Pets at Home PLC (LON:PETS) shares had a spring in their step on Tuesday as the animal care group predicted full-year profits “towards the top end of current market consensus” following a strong first half.
For the 28 weeks ended 10 October, the FTSE 250 group reported an underlying pre-tax profit of £41.7mln, up 10.2% on the prior year, while revenues rose 9.4% to £546.3mln.
READ: Pets at Home fetches 'buy' rating from Liberum for first time in three years
Revenues also expanded 7.6% on a like-for-like (LFL) basis, driven by a strong performance in the group’s retail and vet businesses where LFLs grew 7.8% and 6.4% respectively.
Peter Pritchard, the company’s chief executive, said profit growth in retail was expected to continue over the rest of the year as well as into the company’s 2021 financial year.
“We now expect to return to profit growth a year ahead of our original plan”, Pritchard said.
The retailer has been engaged in a turnaround programme in a bid to compete with its online rivals and has been willing to sacrifice margins in return for getting customers through the door.
The group has also been transforming its stores into full pet care destinations, rather than just shops, to make the most of each customer coming through the door who would not get the same service online.
“We have executed our plans well, and this has been reflected in the strong customer sales growth across the group”, the CEO added.
Meanwhile, the group said it had begun succession planning for its chairman Tony DeNunzio, who has served in the role for over nine years.
Analysts at Liberum retained their ‘buy’ rating and 240p target price on the stock, saying they expected “lots more to come” in the company’s second half.
Shore Capital was slightly more cautious, reiterating a ‘hold’ rating, as they believed that the group’s “profit recovery story” was already priced into the stock.
Investors seemed to disagree as the shares jumped 9.6% to 235p in early deals.
Results show “bite behind the bark”, says analyst
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said that given the recent struggles of Britain’s retailers, the company’s results showed that it is “well and truly bucking the trend”.
“The overall rise in revenue is impressive, but what’s really telling is the 7.8% improvement in repeat retail business. Increased competition, especially online, makes that figure stand out even more, and shows Pets is holding its own”, she said, adding that group’s renegotiation of its rent terms alongside lower staff and distribution costs were “propping up operating margins and profits”.
However, Lund-Yates said the group’s sales were currently “tiles towards lower-margin food products, rather than more expensive items like accessories, and while cost savings mean this isn’t a problem for operating profit at the moment, at some point Pets will want the mix of products being sold to shift in its favour.”
“Still, it’s hard to knock the group’s performance and cost discipline so far this year - there are some in the retail sector who could only dream of reporting so much momentum”, she concluded.
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