Pet care provider Pets at Home (PETS) reported a robust 7.9% rise in revenues to £1.14 billion for the year to March 2021, boosted by retail revenues which topped £1 billion for the first time despite Covid-related restrictions.
Underlying pre-tax profits of £87.5 million came in ahead of forecasts and with momentum continuing across its retail and veterinary operations. The retailer now expects profits for the current financial year in a range of £120 million to £130 million against a consensus of £112 million.
Yet despite this upgraded guidance, the shares softened 1% to 459p as some investors took profits after a strong run during the pandemic and the middle of this month.
PROFITABLE TAILWIND
Pet ownership has rocketed during the Covid crisis, with people stuck at home in 2020 and a large chunk of 2021. This has created a tailwind for Pets at Home, which raised the total dividend 7% to 8p to reflect its strong cash generation.
In today’s results statement, Pets at Home said an estimated 8% increase in UK pet ownership over the past year has raised the outlook for growth across its addressable market and ‘in conjunction with our expectations of continuing to win market share, provides a supportive backdrop to the £600 million customer revenue opportunity we see across our business over the medium term.’
LAPPING UP NEW CUSTOMERS
Third Bridge analyst Ross Hindle pointed out that with ‘only a few large brands in the pet services industry and consumers keener than ever to treat their furry friends, Pets at Home is lapping up new customers’, as evidenced by last year’s 8.7% leap in group like-for-like sales.
‘The UK pet market has grown substantially as home and hybrid workers seek to add pets to their family unit to combat stress, reduce loneliness and aid exercise’, added Hindle.
AJ Bell investment director Russ Mould cautioned that like many pandemic-induced trends, pet ownership momentum could ease as we move into life beyond Covid-19.
‘Pets at Home has expanded its customer base during the pandemic and it now has a large opportunity to cross-sell services such as healthcare and pet grooming,’ commented Mould.
‘The beauty of pets is that owners are generally willing to keep spending regularly on their four-legged friends, thereby creating the opportunity for Pets at Home to collect a constant stream of cash.
‘With this tailwind firmly in place, Pets at Home must now embrace digital technology to make it easier for customers to manage their pet needs, and ultimately make it easier for them to spend more money.
‘Competition in the pet supplies space is fierce, but Pets at Home seems to be doing all the right things such as investing to improve its infrastructure and technological capabilities, as well as crunching all the data it has on customers to sharpen its selling skills.’
