Petco’s revamped loyalty program produced an unexpected financial setback after customers redeemed rewards at significantly higher levels than the retailer had anticipated.
The petco loyalty program financial losses amounted to a “mid-single-digit millions” impact on second-quarter 2026 sales, according to company executives. The problem emerged after the retailer relaunched Petco Perks with a simpler rewards structure designed to make earning and redeeming points easier.
The result illustrates a difficult challenge for retailers: a loyalty program can encourage customer engagement and spending, but rewards that are too generous or redeemed faster than expected can also reduce revenue.
Petco Perks Became More Popular Than Expected
Petco relaunched its Perks loyalty program in late June 2026.
Under the updated system, members earn 10 points for every dollar spent on most products and 30 points for every dollar spent on Petco private-label products. Customers can redeem 1,000 points for a $1 discount.
The changes were intended to remove friction from the previous program and make rewards easier for both customers and Petco employees to understand.
But customers responded more aggressively than the company expected.
Petco CEO Joel Anderson said customer point redemption volumes “far exceeded” initial projections, according to reporting on the company’s second-quarter earnings call.
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Loyalty Program Reduced Second-Quarter Sales
Before the updated Perks program launched, Petco’s sales were reportedly tracking above the company’s second-quarter outlook of 0.3% growth.
However, the company ultimately reported sales that were essentially flat year over year. Executives attributed a mid-single-digit-million-dollar impact to Petco Perks.
The distinction is important.
The loyalty program did not necessarily create a traditional operating loss of several million dollars. Rather, the unusually high level of reward redemption reduced sales during the quarter by a mid-single-digit-million-dollar amount.
That makes the issue more accurately described as a financial impact from the rewards program rather than evidence that the entire loyalty operation is structurally unprofitable.
Why the Program Created the Financial Pressure
The economics of loyalty programs depend heavily on customer behavior.
Retailers typically issue points with the expectation that some customers will not redeem all of their rewards, while others may take longer to use them. Those assumptions influence the financial accounting and economic cost of the program.
Petco’s earlier financial reporting explains that loyalty points create customer options and that the company estimates expected redemptions when determining how revenue associated with those points is recognized.
The revamped Perks structure appears to have changed customer behavior quickly.
Customers were not simply joining the program. They were actively using their rewards at a rate that exceeded Petco’s forecasts.
For a retailer, that can translate directly into greater discounts and lower realized sales.
Petco Responds With Redemption Guardrails
Petco has not indicated that it plans to abandon the revamped program.
Instead, management said it moved quickly to introduce “guardrails” around redemption velocity after seeing the unexpectedly high activity. Executives believe the peak in redemption volumes has passed.
The company is also turning its attention toward personalization.
Rather than relying only on broad points-based rewards, Petco wants to improve the use of personalized offers that can encourage customers to purchase products and services relevant to their individual needs.
That approach could potentially make the loyalty program more commercially efficient.
Same-Store Sales Show Some Improvement
Despite the impact from the loyalty program, Petco’s underlying sales picture was not entirely negative.
The company recorded its second consecutive quarter of same-store sales growth in the second quarter of 2026, with comparable sales increasing 0.6% year over year.
That followed four quarters of comparable-sales declines during the previous year.
The modest improvement suggests that the retailer’s broader business was beginning to stabilize, even as the redesigned rewards program created an unexpected financial headwind.
Why Loyalty Matters to Petco
Customer loyalty is strategically important to Petco because the company’s business depends on repeat purchasing.
Pet products include recurring purchases such as food, treats, litter and other supplies. Petco also operates services including veterinary care, grooming and training.
The company’s annual reporting describes its business as an integrated ecosystem combining products, services, digital channels and membership offerings.
A successful loyalty program can therefore do more than generate immediate product sales. It can encourage customers to remain within the Petco ecosystem and use more of its services over time.
That is likely why executives continue to view Perks as a potential long-term growth tool despite the early financial setback.
Petco Expects Longer-Term Benefits
Petco management has said it expects the redesigned membership program to become a catalyst for longer-term growth.
The company plans to focus the remainder of 2026 on improving personalized offers and the broader customer experience. Management expects a positive financial contribution from these capabilities to emerge in 2027.
That means Petco is effectively treating the second-quarter impact as a learning experience rather than a reason to reverse course.
The strategy now depends on finding a better balance between customer rewards and retailer economics.
What Investors Should Watch
The key issue for investors will be whether Petco can retain the engagement generated by the new Perks program without allowing reward costs to undermine sales and margins.
Several indicators will be important:
- Reward redemption rates
- Same-store sales growth
- Membership engagement
- Personalized-offer performance
- Private-label sales
- Customer retention
- Overall merchandise margins
Petco’s regulatory filings show that its loyalty and membership strategy is closely connected with its broader effort to increase customer loyalty and repeat purchasing.
If the company can use customer data to personalize offers while controlling redemption costs, the program could eventually become more valuable.
If discounts remain higher than expected, however, the financial pressure could continue.
Conclusion
The petco loyalty program financial losses highlight the risks involved when a retailer significantly changes its rewards economics. Petco made Perks easier to use, but customers responded with far more redemptions than management expected, creating a mid-single-digit-million-dollar impact on second-quarter sales.
The company has responded with tighter redemption controls and a greater emphasis on personalized offers. The longer-term test will be whether Petco can convert the increased customer engagement into profitable repeat business rather than simply giving away more discounts.
FAQs
How much did Petco’s loyalty program cost the company?
Executives said the Petco Perks program had a “mid-single-digit millions” impact on second-quarter 2026 sales.
Why did Petco Perks create financial losses?
Customers redeemed points at a much higher rate than Petco initially projected, increasing the financial impact of rewards.
Is Petco cancelling its loyalty program?
No. Petco plans to continue developing Perks and improve personalization.
How does the new Petco Perks program work?
Members earn 10 points per dollar on most products and 30 points per dollar on Petco private-label products. Every 1,000 points can be redeemed for $1 off.
Did Petco’s sales decline in the second quarter?
Overall sales were essentially flat year over year, while same-store sales increased 0.6%.
