Like most businesses, costs for Pets at Home have risen as Covid-19 measures have been enforced, such as introducing in-store social distancing measures. And just like the major supermarkets, the company has also seen a sharp decline in sales from last year's fourth quarter (January to March 2020) when thousands of customers stockpiled pet products ahead of the lockdown.
The news saw the company's share price plunge more than 10% on Thursday to 205.2p.
£1BN BARRIER BREACHED
For the year ended 26 March 2020, underlying pre-tax profit rose by a forecast-beating 11% to £99.5m, as pet owners stocked up on food and basic medicines during a lockdown to curb the coronavirus pandemic.
Group revenue grew 10.2% to breach the £1bn barrier for the first time, while Pets at Home reported 9% like-for-like sales growth for the year.
As a designated ‘essential retailer’, Pets at Home’s stores, veterinary practices and website have stayed open through the lockdown. It profited as customers stocked up on pet food and cat litter as supermarket availability waned. In addition, its healthcare services benefited as veterinary rivals shuttered practices, but disappointingly, that initial spike in sales at the start of lockdown has fallen away.
NO PAT ON THE HEAD TODAY
As Pets at Home anticipated in April, ‘nearly all of the exceptional demand witnessed in the closing weeks of Q4 has unwound during Q1 of the current year’.
This, combined with the retailer’s adherence to social distancing guidelines and restrictions on the sale of pet products and health care services deemed non-essential, has ‘temporarily depressed normal levels of group turnover’, the company explained.
Online sales have remained at ‘materially elevated levels’, but they are unable to mitigate the reduced level of in-store sales and their weighting towards food, together with an additional £5m of COVID-19-related costs, have had ‘an adverse effect on profits, margins and cashflow in the financial year to date.’
The net result is Pets at Home now expects first half pre-tax profit will be ‘materially below the prior year’ and the retailer isn’t providing full year guidance at this stage.
RESILIENT RETAIL PLAYER
Pets at Home, which highlighted its resilient balance sheet with significant headroom on debt capacity and covenants, left the total dividend unchanged at 7.5p.
And despite the profit warning and the changes to come in a post-pandemic world, management remains ‘confident in the long-term sustainability of our business for a number of reasons, not least our sustainable retail and owner-managed veterinary models, our growing multichannel platform, our large and expanding loyal customer base and our unique solutions-based pet ecosystem.’
AHEAD OF THE PACK?
Russ Mould, investment director at AJ Bell, commented: ‘Surviving and thriving in the crisis are different things and while Pets can at least still operate, online sales are not enough to make up for the loss of business in store.
‘However, the maintenance of the full year dividend is nothing to be sniffed at in the current climate and the company has made progress in its transformation of the business, with continued growth in subscription numbers.
‘Assuming the business can come through the crisis intact it could well be ahead of the pack as less robust competitors fall away.’
Numis Securities downgraded its year to March 2021 pre-tax profit forecast by 32% to £68m on today’s news, although the broker added. ‘We lower outer year pre-tax profit forecasts a more modest 8% as headwinds normalise, but given Pets at Home’s positioning in a defensive and attractive category see upside risk to this outturn.’