Pet supplies retailer Petco is ramping up the use of existing stores as “micro” distribution centers to fulfill digital orders and is boosting locations of its full-service veterinary hospitals in response to a cool-down in some product sales from early-pandemic highs.
During a quarterly earnings call Wednesday, executives of San Diego-based Petco told analysts the company is shifting some of its use of space as, like other retailers, it sees a drop-off in sales of discretionary items such as pet toys. It continues to benefit from purchases of food, medicines and other necessary supplies stemming from a spike in pet adoptions in the early months of the pandemic.
Many of those recent pet adopters are now ordering items online as the company uses many of its more than 1,500 locations as mini fulfillment centers, often providing same-day deliveries of things such as fresh and frozen pet foods increasingly being sold by the retailer.
“We continue to not only fulfill nearly 80% of the digital orders through our pet care centers, but delivered a record number of same-day delivery orders in the quarter, a 60% increase year-over-year,” CEO Ron Coughlin told analysts, adding same-day delivery provides a “competitive moat” versus online competitors such as Chewy.com.
Petco reported total sales for its second quarter ended July 30 rose 3% from the year-earlier period to $1.5 billion, as net income declined 82% to $13.5 million. Executives said the company anticipates full-year 2022 revenue will reach between $5.98 billion and $6.05 billion, down from a prior forecast of $6.15 billion to $6.25 billion.
Company leaders said rising costs for supplies and labor affected its bottom line, and in the latest quarter it incurred approximately $11 million in integration-related costs as it closed on its previously announced $35 million acquisition of the remaining stake in the Thrive veterinary services chain.
Petco opened 11 new on-site veterinary hospitals in the latest quarter, and it remains on track to reach its target of 50 openings for the calendar year. “We also made significant enhancements to our online booking systems allowing customers to seamlessly view deployment availability across multiple locations and driving a 30% increase in online hospital bookings,” Coughlin said.
The company is also focused on increasing other on-site services that can’t be replicated online, such as pet grooming and training, which encourage customers to come into stores and buy more items.
With people going outside the home more frequently, Petco saw sales of small animals such as fish, birds and reptiles, and supplies geared to those pets, drop 9% in the latest quarter compared with a year earlier.
Petco does not sell dogs and cats but is looking long term to capitalize on sales of food, medicines and other supplies and services being purchased by the more than 23 million American households that have adopted pets since the start of the pandemic, according to the American Society for the Prevention of Cruelty to Animals.
The American Pet Products Association trade group reported in April that the industry reached $123.6 billion in sales in 2021, the highest level in history and the second consecutive year of record-setting sales. The industry group said growth was expected to continue throughout 2022.