WOOF - Petco downgraded at Baird on elusive profit stabilization

2023-11-30 12:49:31 ET

Baird has downgraded Petco Health and Wellness ( NASDAQ: WOOF ) to neutral from outperform saying "the timing of profit stabilization/inflection is proving more elusive than we anticipated."

The firm also cut its target price to $3 from $8 (~10% upside based on Thursday's close).

Analyst Peter Benedict said that while the company is engaged in an operational reset, this "brings an added level of uncertainty given the higher mix of lower margin products and increased competitive overlap with discount players."

He noted that this reset includes the following: 1) delivering value; 2) honing their pricing strategy; 3) driving supply chain efficiency; and 4) taking action on labor.

Benedict added that Petco ( WOOF ) is on track to bring $40M of year-one cost savings -- mostly in labor and SG&A -- as well as ~$150M in annualized gross savings by the end of fiscal year 2025.

"We applaud the focus on expense reduction and understand the traffic-driving appeal of adding value-centric consumables brands," Benedict wrote. "That said, we do have some concerns over the implications of WOOF's merchandising shift on competitive differentiation in the marketplace and consumables margins."

Wells Fargo also downgraded Petco ( WOOF ), to equal weight from overweight.

More on Petco

• Petco: Heavily Discounted Despite Favorable Long-Term Trends
• Petco Health and Wellness Company Q2: Hold On Tight For The Near-Term Price Cuts
• Petco drops to all-time low after earnings disappoint
• Petco slides 17% after posting unexpected Q3 loss
• Petco Health and Wellness Company, Inc. (WOOF) Q3 2023 Earnings Call Transcript

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