Pets at Home defies the retail gloom

Pets at Home (PETS) has announced a “record” 12 months of trading. The pet care company increased underlying profit before tax by 4.8 per cent to £136.4mn in FY2023 – just ahead of consensus guidance – while total revenue increased by 6.6 per cent to £1.4bn. Management said momentum has continued into the new year, and is planning another £50mn buyback.

Growth has been fuelled by the veterinary division, which managed to increase sales by 13.3 per cent in the period. It also managed to widen its margin, meaning underlying profit before tax shot up by 18.3 per cent to £50.9mn. According to veterinary charity PDSA, 29 per cent of UK adults now own a dog, up from 26 per cent in 2015, so demand is unlikely to drop off any time soon.

The performance of the group’s retail segment was less encouraging, however. While sales increased by 5.9 per cent, profits shrank by 2.5 per cent to £98.8mn. Management blamed this on cost headwinds, including energy and labour, and a different sales mix (pet food is proving far more popular than accessories, which declined 0.9 per cent year on year). 

This was not the only fly in the ointment. On a statutory basis, Pets at Home’s profit before tax fell by 17.7 per cent to £122.5mn. This reflected a one-off gain in FY2022 following the sale of its specialist practices, and recent investment in a new distribution centre.

Going forward, however, trading looks strong. Management said it ended the year with its strongest quarter, and its share of the UK pet care industry is still growing: over the past five years, it has increased its market share from 18 per cent to 24 per cent. It is also growing its loyal “VIP base”, averaging more than 24,000 puppy and kitten sign-ups and 8,500 new vet clients every week.

Pets at Home doesn’t come cheap for a retailer, trading on a forward price/earnings ratio of 17.2. However, the group is proving impressively resilient during the cost of living crunch and shows no signs of flagging. 

Last IC View: Buy, 292p, 23 Nov 2022