- Pet care leader lifts earnings guidance
- Veterinary care and pet accessories demand remain strong
- Year-end net cash position expected
Shares in Pets at Home (PETS) topped the FTSE 250, rallying 11% to 368p after the pet food-to-vet services specialist raised full year profit guidance after delivering surprisingly strong sales in the third quarter including Christmas.
With robust trading momentum continuing in the fourth quarter, the UK pet care leader now expects underlying pre-tax profit for the year to March 2023 will be towards the upper end of the £126 million to £136 million consensus range, exceeding previous guidance of £131 million.
SPECIALIST RETAILER SHOWS RESILIENCE
Despite cost-of-living pressures, demand for veterinary care and pet accessories stayed strong in the 12 weeks to 5 January 2023, driving an 8.8% increase in group revenue to £347.5 million.
Pets at Home’s retail like-for-like sales grew 7.6%, including a record trading day of over £8 million, as people spent on food, treats, bedding and toys for their animals. Meanwhile, like-for-like sales in the vets division surged ahead by 18%.
The UK is a nation of animal lovers and while some of the little extras people splashed out on for their pets might fall by the wayside after Christmas, spending on the essentials is likely to hold up.
This is bolstered by Pets at Home’s growing footprint in the vet market and smart use of loyalty schemes.
Indeed, sign ups to Pets at Home’s Puppy and Kitten Clubs continued at pace in the third quarter, averaging over 23,000 per week, three-fold higher than pre-pandemic, while new registrations across its veterinary practices averaged 8,000 per week, growing the active client base to 1.7 million.
WHAT DID THE CEO SAY?
Pets at Home’s management also highlighted a ‘resilient’ gross margin performance and said a ‘strong grip’ on operating costs supported good profit and cash conversion across the business.
CEO Lyssa McGowan was particularly pleased ‘to see our accessories category return to growth, supported by the strong performance in our Christmas range, demonstrating that consumers still want to treat their beloved pets in these challenging times.’
EXPERT VIEWS
Shore Capital said Pets at Home’s positive announcement highlighted ‘volume driven growth and a resilient gross margin performance despite increased price competitiveness’, adding that based on current economic and inflationary conditions, ‘we consider Pets at Home to be the best positioned player in the pet care industry.’
Russell Pointon, consumer expert at investment research firm Edison, said Pets at Home continues to ‘ride the wave of a post-pandemic surge of pet owners willing to spend more on man’s best friend. Q3 growth was also undoubtedly given a boost by the holiday season - the golden quarter for many retailers. Less than a year in the role, CEO Lyssa McGowan is certainly setting the right tone and trajectory for the company.’
Russ Mould, investment director at AJ Bell, commented: ‘We weren’t just treating ourselves over Christmas it seems - our furry friends also benefited from surprisingly resilient spending judging by the latest update from specialist retailer Pets at Home.
‘The company was boosted by a big increase in the UK’s pet population during lockdown and unlike other pandemic fads this involved a long-term commitment on the part of owners.
‘The strong trading shows Lyssa McGowan is doing a good job of stepping into some big shoes to fill in the form of her predecessor Peter Pritchard who led a successful turnaround of the business.’
Mould continued: ‘She still needs to navigate inflationary pressures and stay ahead of the game when it comes to fighting off competition from non-specialists like the supermarkets, but she’s undoubtedly off to a good start.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Tom Sieber) own shares in AJ Bell.
