Specialist retailer Pets at Home (PETS) expects full year underlying pre-tax profit to be ‘slightly above the top end’ of the £92m-to-£97.1m consensus forecast range. This follows a boom in business in the closing weeks of the retailer’s fourth quarter as the coronavirus crisis developed.

However, the shares softened 3.2% to 232.3p on Thursday after the pet care specialist withdrew financial guidance for full year 2021 and beyond given the backdrop of COVID-19 uncertainty.

SALES ACCELERATE

For most of the fourth quarter of the year ended 26 March, Pets at Home traded in line with market expectations as it pressed on with executing its proven pet care strategy. But during March, revenues accelerated with exceptional demand both in-store and online as the coronavirus crisis unfolded.

‘We have seen existing customers increase average basket size by pulling forward purchases as well as new customers access our pet products and healthcare services,’ said the company.

Pets at Home has been designated by the UK Government as an “essential retailer”. The pet products it sells and the health care services it provides are deemed essential to the nation’s pet owners at a time when our furry friends are playing an increasingly vital role in our daily lives.

RESILIENT, YET REMAINING VIGILANT

Reassuringly, today’s statement also highlighted that the balance sheet is resilient and Pets at Home has extensive headroom on debt capacity and covenants. Total liquidity, including cash balances, is roughly £160m and the retailer expects to end full year 2020 with a very manageable net debt-to-EBITDA ratio of under one times.

Nevertheless, Pets at Home ‘remains vigilant across our funding requirements, ongoing measures for cash preservation and prudent allocation of capital.’

THE EXPERTS’ VIEW

‘Sales of pet food via the internet will have soared in recent weeks as animal lovers struggle to get supplies from their usual supermarket,’ commented Russ Mould, investment director at AJ Bell. ‘It is also pleasing to see Pets at Home be so generous including more than £1m going to pet charities, a £1m crisis fund for staff and discounts for NHS workers.

‘Increasingly consumers are noticing these kind gestures and how businesses are going above and beyond their normal duty to help others. They will be the ones who are held in high esteem once the crisis ends and that could translate into increased customer loyalty.’

Shore Capital is sticking with its bullish stance on Pets at Home but has temporarily withdrawn its 2021 forecasts until there is further clarity on the potential impact from coronavirus.

‘We upgraded last week from hold to buy highlighting that the shares looked over sold at these levels,’ said the broker.

‘With good cash generation, a strong balance sheet and a strategy that mixes products and services, we believe that it is perhaps time for investors to look again at the investment case. Today’s trading update highlights small upgrades to full year 2020 forecasts. We note that Pets has a short position of 5.15%, which we think looks wrong given the momentum in the business and the upgrade to current year forecasts.’

READ MORE ABOUT PETS AT HOME HERE

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Issue Date: 02 Apr 2020