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Pets at Home - new customer growth drives revenue up

First quarter revenue grew 6.0%, on a like-for-like basis, to £404.7m.

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First quarter revenue grew 6.0%, on a like-for-like basis, to £404.7m. That reflected broad-based growth across all channels.

The group continues to manage inflationary cost pressures through productivity and efficiency initiatives.

The group continues to expect full year underlying pre-tax profit to be in line with analyst consensus, which is currently £131m, with a range of £127-136m.

Lyssa McGowan, CEO, said: "Our performance has remained strong in the first quarter, underpinned by continued customer growth and high levels of retention."

The shares rose 1.9% following the announcement.

View the latest Pets at home share price and how to deal

Our view

First quarter performance was strong, with new customer growth continuing and crucially robust retention of the 1.1m customers added last year. The pandemic fuelled pet ownership craze was a blessing for Pets at Home and those cats and dogs will need looking after long into the future.

The overall model is attractive. Vet clinics and grooming rooms provide extra revenue streams, but also encourage cross-selling in the core retail business. The cross selling of services is Pets' biggest unique selling point, and a factor that no doubt drove the decision to acquire a telehealth provider.

The group has an enviable hoard of customer data too, with 7.4m ''VIP'' members, and increasing Puppy and Kitten Club membership. These will help Pets hone their proposition, driving higher sales. But crucially, they're also boosting the number of customers who buy both a product and a service from the group - a leap which massively increases the average annual spend of these customers and should make them stickier. Pets at Home has only just started to crack this nut, so there's significant potential here.

UK pet ownership continues to look robust, when a severe slowdown had been feared after the lockdown-induced tidal wave of new puppies and kittens. It seems flexible working, and perhaps the renewed popularity of rural living, have culminated in the trend having more room to run than initially thought. That will have a positive effect on demand for a while to come. What's more, we're continuing to see demand shift to more premium products and accessories as 'pet humanisation' continues, which gives margins a boost.

We must mention cost inflation, as it's a headwind for the group and one that can hurt margins. Crucially though, it's being managed well so far with a range of pre-emptive cost cutting initiatives.

Pets has invested heavily in its online offering and continues to ramp up its digital capacity. Single login allowing customers to access all products and services in one place is soon to launch, that'll offer a lot more opportunity to cross sell. The new infrastructure will need to be leveraged with a long-term sustained increase in demand to drive profits, but progress is promising.

The group is perhaps better placed than other retailers, because pet goods, especially for first time animal-owners, are the kind of thing you're more likely to seek out face-to-face advice for. In theory that should help keep the in-store tills ringing, because despite the top-notch online efforts, Pets is still very much a physical retail operation.

We're genuinely impressed by the legwork being put into marketing and online infrastructure, and increased pet ownership provides a structural growth opportunity. The valuation has come down as fears of worsening economic conditions weigh on broader sentiment. We think this development is worth attention, but investors should remember the group wouldn't be immune to a widespread pullback in consumer spending.

Pets at Home key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

First Quarter Trading Update (revenue growth on a like-for-like basis)

Retail revenue rose 5.6% as all channels grew, with omnichannel the standout at 13.5%. As a percentage of total revenue, omnichannel sales increased from 15.8% to 16.7%.

The number of active VIPs increased 10.7% to a record 7.4m, with 27% of all VIPs shopping across more than one channel.

Vet Group revenue increased 8.6%, with customer sales across all First Opinion practices up 4.6% and Joint Venture fee income up 9.6%. Signups to Puppy and Kitten Club continued at pace, averaging 25,000 per week, three times higher than pre-pandemic. New client registrations across First Opinion veterinary practices averaged over 8,500 per week, growing the active client base to 1.7m.

Subscription plans across the group grew 16% to over 1.5m, generating more than £135m in annualised recurring revenue.

The group ended the period with net cash of £40.2m and is making progress on the previously announced £50m share buyback.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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 disclosure for more information.

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Written by
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 5th August 2022