
| FY 2026 | Capital expenditures | Approximately $140 million | Maintained |
| FY 2026 | Depreciation and amortization | Approximately $200 million | Maintained |
| FY 2026 | Net store closures | 15 to 20 | Maintained |
| Q3 2026 | Net sales growth | +0.4% to +1.0% | Newly provided |
| Q3 2026 | Adjusted EBITDA | $100 million to $103 million | Newly provided |
The guidance assumes that economic conditions, currency rates, and the tax and regulatory environment remain generally consistent. It also assumes tariffs in effect or planned as of September 2, 2026 remain at current levels. Management said first-half profit performance gives Petco flexibility to invest in second-half growth initiatives while absorbing continuing supply-chain headwinds.
Recent Insider Transactions
The supplied six-month summary shows insiders purchased 364,976 shares across seven transactions and sold 552,029 shares across three transactions. That produced net sales of 187,053 shares, equal to 1.90% of the reported 9.76 million total insider shares held.
The latest reported transactions included two sales by officer Holly May, several director stock awards, and transactions involving officer Patrick Joseph Venezia. These records are presented without drawing conclusions about insiders’ views of the company.
| Date | Insider | Position | Transaction | Price | Reported Value |
|---|---|---|---|---|---|
| Jul. 9, 2026 | Holly May | Officer | Sale | $2.54 per share | $508,000 |
| Jul. 8, 2026 | Holly May | Officer | Sale | $2.55 per share | $637,500 |
| Jun. 30, 2026 | Gary S. Briggs; Rajendra Michael Mohan; Cameron Breitner; Glenn K. Murphy; Iris Yen | Directors | Stock awards | $0.00 per share | $0 each |
| May 1, 2026 | Joel D. Anderson | CEO | Stock award | $2.45 per share | $7,009 |
| Mar. 13, 2026 | Patrick Joseph Venezia | Officer | Sale | $3.42 per share | $349,072 |
| Mar. 13, 2026 | Patrick Joseph Venezia | Officer | Derivative-security conversion | $2.46 per share | $144,660 |
Risks Investors Should Monitor
- Limited underlying margin expansion: Reported gross-margin growth depended on the tariff refund, while normalized gross margin was approximately flat. Further profit improvement will need to come from operations rather than additional refunds.
- Tariff and supply-chain exposure: The outlook assumes tariffs remain at current levels and no additional IEEPA refunds are received. Changes in import costs or continuing supply-chain pressure could affect gross margin and adjusted EBITDA.
- Membership-program execution: Initial point redemptions after the relaunch disrupted second-quarter sales, creating a risk that redemption patterns could continue to affect reported revenue.
- Debt and interest burden: Petco is reducing leverage, but quarter-end debt remained $1.48 billion and fiscal 2026 net interest expense is projected at approximately $122 million. Continued deleveraging depends in part on sustained cash generation.
- Product-sales weakness: Growth in services and consumables helped offset lower total product revenue. Continued product declines could limit overall sales growth despite gains in other categories.
Summary
Petco’s fiscal Q2 2026 sales remained essentially flat, but services growth, stable operating expenses, and a tariff refund supported higher reported profitability. The refund and tax benefit explain a meaningful portion of the improvement, making normalized margins an important measure of underlying progress. Cash generation and debt reduction improved, while second-half execution, tariff and supply-chain costs, membership-program effects, and the sustainability of product demand remain the main areas to monitor.
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