12:53 PM EDT, 03/15/2024 (MT Newswires) -- Petco Health & Wellness (WOOF) presents an intriguing mixture of low expectations, a new chief, and potential for significant margin improvement if the macroeconomic situation troughs, RBC Capital Markets said in a note emailed Friday.

The company's management reduced inventory to eliminate a $21 million inventory write-down charge that resulted in a more balanced pricing structure, according to the note.

"Despite the shift to value, premium brands were not particularly targeted for removal as many premium brand products are high-velocity," RBC added.

The firm said Petco is on track for $40 million in cost savings for fiscal 2024, which will be partially offset by additional investments in store labor during Q1.

The appointment of Mike Mohan as interim chief executive offers brings an outsider's perspective and potential for strategic changes that will likely benefit Petco shares, RBC said.

The investment firm expects Petco to face a notable mix shift challenge because of the persistent softness is discretionary spending and gross margins for supplies and companion animals likely higher than consumables.

RBC reduced the price target on Petco to $2.70 from $3.50 and kept its outperform rating.

The company shares were up nearly 4% in recent trading on Friday.

Price: 2.14, Change: +0.08, Percent Change: +3.88