Dive Brief:

• Riding on the boom the pet sector has experienced this past year, Petco on Thursday reported "record" Q1 sales and the tenth consecutive quarter of growth at the retailer. The retailer's net revenue increased 27% to $1.4 billion, driven by a 28% comp sales increase.

• The pet retailer reported positive net income of $6.1 million from a loss of $33.4 million in the year-ago period, according to a company press release. The company also reduced its debt in the quarter by 52% to $1.7 billion, driven by the proceeds generated from its initial public offering, recapitalization related to the IPO and free cash flow generation.

• Following the strong results, Petco raised its full year financial guidance: The retailer expects revenue to be between $5.5 billion and $5.6 billion, up from previous estimates of $5.3 billion and $5.4 billion and adjusted EBITDA to be between $550 million and $560 million. The company maintained its outlook for capital expenditures of $185 million to $235 million.

Dive Insight:

Consumers turned to their pets — or adopted new ones — as a source of comfort this past year while many things in their daily lives became uncertain. Pet retailers, as a result, experienced a boost in sales.

In the first quarter alone, Petco added some 1.2 million net new customers, marking its third consecutive quarter of adding at least 1 million.

"We're attracting new customers and gaining market share in a growing category through our unique end to end health and wellness ecosystem," Chairman and CEO Ron Coughlin said in a statement. "There are more pets in homes than ever and the 1.2 million net new customers we gained in the quarter is a multi-year high, that provides an annuity for years to come. The category acceleration combined with a strengthening of our customer base give us confidence to raise our full year guidance."

The retailer's digital revenue grew 21% during the period, while its services and vet revenue grew 63%. The retailer in October rebranded itself as a "health and wellness company for pets" and in the first quarter opened 12 new vet hospitals for a total of 137.

Making pets' health a more prominent part of the business has been something others in the space have been prioritizing as well. Online pet retailer Chewy launched its "Connect with a Vet" telehealth pet service this past year, as well as compounded medications for pets, which built on its existing pharmacy business. Walmart in 2019 also announced plans to introduce 100 in-store veterinary clinics. Adding a healthcare component to its business allows pet retailers to become a "one-stop shop" for pet owners, helping to drive more loyalty.

The rising pet ownership in the U.S. — which Packaged Facts previously estimated grew 4% in 2020 — also creates an opportunity for pet retailers to acquire new customers that will continue to shop with the brands over the years as their pets grow up.

"[Petco] is not only benefitting from a continued new pet boom with demand continuing to outstrip supply, but is also capturing rising spending on pet food as new pets grow," Wedbush analyst Seth Basham said in an emailed client note, adding that the retailer "is also enjoying amplified discretionary spending on pets due to fiscal stimulus, rising consumer confidence, accelerating services demand as virus fears ease and potentially strengthening pet humanization trends."