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🐾Petco Turnaround Strategy
Part 2 of Petco PIPE Analysis
In last week’s newsletter, we explored how Petco’s strategy diverged from PetSmart and how it lost 90%+ of its market cap in the last few years.
Today, we’re taking it one step further—with a PIPE investment analysis into Petco and a new growth strategy focused on Vetco (Petco’s in-store veterinary services business).
For those interested in learning how to model a PIPE (including how to build a thoughtful forecast), I recorded a step-by-step video walkthrough you can follow with free model templates you can download. YouTube Video
Let’s dive in.
PE Playbook: Petco PIPE
State of Play
Petco’s stock popped 30% on 3/26 after releasing FY2024 earnings that beat EBITDA and free cash flow expectations. But beneath the surface, things are still shaky:
- Revenue declined for the first time in 6 years
- Management propped up cash flows by aggressively cutting capex and delaying payables
- Meanwhile, leverage remains elevated at ~4.5x EBITDA
In this post, we’ll explore:
1. What’s driven the current underperformance
2. Why a Vetco-first strategy could reignite growth
3. How a PIPE investment could give Petco the capital and flexibility to make it happen
How Petco Makes Money
Before we get into the details, here’s a snapshot of Petco’s revenue mix:
Segment | % of Revenue | Description |
Consumables | ~50% | Lower-margin food and daily pet essentials |
Supplies & Companion Animals | ~34% | Higher-margin but shrinking due to fewer pet adoptions post-COVID |
Vetco (Services) | ~16% | Fast-growing vet clinic business that was initially started as a joint venture in 2017 and then fully acquired in 2020 |
Mexico JV | N/A (reported separately) | ~150-store JV in Mexico with Grupo Gigante |
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