Pets at Home cuts full-year profit outlook

Pets at Home cut its full-year profit outlook on Tuesday after a weaker-than-expected performance at its retail business in the third quarter.

In an update for the 12 weeks to 4 January, the company said consumer revenue rose 6% on the same period a year ago and 15.4% on a two-year basis. This was supported by growing average customer spend and growth in VIP members.

Group revenue was up 4.3% to £362.4m, with like-for-like revenues 4.4% higher.

Pets hailed a continued strong performance in its Vet Group, with third-quarter revenue up 13.4% and LFL sales 13.3% firmer. This was driven by good progress in adding vet talent and by growth in average spend.

In the retail segment, trading was "resilient" against very strong comparatives a year earlier, it said, with revenue up 3.5% and LFL sales 3.7% higher. However, the performance was below the group’s expectations.

"We were pleased to see volume growth and share gains across food, against a slowing market backdrop, showing the business remains fundamentally well positioned," it said. "However, discretionary accessories trends remained soft and inflation across retail slowed to 3.2% (from 5.6% in Q2)."

As a result, Pets now expects FY24 group underlying pre-tax profit of around £132m, which assumes no sequential improvement in the retail segment LFL run rate through the fourth quarter.

In its interim results in November last year, Pets had said it was confident of delivering full-year group underlying pre-tax profit of around £136m, in line with consensus expectations.

Chief executive Lyssa McGowan said: "Our colleagues came together over our peak trading period to deliver a record sales performance, growing against a very strong performance in the prior year.

"While a slower market over peak meant our sales growth didn't quite hit the levels we expected, the business remains well positioned to benefit from long term growth in the sector as we continue to win share and grow volumes across food and deliver differentiated performance through our unique vets business."

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: "Rather than contending with unruly puppies, Pets at Home is dealing with a sales performance that’s fallen far out of line. The profit downgrade won’t be taken kindly by investors, who have long been hailing the brand as a resilient option amid consumer pressure. Food sales are moving in the right direction but have lost some steam, although these remain stronger than accessories. Pet owners are continuing to shy away from buying more lucrative, but less essential, extras for their furry companions amid cost-of-living pressures.

"Pets at Home is doing all it can to stoke growth which has reduced to embers. This includes bringing new brands online as well as making stores more attractive. Unfortunately for now, there isn’t a clear-cut path through this. The new digital platform could help spark a bit more activity but given the very physical nature of Pets at Home’s appeal, it may not be the cure-all management’s hoping for."