Lately-unloved pet care specialist Pets at Home (PETS) scurries almost 11% higher to 125.3p on a positive first quarter trading statement. The pet food-to-veterinary services business has generated good like-for-like growth in both its retail and veterinary practice operations in the 16 weeks to 19 July.
With concerns over competition and faltering consumer confidence weighing on the share price, there is justifiable relief among investors. Pets at Home has reiterated full year guidance for low single-digit growth in adjusted profit before tax (PBT), reversing the downwards share price trend of recent months.
Encouragingly, Pets at Home reports group like-for-like revenue growth of 6.1% for the quarter, a significant acceleration on the 2.7% quarterly rise eked out a year ago. The performance demonstrates Pets at Home is raising a fist to an array of competitors including discounters, internet pet supplies specialist Zooplus and even Nestle, which recently acquired a small UK online pet food supplier called Tails.com.
Pets at Home’s improved performance reflects 5.3% growth in the core Retail business (including products sold in stores and online, pet sales and grooming service revenues), and a 13.6% like-for-like surge in its Vet Group arm, which includes the fee income earned through its joint venture vet practices.
GREAT PROMOTIONS, & LOWER PRICES
CEO Peter Pritchard is ‘pleased with our start to the year, particularly as trading across both retail and the vet business has been consistently strong.’
He insists ‘there are so many initiatives that are working; great promotions and more lower prices, capitalising on the hot weather with our biggest ever summer and cooling product range, the launch of our easy repeat online delivery service, and an excellent “Best Start in Life” puppy healthplan campaign in vet practices. We are also bringing our offer together more effectively with the launch of the VIP puppy club online and on our App, which introduces customers to both sides of our business.’
Significantly, Pritchard also adds: ‘We know one of the biggest opportunities in our business is to accelerate the maturity and returns of our vet practices. We therefore need to address the challenges, such as the shortage of veterinary practitioners and the associated cost and cashflow support that is required. At the same time, there will always be a need to keep our retail pricing competitive.’
UNCHANGED GUIDANCE REASSURES
Turning to the financial guidance, gross margin dilution for the year is left unchanged at 75 to 125 basis points, but it will be first half weighted, reflecting the timing of Pets at Home’s investment phasing. One negative is that Pets at Home will be absorbing £1.6m of lease costs in the half, which relate to 2 leases for new stores the retailer has decided not to proceed with.
Shore Capital scribe Phil Carroll believes Pets at Home represents ‘a good recovery play in a structural growth market’ and is sticking with his ‘buy’ rating accordingly. Carroll comments:
‘The statement reads positively, in our opinion, and goes some way to vindicate our view that spend in the petcare industry is quite defensive within the broader retail world and also that the Pets proposition is rights sizing itself and transforming to regain a competitive position against the backdrop of the pressure from discount and online channels.’
Carroll continues: ‘Operationally, management remain focused on strengthening the retail proposition looking at pricing and customer acquisition closely. The price gap with online is said to have halved in the past 18 months and there is now a new offer of easy repeat delivery across circa 350 online products enhancing customer convenience.'
