Petco’s Financial Status Concerns Investors

By Julia Laquerre

The pet industry is booming, but not necessarily for Petco. Over the past five years, their stock price has fallen an alarming 64%.

Petco Health and Wellness Company, Inc. (WOOF) released their recent Earnings Call for quarter two 2022, which publicized their unstable financial situation, likely due to inflation, employee lawsuits, and their overall public image.

The earnings transcript revealed Petco overestimated their revenue in the quarterly earnings report by a large margin, subsequently most of the questions posed by investors regarded Petco’s current and predicted financial status.

During the transcript, Ron Coughlin, CEO of Petco, tried to reassure investors. He stated their current standing was consistent with past recessions and therefore indicates a likely “return to growth with economic improvement and the passing of the stimulus overlap period” with a “strong upward trajectory.”

CFO, Brian LaRose echoed Coughlin’s sentiments, “we delivered yet another quarter of strong net revenue at $1.48 billion.”

Although LaRose seemed confident in their numbers, he did share concern over the company’s financial status for the coming year. To recover from the false estimates of the quarterly earnings report, the company must act “prudent(ly) to adopt an appropriately cautious outlook for the full year” LaRose stated.

Contrary to Coughlin and LaRose’s’ overall confidence, investors needed to better understand the company’s two-year slack period. They peppered the men with questions narrowing on the company’s financial faults, including the payment of employees and company image.

Employee payment has faltered in the past few years, resulting in a series of class action lawsuits filed by Petco workers. Over the past decade, Petco has had 25 cases against them regarding employment and 23 labor cases. Most of these cases involved unfair wages and inaccurate pay relative to hours worked.

In 2019, the lawsuit Gatto v. Petco Animal Supplies INC. alleged Petco was in violation of the Fair Labor Standards Act, the New York Labor Law, and the common law. As a result of this complaint, Petco granted Gatto 1.3 million in settlements to terminate the lawsuit.

Ashley Knabl filed a collective and class action lawsuit in 2021 against Petco Animal Supplies INC. The lawsuit Knabl v. Petco Animal Supplies INC., claimed Petco discouraged workers from recording overtime hours and even altered time records to reduce pay.

Ultimately, the company does not appear to be concerned about lawsuits nor their image. According to Petco Animal Supplies, Inc’s quarterly earnings report form on April 30, 2022, “the company is involved in legal proceedings and is subject to other claims and litigation, in each case, arising in the ordinary course of its business.”

The claims in Petco’s quarterly report did not reassure investors of the company’s financial capacity to pay employees and manage an array of lawsuits. They wanted to know Petco’s plan for compensating low wages.

In response to these concerns Ron Coughlin announced, “we've been focused on improving wages for the last 4 years. And as a result, our average total hourly compensation is currently over $17 per hour. This month, we announced we're lifting the floor with every non-training of Petco either brand-new or tenured will make $15 base wage per hour or more by the end of the year”.

Since the transcript, a significant number of investors pulled out. The following day, August 24, Petco’s stock price fell 1.39 USD, a dramatic drop for a twenty-four-hour period and it continues to drop.

Not only are previous Petco employees and financial analysts critical of the company’s finances, but animal rights activist claim the company treats their animals unethically. Joanne G. Mainiero, President of Massachusetts Humane Society, stated, “Petco is a corporation and it’s all about making money. The animals aren’t getting adopted but sold.”

Mainiero is frustrated by the condition the animals live in. She believes Petco is solely driven by the “power of the customers pocket” and does not care for the animals in their possession. Many other animal rights activists, like Mainiero, have stood in defiance of Petco’s unethical standards.

Lawsuits involving unfair wages and controversy over the treatment of their animals has deteriorated Petco’s public sentiment. Along with the loss of investors and a continued decline in stock prices, Petco has found itself in a prolonged economic slump.