What Happened:

Shares of pet-focused retailer Petco (NASDAQ:WOOF) fell 11.6% in the morning session after the company reported third quarter results, which missed analysts' expectations on nearly every key metric we track: revenue growth, same-store sales growth, gross margin, adjusted EBITDA, EPS, and free cash flow. Management acknowledged the challenges posed by the current consumer environment and expressed a commitment to swiftly address these issues by enhancing customer appeal, implementing cost controls, and managing capital more tightly. It's worth noting a significant decline in GAAP operating income and EPS, thanks to a one-time $1.22 billion goodwill impairment charge. Even when adjusting for the non-recurring expense, this was still a bad quarter for Petco.

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What is the market telling us:

Petco's shares are somewhat volatile and over the last year have had 32 moves greater than 5%. But moves this big are very rare even for Petco and that is indicating to us that this news had a significant impact on the market's perception of the business.

Petco is down 68.5% since the beginning of the year, and at $2.90 per share it is trading 76.4% below its 52-week high of $12.27 from February 2023. Investors who bought $1,000 worth of Petco's shares at the IPO in January 2021 would now be looking at an investment worth $98.47.

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