Petco (WOOF) Reported Adjusted EBITDA Growth but a $6.8M Tariff Refund Helped the Quarter. Is the Turnaround Self-Funding?

Petco Health and Wellness Company, Inc. (NASDAQ: WOOF ) reported second-quarter 2026 net sales of $1.49 billion, up 0.05%, while comparable sales increased 0.6%. Company-defined non-GAAP adjusted EBITDA reached $122.2 million, compared with $113.9 million one year earlier.

Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) calculates adjusted EBITDA from net income attributable to common stockholders, adding net interest, taxes, depreciation and amortization, equity-based compensation, losses on debt extinguishment and modification, 50% of Mexico joint venture EBITDA and specified other costs, while deducting income from equity-method investees.

The reported result included a $6.8 million net benefit from the International Emergency Economic Powers Act, or IEEPA, tariff refunds after investments to reposition assortments and partially offset fuel and tariff expenses. Excluding that benefit, normalized adjusted EBITDA was $115.4 million, only $1.5 million, or approximately 1.3%, above the prior-year result. Gross margin increased 37 basis points to 39.7%, but was approximately flat year over year without the refund benefit.

Year-to-date operating cash flow increased to $130.6 million from $70.4 million. Company-defined free cash flow, calculated as operating cash flow less cash paid for fixed assets, increased to $60.8 million from $9.9 million. The year-to-date calculation reflects $130.6 million of operating cash flow less $69.8 million paid for fixed assets.

Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) ended the quarter with $293.5 million of cash, up from $188.7 million one year earlier. Inventory declined 1.1% year over year despite the slight increase in net sales.

Total debt declined year over year to $1.48 billion from $1.59 billion, while net debt fell to $1.19 billion from $1.40 billion. After the quarter, Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) prepaid another $75 million, bringing voluntary prepayments to $170 million over nine months. The stated leverage target is 2 times, calculated as net debt divided by adjusted EBITDA.

The refund accounted for most of the adjusted EBITDA increase. Normalized growth of approximately 1.3% remains modest, particularly when comparable sales increased only 0.6%. Based on reported figures, product sales declined 0.7%, while services and other sales increased 3.6%.

Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) reaffirmed full-year net sales guidance of flat to 1.5% growth and adjusted EBITDA guidance of $415 million to $430 million. That adjusted EBITDA range includes the $6.8 million refund, while the outlook assumes no additional IEEPA refunds during the rest of the year. The forward measure lacked a GAAP reconciliation because future adjustments could not be predicted without unreasonable efforts.