- Sets out ambitious new growth plan
- Unveils new £50 million buyback
- But negative read-across from US counterpart weighs on sentiment
Resilient pet care business Pets at Home (PETS) reported record sales, underlying pre-tax profits and free cash flow for the year to March 2023 and reiterated its 2024 guidance in the face of inflationary pressures and a cost-of-living crisis.
The pet food-to-vet services play also set out ambitious new medium-term growth targets that were ahead of analysts’ forecasts.
However, the FTSE 250 retailer’s shares fell 3.2% to 356p as reiterated 2024 guidance pointed to a broadly flat year-on-year profit performance and US peer PetCo (WOOF:NASDAQ) warned hard-pressed customers are now focusing on essential products rather than nice-to-haves weighed on sentiment.
KEEPING INVESTORS PURRING
Pets at Home’s annual results showed group sales up 6.6% to £1.4 billion, with like-for-like revenue 7.9% ahead and quarterly like-for-like growth accelerating sequentially throughout the year.
Adjusted pre-tax profit perked up 4.8% to £136.4 million amid strong market share gains in both the retail and vet divisions.
Pets at Home stressed current trading remains strong and it remains ‘comfortable’ with the current full year 2024 consensus underlying pre-tax profit estimate of £136 million, which implies no growth this year.
TAKING THE LEAD
Yet the retailer also laid out a bold new plan to outperform the market by growing sales at 7% per annum and pre-tax profits at a compound annual growth rate (CAGR) of 10% over the medium term.
CEO Lyssa McGowan insisted her charge’s ‘compelling pet care offer continues to resonate strongly with consumers’.
But Begbies Traynor’s (BEG:AIM) Julie Palmer said the impact of the cost-of-living crisis is ‘hinted at’ in the numbers.
Sales at Pets at Home’s vast stores are ‘showing a softer demand for discretionary accessories such a chew toys and mice on a string, while essentials such as food jumped, reflecting the growing number of households that include an animal.’
Palmer added: ‘Consumers may be feeling the financial strain but they are still ready to spend to meet the needs of their furry and feathery friends, and especially when their animals are poorly. Revenue from the company’s veterinary arm was up 13%, showing that when the Alsatian is ailing or the rabbit is rough, holding off on getting the treatment is not optional.’
Blessed with a strong balance sheet, Pets at Home raised the full year dividend by 8.5% to 12.8p and unveiled a new 12-month, £50 million share buyback.
NEGATIVE READ-ACROSS
Some investors were evidently unnerved by last night’s 18% share price plunge at Pets at Home’s US counterpart PetCo.
While first quarter sales topped estimates, PetCo faced challenges as consumer spending shifted from higher margin discretionary items to lower margin essential products, putting pressure on earnings and leading to a first quarter loss.
Reassuringly, Pets at Home issued a positive outlook, emphasising its strong consumer loyalty and effective pricing strategy.
THE EXPERT’S VIEW
AJ Bell investment director Russ Mould said Pets at Home continues to ‘do incredibly well, with revenue and underlying profit up, a decent hike in the dividend, plans for a new share buyback, increased market share and more people becoming active VIP scheme members.’
Mould continued: ‘Customers spend £160 on average a year with Pets at Home, but the most engaged spend £900 which implies it has significant scope to upsell products and services through greater interaction.
‘A medium-term growth plan looks sensible and shows how Pets at Home is not simply about shifting a few tins of dog food or selling a family a fish tank. By offering the complete pet care package, from booking vet appointments to ordering prescriptions and arranging for animal grooming sessions, Pets at Home hopes to become the go-to place for any animal lover.’
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 (Martin Gamble) own shares in AJ Bell.
LEARN ABOUT PETS AT HOME
