Pets at Home full-year profit seen at top of market views

Pets at Home posted a jump in interim profit on Tuesday and said it was on track to deliver annual pre-tax profit towards the top end of current market views.

In the 28 weeks to 10 October, group statutory pre-tax profit including the impact of IFRS16 accounting measures rose to £34m from £8m in the same period a year ago, on revenue of £546.3m, up 9.4%. Underlying pre-tax profit including IFRS16 was up 10.2% at £41.7m.

Retail revenue was 8.1% higher on the year at £479.8m, and 7.8% higher on a like-for-like basis. In the vet group, revenue rose 19.6% to £66.5m, or 6.4% on an LFL basis.

Chief executive officer Peter Prichard said: "We have seen sustained momentum in retail, with a 2-year like-for-like of 13%. This has been complemented by a meticulous delivery of our Vet Group recalibration. The programme to buy out a number of joint venture practices is already complete, whilst changes we have made to the fee arrangements for ongoing practices are already showing signs of positive progress and will be followed by further planned adjustments in the second half of the year.

"All this provides a strong foundation, meaning we have much to look forward to in FY20 and beyond, and we now expect to return to profit growth a year ahead of our original plan. In the meantime, we will remain focussed on serving our customers, their pets and our partners better than ever before."

The company said it now expects to deliver full-year underlying profit growth, with group underlying pre-tax profit on a pre-IFRS16 basis towards the top end of current market consensus. In addition, full-year underlying free cash flow is expected to be broadly flat, despite the previously disclosed one-off outflow of £10.7m relating to a change in timing to corporation tax payments.

At 0925 GMT, the shares were up 9% at 234p.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: "Pets at Home’s results suggest there’s bite behind the bark. In a time when retailers are struggling, the group 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.

"Pets really does have its (dog) house in order. The group’s been able to renegotiate rent terms, which combined with lower staff and distribution costs is propping up operating margins and profits. The issues with vet clinic restructuring has pretty much been put to bed too, meaning the path’s clear from here.

"There’s no such thing as perfection though. Sales are tilted 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."