Pets at Home experiences a weaker-than-expected performance in its retail business during the third quarter, leading to a 6.0% rise in consumer revenue, says financial services company Hargreaves Lansdown.
The underlying pre-tax profits for the full year are now anticipated to be £132 million, down from the initial forecast of £136.8 million. The subdued growth is attributed to a slowdown in accessories sales, known for their higher margins, and a deceleration in price increases.
Market Reaction and Resilience
Following the announcement, shares dipped by 1.0%. Despite the downgrade, Pets at Home retains a level of resilience compared to average retailers. The fundamental demand for pet essentials remains steadfast, with pet owners prioritizing the well-being of their animals even in challenging economic climates. The company’s robust market position is a result of strategic efforts in product availability and pricing propositions.
Pets at Home holds valuable customer data, boasting nearly 8 million ‘VIP’ members and a growing membership in the Puppy and Kitten Club. Leveraging this data allows Pets at Home to refine its offerings, leading to increased sales. The focus on encouraging customers to purchase both products and services is a key strategy, as it significantly elevates the average annual spend of these customers, enhancing customer loyalty.
Future Outlook and Challenges
Despite the challenges in the short term, the overall outlook for pet ownership in the UK remains strong, says Hargreaves Lansdown. The shift in lifestyles has extended the trend, positively impacting demand for pet-related products and services. Pets at Home, being a physical retailer, benefits from the likelihood that pet owners seek face-to-face advice, particularly first-time animal owners.
While the vet business offers revenue diversification, it is relatively mature, necessitating additional investments for sustained growth. Challenges such as inflation and a cost-of-living crisis contribute to customers cutting back on accessory spending. Supercharged profits are hampered as consumers tighten their belts, and rising costs further add to the complexity.
Investments in Digital Capacity and Promising Progress
Pets at Home has made substantial investments in its online platform, aiming to enhance its digital capabilities. The ongoing ramp-up of digital infrastructure aligns with the company’s long-term vision for increased demand, which is showing promising progress. However, the impact of disruptions from the move to a new distribution centre and the ongoing competition watchdog’s investigation into the veterinary sector have influenced market sentiment, with these factors considered in the company’s valuation.
The evolving landscape presents both challenges and opportunities for Pets at Home as it navigates market dynamics and consumer trends in the pet care industry. The company’s strategic focus on digital transformation and customer loyalty will likely play pivotal roles in shaping its future trajectory.
