Retail Credit Research: Petco Health and Wellness (WOOF): Better Category, Waiting for a Better Bite

Research evidence excerpt

Retail Credit Research: Petco Health and Wellness (WOOF): Better Category, Waiting for a Better Bite

FoundationM

Petco Health and Wellness Company (WOOF)

Exhibit 2: Petco (WOOF) Market Levels & Total Returns as of 06/24/2026

Amt. Outst. LTM MTD Total YTD Total

Description Ratings Bid Price Call Date Call Price YTW (%) OAS

($mm) Leverage Return Return

Term Loan, L +425%, 0% Floor due 2/3/2031 B3 / B $900 $98.50 7/24/2026 $101.00 8.6% NA 3.6x 1.7% 1.7%

8.25% 1st lien Notes due 2/1/2031 B3 / B $600 $100.03 2/1/2028 $104.13 8.2% 390 3.6x 0.4% 3.3%

HY Retailers 6.7% 238 0.6% 2.5%

Source: Bloomberg

Credit View (=)

We initiate credit overage on Petco with a neutral fundamental view, and see the loan

and bond as reasonably priced. We believe better relative value exists in other specialty

retail names (e.g., MIK). Petco is the second-largest participant in the pet specialty

retail space and generally operates with lower margins versus peers, given its high

consumables mix and more urban-leaning, higher-cost footprint. We could potentially shift

to our view to a buy trade recommendation if bonds sold off or if comps inflected

positive. While a positive comp inflection is not our base case, it could happen if market

share gains occur, vet services growth takes hold, and / or pricing and mix shifts support

sales, which are all part of the current business strategy.

We are constructive on pet industry trends, supported by favorable dynamics around pet

humanization, pet ownership, and the number of pets per household. However, we believe

the benefits will accrue more toward vet services and healthcare, while pet consumables

are likely to see lower growth and more intense competition from existing specialty peers,

mass players, and online retailers that continue to gain share.