- Improving gross margin
- Net cash expectation
The cat didn’t get the cream. Pets at Home (PETS) It cut its full-year underlying pre-tax profit forecast to £132mn from the £136mn figure it reiterated in November, as it reported continued weak demand for pet accessories and slowing price inflation in its retail business.
In the third quarter to 4 January, revenue rose 4.3 per cent to £362mn. This was driven by 13.4 percent growth in the veterinary division, aided by higher customer spending, pricing action, and more complex pet procedures.
The reason management gave for the guidance cut was that “growth in our retail business was not at the levels we expected.” Retail sales rose 3.5 percent in the quarter, a disappointment despite growth against tough comparisons. There were increases in food volume and share, but struggling discretionary accessory sales and quarter-on-quarter divisional inflation fell from 5.6 percent to 3.2 percent which hampered growth. The company hopes that premium brands like Lords & Labradors and Cocopup will rejuvenate accessories.
Despite the retail gloom, there was encouraging news elsewhere. Gross margins were better than in the first half, and a strong performance of seasonal products resulted in a clean stock position at the end of the quarter. Management expects the balance sheet to end the year in a net cash position, and has confirmed that a new digital consumer platform will be launched soon.
The company is aiming for 7 percent annual revenue growth in the medium term. Its achievement will be helped by a 2 percent increase in its VIP membership scheme in the quarter, which now stands at 7.7mn sign-ups.
Shares trade at 13 times forward earnings, compared to a 5-year average of 18 times.
Last IC view: Buy, 294p, 28 Nov 2023
