Dive Brief:

• Petco on Tuesday reported fourth quarter net revenue increased 13% year over year to $1.5 billion, while comparable sales grew 14%.
• The company during the period swung to a net profit of $27.3 million from a net loss of $6.9 million in the year-ago period. Petco added about 800,000 net new customers during the quarter, bringing its total to 24.1 million active customers, according to company documents.
• The pet retailer reported "record" revenue and profitability for the full year: In fiscal 2021, Petco's net revenue increased 18% year over year to $5.8 billion, with comps growing 19%. Net income was $159.8 million from a net loss of $31.7 million last year.

Dive Insight:

After nearly two years of increased demand in the pet category, Petco is leaning into its service and wellness offerings to hold onto the gains it made.

The retailer opened 24 vet hospitals during the fourth quarter, bringing its total to 197, and it reported that its services and vet revenue grew by 22% from a year ago and 37% from two years ago, CEO Ron Coughlin said on a call with analysts.

In a separate announcement Tuesday, Petco said it has introduced new benefits to its existing Vital Care paid membership service. The program, which initially launched in October 2020, has expanded to offer more benefits for dog owners and launched a new program designed for cats, including discounts on products, grooming services and pet boarding. The program currently has about 160,000 members enrolled.

The retailer last week also announced it has purchased the remaining stake in Thrive Pet Healthcare's pet hospital joint venture, which currently operates about 100 vet hospitals in Petco stores under the Thrive name. The two companies initially formed the strategic joint venture in May 2017.

"We enter this fiscal year as a stronger company than ever. Our category remains strong and resilient; our competitive moats are deepening, and our world-class team is executing to deliver purpose driven performance," Coughlin said in a statement. "With an integrated omnichannel infrastructure, robust services offering including 197 veterinary hospitals, and millions of net new customers, we're well positioned to drive enhanced long-term shareholder value."

Petco has rolled out a number of initiatives this year to help it reach new customers. In October, the retailer opened a new flagship store in New York City's SoHo neighborhood dedicated to its Reddy private label. And earlier this year, Petco announced a partnership with Lowe's to open shop-in-shops within 15 Lowe's stores.

"We're looking for partners that give us access to customers that have a high density of pet parents who provide supplemental services and partners that are appealing to our higher-end customer base. Lowe's has a fantastic brand, a great experience, a great culture," Coughlin said, adding that Lowe's "DIY-focused millennial and Gen Z customer base" is incremental to Petco's own customer base.

Petco expects sales to grow further in the year ahead: For fiscal 2022, the company projects net revenue to be between $6.15 billion and $6.25 billion, an increase of up to 7.6% year over year. Petco also expects adjusted EBITDA to be between $630 million and $645 million, while capital expenditures are predicted to be between $275 million and $325 million.