- FY25 profit guidance lowered
- Weak pet retail market
- Vet business coming on leaps and bounds
Pets at Home’s (PETS) shares plunged 11.5% to a two-year low of 245.5p after the UK pet care leader downgraded profit guidance for the year to March 2025, pinning the blame on ‘subdued’ conditions in the traditionally resilient pet retail market.
The FTSE 250 pet specialist also warned the government’s planned changes to the National Living Wage and employers National Insurance Contributions will cost it £18 million in full year 2026.
Consumer confidence has yet to recover from the hit taken in the run-up to the October budget and pet owners remain cautious, but the pet specialist is winning share in a tough market and its vet business is going from strength to strength.
DOGGEDLY SOFT MARKET
Reflecting management’s expectation that subdued pet retail market conditions will persist through the second half, Pets at Home lowered its year-to-March-2025 pre-tax profit guidance from £144 million to modest growth on last year’s £132 million.
This rough 7% downgrade follows a difficult first half to 10 October 2024 in which retail like-for-like sales were flat, a performance Pets at Home described as ‘resilient’ given a declining market and the impact of the transition to its new digital platform.
Vet Group like-for-likes rose by an impressive 18.2%, supported by growth in subscriptions, visits and average transaction values, and Pets at Home continues to engage with the CMA (Competition & Markets Authority) as the watchdog presses on with its vet industry investigation.
STRUCTURAL GROWTH WINNER
Pets at Home’s underlying pre-tax profit grew 14.1% to £54.5 million in the half, with strong growth in the vet business more than compensating for the earnings decline at the retail arm.
The company stressed that periods of slower pet market growth are not unprecedented but ‘historically short-lived’, and expressed confidence market growth will improve in future, ‘supported by long established and unchanged structural growth trends and a stable but higher pet population’.
WHAT DID THE CEO SAY?
CEO Lyssa McGowan said the first half was characterised by ‘a subdued market, against which we outperformed. In vets, our differentiated joint venture model continues to drive material outperformance over peers. In retail, our customer satisfaction is excellent, our price position is strong, and we have tight control of our cost base.’
However Dan Coatsworth, investment analyst at AJ Bell, said the update ‘will have left shareholders howling as it reveals vulnerabilities on several fronts. The changes in the Budget are unhelpful to Pets at Home given it employs lots of people on relatively low wages. More worrying is what the firm describes as an “unusually subdued” pet market.’
Coatsworth continued: ‘After a period during the pandemic when it felt like every household was keen to add a furry friend to the mix, it’s perhaps understandable to see a slowdown. However, Pets at Home is also vulnerable to pet owners going to non-specialists like supermarkets in search of a better deal. Loyalty schemes, which have been a useful initiative for the group, will only take you so far when consumers are highly cost-conscious.’
Coatsworth added: ‘Pets at Home has expressed confidence its growth strategy in the veterinary space won’t be affected but there is a risk that, like a postie who’s turned his back on an aggressive pooch, the company faces an unexpected bite from the competition authorities.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
