Petco is keeping a streak of double-digit membership growth alive

petco (NASDAQ: WOOF) announced its fourth quarter and fiscal 2021 results on March 8. The results showed the pet retailer’s double-digit same-store sales growth streak extended to seven quarters.

Petco’s sales exploded at the start of the pandemic and have not faltered. Millions of people were spending more time at home, away from friends, classmates and colleagues. The trend has fueled a rise in demand for the companionship of a furry friend.

Let’s take a closer look at Petco’s fourth quarter results and what they could mean for investors.

Petco’s sales skyrocketed at the start of the pandemic as people craved companionship. Image source: Getty Images.

Petco maintains an impressive growth streak

Note that same-store sales growth includes stores open for at least 12 months and excludes the impacts of new store openings and closings. That said, in its fourth quarter ended Jan. 29, Petco reported component sales growth of 14%. This is the seventh consecutive quarter of double-digit growth for the indicator.

The streak began in the second quarter of 2020, just as the pandemic was worsening in the United States. In Q1 2020, the quarter before the outbreak, Petco saw compounding growth of just 2%. The upward shift highlights the magnitude of the positive effect the pandemic is having on Petco’s business.

CEO Ron Coughlin commented on the company’s success in the earnings press release:

Our category remains strong and resilient; our competitive trenches are deepening and our world-class team is executing to deliver goal-driven performance. With an integrated omnichannel infrastructure, a robust service offering including 197 veterinary hospitals and millions of net new customers, we are well positioned to generate increased long-term shareholder value.

Early in the pandemic, pet adoptions and supplies to foster new pets were the categories that initially jumped. Now that the world is entering the third year of the pandemic and economies are cautiously reopening, pet adoptions are slowing. Fortunately for Petco and its shareholders, pets are usually a long-term commitment. Pets adopted at the start of the pandemic will get fatter and need to eat more. Plus, they’ll roll out of beds and need new toys to tear up.

Petco sees this trend evolving in its business. Sales of supplies and pets rose 4.1% year over year in the quarter ended Jan. 29. Meanwhile, consumables like dog and cat food jumped 18.8%.

What this could mean for investors

Petco’s impressive results were not enough to counter the trend of general stock market jitters following Russia’s invasion of Ukraine. Petco’s stock fell about 1% after its announcement on March 8.

Overall, Petco trades at a price-to-sales and price-to-free cash flow ratio of 0.9 and 40.5, respectively, well below its online-only competitor. Softas shown in the graph.

A chart showing valuation metrics for Petco and Chewy.

Valuation metrics for Petco and Chewy. Data by Ycharts.

Admittedly, Chewy is growing faster than Petco, pre-pandemic and post-pandemic, but investors may prefer Petco at nearly half the valuation.

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Parkev Tatevosian owns Chewy, Inc. The Motley Fool owns and recommends Chewy, Inc. The Motley Fool has a Disclosure Policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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