Pets at Home Group PLC (LON:PETS) was the dog stock of the FTSE 250 as it reported slowing like-for-like sales growth.
Group revenue in the 12 weeks to 5 January rose 4.4% from a year earlier to £203.7mln, but like-for-like (LFL) sales were up just 0.1%.
Services saw LFL revenue growth of 7.0%, but merchandise sales were down 0.5% on a LFL basis.
At the halfway point of the group’s financial year, it had reported LFL revenue growth of 2.5%, so the 0.1% growth over the Christmas trading period is a substantial slow-down.
Today’s statement will have raised alarm bells as over the full-year the market is expecting the group to post LFL sales growth of 2.6%.
The group attempted to calm nerves, saying the profit outlook for the current financial year remains in line with market expectations.
"Vet services yet again performed strongly this quarter, where our strategy of providing a quality service to clients across both primary opinion and specialist referral centres is delivering results, and is a platform for continuing strong growth,” said Ian Kellett, chief executive officer of Pets at Home.
“In Merchandise, whilst overall sales were softer than anticipated, online grew strongly, reflecting the momentum gained from our investments in seamless shopping. We saw a good performance in our Christmas range, where customers are responding to innovative products at great value for money, which we will reflect in new range launches later this year. We will also focus on delivering best value, starting with a very clear message to customers about the benefits of our high quality, UK produced private label foods, where we will be leveraging our competitive advantage,” Kellett claimed.
Liberum Capital Markets remained dubious about that competitive advantage, reiterating its ‘sell’ recommendation and restating its view that the retailer is facing a number of structural challenges.
“Merchandise revenues were flat QoQ [quarter-on-quarter], but on a LFL basis they declined -0.5% from a +1.9% run-rate at the H1 stage,” the broker said.
“This has to be seen as very disappointing result which remains the core drum-beat of profits at c.85% of EBITDA [underlying earnings].
The services side was a bright spot, as were online sales, but Liberum wonders whether the growth in online sales merely signals the need for store closures.
“Telling was the comment that online grew strongly in reference to merchandise but with declining LFLs we question whether this signals the need for greater discounting or is a proxy for a future store closure programme. Services appears to be doing well on the top-line, but our overall concern is that the margin is not flowing through as we had expected and remains well below these initial expectations,” it said.
Shares in Pets at Home were down 7.6% at 220p.