Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

Pets at Home - record sales and profit better than expected

Pets at Home's full year revenue rose 6.6% to £1.4bn. In the core retail business, like-for-like growth was up 7.5% with revenue of £1.3bn...

No recommendation - 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.

Prices delayed by at least 15 minutes

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

Pets at Home's full year revenue rose 6.6% to £1.4bn. In the core retail business, like-for-like growth was up 7.5% with retail revenue of £1.3bn. Sales were a record for the group. Growth was driven by food, while accessories declined. Grooming, pet sales and insurance commissions were flat. Vet Group revenue rose 13.3% to £122.8m, reflecting an improvement in joint venture fee income.

Profits rose at a lower rate than revenue, reflecting the lower margins of sales in retail, as customers held back on buying discretionary items. Underlying pre-tax profit of £136.4m was 4.8% up on last year. Overall profit performance was better than the group expected.

Free cash flow was £98.2m, up from £95.0m, and net debt was £366.7m, including leases.

Pets at Home said current trading remained "strong" and highlighted it was investing to make its products as affordable as "possible". It also acknowledged higher costs, including wages. For new financial year, the group expects sales to grow in-line with the medium-term target of 7%, and underlying pre-tax profit to be broadly flat with last year.

A final dividend of 8.3p was announced, taking the full year payment to 12.8p per share, an 8.5% improvement. A new £50m buyback was also announced.

The shares were unmoved in early trading.

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

Our view

Pets at Home has had a very strong year. It's in a better position than other retailers because of the defensive nature of its business.

A certain level of demand is guaranteed, no matter what the economic climate, our dogs and cats still need food, and this is one of the last areas people will skimp on when times get tough. Pets at Home's market-leading position hasn't come by accident and is testament to the strong work that's been done on product availability and pricing proposition.

The group has an enviable hoard of customer data too, with 7.7m '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. Our new ways of life 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.

The group is perhaps better placed than other physical 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.

The wider vet business is also an attractive revenue diversifier, but is relatively mature. Finding further growth is likely going to mean Pets at Home needs to open its own wallet once again.

In the shorter term there are some challenges. Inflation and the cost-of-living crisis means customers are reining in spending on accessories, which are more lucrative. Supercharged profits won't happen while customers are tightening their belts. The group's own costs are rising too, especially around higher energy and labour costs. We think keeping prices low is the right move to help keep hold of market share, but there isn't a clear roadmap for how more meaningful growth will be stoked from here.

Pets has invested heavily in its online offering and continues to ramp up its digital capacity. The new infrastructure will need to be matched by a long-term sustained increase in demand to drive profits too, but progress is promising.

We're genuinely impressed by the legwork being put into marketing and online infrastructure, and increased pet ownership provides a structural growth opportunity. But these strengths have been largely reflected in recent changes to Pets' valuation.

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.

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.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 25th May 2023