What drives WOOF's consistent EPS surprises in 2025?

Petco Health & Wellness Company (WOOF) has experienced a break-even quarterly earnings per share (EPS) in Q4 2024, which is a significant improvement from the previous quarter's loss. Despite this positive trend, the company's EPS has not yet reached the level expected by analysts, indicating that there is still room for improvement. The key factors driving WOOF's consistent EPS surprises in 2025 are as follows:

1. Strategic Focus on Profitability: WOOF is shifting its focus from prioritizing growth visibility to improving profitability and adhering to retail fundamentals. This strategic shift is likely to result in better cost control and enhanced operational efficiency, which can positively impact EPS.
2. Improvement in Gross Margin: The company has reported a significant improvement in gross margin, which increased by 1,180 basis points to 38% in Q4. This improvement is attributed to lapsing an inventory and impairment charge from the previous year, as well as progress in margin management. Enhanced gross margin can contribute to higher EPS by reducing cost of goods sold as a percentage of revenue.
3. Effective Cost Management: WOOF has been working on optimizing its product assortment and pricing strategy to align more closely with consumer demand and preferences. This suggests a greater ability to manage costs effectively, which can lead to improved profitability and higher EPS.
4. Investment in Digital Capabilities: The company is committed to enhancing its omnichannel capabilities and digital experience to stimulate growth. Investment in digital technologies can improve operational efficiency and provide new revenue streams, which can positively impact EPS.
5. Partnerships and New Initiatives: WOOF has announced a new partnership with Uber Technologies that will see its Uber pet essentials be added to the Uber Eats platform. Such partnerships can drive sales and revenue, which can contribute to higher EPS.

In conclusion, WOOF's consistent EPS surprises in 2025 can be attributed to a combination of strategic shifts towards profitability, improvement in gross margin, effective cost management, investment in digital capabilities, and strategic partnerships. These factors collectively contribute to the company's potential for improved financial performance and higher EPS.