Pets group smashes £1bn barrier but warns on future profits

Cheshire-based pets care group Pets at Home reported improved figures for the year to March 26, today, with turnover breaking the £1bn barrier.

Group revenues of £1.059bn compared with £961m the previous year, while pre-tax profits of £85.9m were up from £49.6m.

The Handforth-based group will pay a 5p final dividend, giving a total dividend of 7.5p per share, which, it says, reflects its strong performance.

However, it warned of the impact the coronavirus lockdown has had on current trading.

Group chief executive Peter Pritchard said: “In normal circumstances, it would have given me great pleasure to reflect on another year in which we have grown sales and profits and successfully executed our proven pet care strategy.

“These are, however, far from normal circumstances with the rapid, wide-ranging and devastating effects of COVID-19 having an unprecedented impact on all of our lives.”

He said: “As anticipated in our full-year trading update on 2 April, nearly all of the exceptional demand witnessed in the closing weeks of Q4 has unwound during Q1 of the current year which, combined with our adherence to guidelines on social distancing across our operations and restrictions on the sale of pet products and health care services deemed non-essential, has temporarily depressed normal levels of group turnover.

“While online sales have remained at materially elevated levels, matched by improved capacity and good product availability, they are, in isolation, unable to mitigate the reduced level of in-store sales, and their weighting towards food, together with an additional £5m of costs relating to our initial response to COVID-19, has had an adverse effect on profits, margins and cashflow in the financial year to date.”

He added: “Accordingly, we anticipate H1 FY21 group pre-tax profit, including both the one-off benefit from the business rates holiday, which will be utilised to partially mitigate the estimated financial impact of COVID-19 this year, as well as additional operating costs related to social distancing, to be materially below the prior year.

“It remains difficult to make a clear assessment of how consumers will react as we emerge from lockdown and we, therefore, do not feel it is prudent to provide full-year guidance at this stage. We will, however, reassess this at our Q1 update at the end of July.”

He said the change in shopping habits during the lockdown will continue once measurs to tackle the virus are eased.

“The current environment lacks precedence in the UK and it is difficult, therefore, to assess the medium to long term effect it will have on consumer behaviour or when we might see normalisation in shopping habits.

“This crisis has, however, encouraged us to critique our business model and how we operate.

“While some things have changed, and will continue to do so in a post-pandemic world, we remain confident in the long-term sustainability of our business for a number of reasons, not least our sustainable retail and owner-managed veterinary models, our growing multichannel platform, our large and expanding loyal customer base and our unique solutions-based pet ecosystem.”

Russ Mould, investment director at Manchester investment platform AJ Bell, said: “Specialist retailer Pets at Home won’t be earning a pat on the head for its full year results with a profit warning for the current financial year that is about as welcome as the latest ‘present’ your cat left on the doorstep.

“Results to March may have beaten expectations, but disappointingly, an initial spike in sales at the start of lockdown has fallen away.

“Like its supermarket peers it is facing increasing costs as a result of coronavirus as well as an impact as social distancing measures are introduced.

“Surviving and thriving in the crisis are different things and while Pets can at least still operate, online sales are not enough to make up for the loss of business in store.

“The update also revealed the company’s reliance on selling little extras to pet owners besotted with their furry or feathered friends. Current sales are, instead, largely dominated by essential food items.

“However, the maintenance of the full year dividend is nothing to be sniffed at in the current climate and the company has made progress in its transformation of the business, with continued growth in subscription numbers.

“Assuming the business can come through the crisis intact, it could well be ahead of the pack as less robust competitors fall away.”