Wells Fargo defended Overweight-rated Petco Health and Wellness Company ( NASDAQ: WOOF ) after shares spun more than 8% lower on Wednesday after the retailer missed on both lines of its Q2 earnings report.
The firm acknowledged that WOOF's Q2 print proved messier than expected, but noted comparable sales growth of +3.8% were stable on a 3-year geometric basis. In addition, WOOF was observed to have grown share in digital during the quarter and highlighted improving digital margins.
Analyst Zachary Fadem said WOOF's initiatives are still resonating via share gains and new customers, while comparable sales are expected to remain stable with acceleration potential.
Fadem and team see downside limited from here for WOOF.
"We believe a lower FY22 outlook was well telegraphed and now more accurately reflects today's macro/inflationary risks."
WOOF is also said to have a more attractive set-up as inflation eases and seasonal improvement takes hold. Looking ahead, the long-term growth story for WOOF is also called attractive.
The Seeking Alpha Quant Rating on WOOF has also improved recently with a moved to Hold from Sell on August 11.
During the post-earnings conference call, Petco ( WOOF ) management expressed confidence that the company would work past the near-term sales and margin headwinds.
"The lapping of year-ago stimulus and the current inflationary environment does create transitory pressure on the supplies business growth, but it's a pressure which history has shown dissipates as lapping dynamics and inflation moderates."
WOOF earnings call transcript.
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Petco is defended by Wells Fargo after post-earnings slide