logo-loader
viewPets at Home Group PLC

Pets at Home Group shares fall as profits tumble despite revenue rise

The FTSE 250-pet and animal care retailer saw its pre-tax profits drop 17% to £79.6mln, while like-for-like revenues rose 5.5%, from 1.5% growth in 2016

Dog lying down
The group also saw its gross margin slip to 51.7% from 54.2% last year

Pets at Home Group PLC (LON:PETS) saw its shares drop in lunchtime trading Tuesday as it reported a drop in its pre-tax profits in full-year results despite revenue growth as it entered the second year of its three-year transition plan.

The FTSE 250-pet and animal care retailer saw its pre-tax profits drop 17% to £79.6mln, while like-for-like (LFL) revenues rose 5.5%, from 1.5% growth in 2016, with group revenue at £898.9mln from £834.2mln previously.

READ: Pets at Home sees third quarter like-for-like revenue growth of 7.2%, says all financial guidance unchanged

The group also saw its gross margin slip to 51.7% from 54.2% last year, while the final dividend for the year was maintained at 5p, with the total dividend unchanged at 7.5p.

In its outlook, the company said it was targeting LFL revenue growth ahead of the market in both its retail and vet group divisions, which rose by 4.6% and 15% in 2017 respectively, as well as a transition back to “low-single-digit underlying group profit growth”.

The group added that it expected its gross margin for the coming year to be down by between 75 and 125 basis points, reflecting the annualisation of last year's price investment, though mitigated by the growing margin of its vet business.

Peter Pritchard, group chief executive officer of Pets at Home, said: “Our plans to reposition retail are working, more customers are coming back to shop with us, and we are committed to returning the business to profit growth.

He added: “Year one of our three-year strategy has delivered, and as a business we are on a stronger competitive footing to return to sustainable profit growth. But the job isn't done yet. As our new CEO, my plan has a bigger focus on digital, tapping into the vast potential of our customer and pet data, and taking action to ensure our vet business reaches its potential. Our market has a track record of resilience in a downturn and as we adapt to a changing environment.”

In a note to clients, analysts at Liberum commented: “Headline revenue is a little above consensus estimates and FY18 PBT in line but FY19E gross margin guidance has been reduced and we now expect a larger working capital outflow, which we do not think the market was looking for.”

They added: “We do not believe that a CY 18E PE [price/earnings ratio] of 12.2x adequately rewards investors for the current weak trading environment, risk in the execution of management’s strategy, and low earnings visibility. We are also concerned about the cash absorption of the Vets business, and the effect an increase could have on the ability to continue paying a dividend.”

George Salmon, equity analyst at Hargreaves Lansdown, also struck a cautionary note: “Pets at Home is seeking to hold the dividend steady while it repositions itself, but there’s plenty of challenges around. The top line growth is impressive, but the fly in the ointment is it’s being driven by price cuts, so profits are actually falling.

He added: “Having previously had more lofty ambitions, Pets has bumped up against the side of the tank a bit earlier than it expected, and is only adding the odd new superstore here and there. We suspect online competition is proving a bigger factor than the group originally thought. Regular flea treatment sales are jumping, and Pets will likely try and shift more sales onto similar subscription models. This kind of revenue is more valuable as it’s likely to recur year-on-year, but recent changes to rules around customer data mean running targeted marketing campaigns to get customers signed up could prove more challenging.”

In a separate announcement, the group said Tessa Green, an independent non-executive director, had decided to step down and would be succeeded by Susan Dawson, a veterinary academic, at the firm’s annual general meeting on 12 July.

Pets at Home shares were down 7% at 146.9p.

-- Adds analyst comment and updates share price --

Quick facts: Pets at Home Group PLC

Price: 291.497 GBX

LSE:PETS
Market: LSE
Market Cap: £1.46 billion
Follow

Add related topics to MyProactive

Create your account: sign up and get ahead on news and events

NO INVESTMENT ADVICE

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is...

FOR OUR FULL DISCLAIMER CLICK HERE

Watch

Full interview: Location Sciences Group releases state of privacy and...

Location Sciences Group PLC (LON:LSAI) Chief Business Officer Jason Smith tells Proactive the AIM-listed company which provides verification and analytics services for location data, has released its state of privacy and location marketing report.  Smith says the report is in response to...

2 hours, 59 minutes ago

4 min read