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Pets at Home - Pets in town too

Steve Clayton | 20 January 2016 | A A A
Pets at Home - Pets in town too

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No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Pets At Home Group PLC Ordinary GBP0.01

Sell: 335.80 | Buy: 340.20 | Change -1.00 (-0.30%)
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In their 3rd Quarter trading update, covering the period to Dec 31, Pets at Home reveal like-for-life (LFL) sales growth of 2.2%, a small improvement from their last update. Merchandise sales rose 1.7% LFL whilst Services improved by 8.5% LFL. The company announced that their opening programme remains on track to deliver 20-25 Pets at Home stores, 5 Barkers stores, 50-55 vet practices and 55-60 grooming salons for the year as a whole. 7 new mainline stores opened in the quarter.

The shares climbed 4% after the trading update.

The company also announced that as well as the roll out of the Barkers, premium dog focused brand, they would also trial a new High Street store, "Whiskers 'n Paws by Pets at Home" focused on dog and cat owners, incorporating a Groom Room salon. The acquisition of Anderson Moores, a Winchester-based specialist veterinary referral hospital was also announced.

Advanced Nutrition sales remain strong, along with omnichannel sales and the company reports some recovery in the Health and Hygiene category. In Services, both the vets and grooming services are said to be performing strongly. The VIP club recruited a further 250,000 members in the quarter, taking the total to 4.2m and VIP card swipes now cover 64% of revenues at the tills, up from 61% in the previous year.

Our view:

Pets at Home dominates its category, yet still has a relatively immature estate, with plenty of scope to increase the contribution per store through adding further vet and grooming services. This combination of new stores openings and retrofitting services to existing stores should support growth expectations for some time to come. The rising proportion of sales coming via the Group's loyalty card gives good opportunities to strengthen client relationships.

Like puppies, Pets should be capable of growing for many years to come, just by filling in the blank spaces on the map where they do not currently trade. It helps too, that much of the opposition are Mom & Pop stores that smell of dog biscuits and fish flakes. If it works, the new "Whiskers 'n Paws" High Street format could accelerate the capture of market share from the independents.

The improvement in Health & Hygiene sales is encouraging, after a disappointing summer performance. The growth of the VIP club is the group's secret weapon. Almost two thirds of sales can now be attributed to individual customers, allowing the group to target future promotions with pinpoint accuracy, using the wealth of data the card usage provides.

Services go from strength to strength, and should serve to both increase revenue potential per store and also improve loyalty, by bringing pet owners back into the stores more often. The shares have been weak since the downturn in Health and Hygiene sales was revealed in the summer and now trade on a prospective PE of 15.5x on consensus forecasts, with earnings per share growth of 5% expected in the year to March 2017. That hardly sets the pulse racing, but if the new High Street format can accelerate growth from here onwards, perhaps shareholders will end up purring happily in the end?

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.

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