Pets at Home shares ticked higher on Wednesday after the pet supplies company announced rising sales and profits that met expectations.
The pandemic boom in sausage dogs and other furry friends is long behind us, and Pets at Home is feeling the pinch. The cost-of-living crisis hasn’t helped, with consumers being forced to cut back on spending on new accessories for their pets.
That said, some of Pets at Home’s products fall into the consumer staples basket rather than discretionary spending, providing the company with some stability in the current environment.
“Pets at Home has come good on downgraded expectations. The group’s not immune to a challenging consumer environment and has been hit hard by the need to keep prices low in order to stoke growth. Convincing pet owners to part with additional cash for money-makers like accessories has been a far more arduous task then when people feel flush with cash,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.
Despite Pets at Home’s operating environment being far from favourable, sales rose 5.2% in the full year, and the company met already downgraded pretax profit expectations of £132m.
“The more difficult backdrop is masking some fundamental strengths though. Pets at Home remains in a more resilient position than the average retailer. The group is primed to benefit from the huge boost in pet ownership, and a broader step change in ways of life, which includes putting our four-legged friends at the centre of our lives,” Lund-Yates said.
Lund-Yates continued to explain the ongoing concerns investors may have around Pets at Home, given the CMA investigation.
“There’s an element of guaranteed income, in that pet-owners will continue to buy food and medicine for their cats and dogs, regardless of how tough times get. Along the same vein, the vet business is doing well too. There is, of course, the overhang from the CMA’s ongoing investigation into the veterinary sector, which is denting sentiment. This has arguably been overdone though, with the current valuation not fully reflecting Pets at Home’s resilient market position and enviable net cash hoard.”
Notwithstanding regulatory concerns and slower consumer spending, investors seemed pretty happy with a £25m share buy back, and shares were 4% higher at the time of writing.
