Investors have warmed to pet accessories-to-veterinary services provider Pets at Home (PETS) after the specialist retailer hiked its total dividend to 7.5p per share for the 2016 financial year, sending shares up 3.9% to 259.2p.

The bigger-than-expected payout accounts for 50% of group earnings, with the company aiming to return cash to shareholders through a special dividend in the future. The pet-friendly firm’s revenue rose to £777.8 million, while food revenue climbed 6.4%, which was driven by a 12.3% sales increase in advanced nutrition products for cats and dogs.

Accessories revenue grew at a slower rate of 2.4%, which was impacted by weakness in health and hygiene products. Services revenue increased 29% to £81.3m, as a result of new openings and excellent growth in vet practices and grooming salons, while the gross margin remained stable at 54.5%.

In a recent bullish missive (12 May), Panmure Gordon (PMR:AIM) highlighted the company’s dominant 53% share of the advanced nutrition market, which is core to Pets at Home’s strategy for further growth. The broker is encouraged by the scope of the retail business, noting that Pets at Home operates twice as many stores as its five nearest competitors combined.

Pets at Home aims to open up to 20 superstores, six Barkers stores, one Whiskers ‘n Paws trial format, 50 veterinary practices and 60 grooming stores. Its VIP loyalty card scheme reached 4.5 million members and card swipe rate at store tills represented 64% of revenue in the fourth quarter.

Panmure’s recent analysis shows that consumers in loyalty programs visit stores more frequently and have a significantly higher average order value, highlighting the benefits of the loyalty scheme.

Web chart - PETS - May 16

Pets at Home aim to further grow revenue and roll out new space, which should combat the impact of a weaker sterling and the National Living Wage on margins.

Issue Date: 26 May 2016