23 November 2022

Freight and energy costs pull Pets at Home profits lower

23 November 2022

Pets at Home has revealed a fall in profits for the past six months as it came under pressure from higher freight and energy costs.

The retailer and veterinary services firm said underlying pre-tax profit dropped by 9.3% to £59.2 million over the half-year to October 13, compared with the same period last year, as it also booked significant costs from digital investment.

The company said this was in line with expectations as it held profit targets for the year and hailed a “resilient” pet care market.

Lyssa McGowan, who was appointed chief executive earlier this year, said the performance showed “progress” as the business notched up “new records for customer numbers in recent months”.

Pets at Home is well-positioned to capitalise on an attractive growth opportunity in our structurally-growing pet care market

Pets at Home said new customer numbers are “strong” after it benefited from an acceleration in people registering for its Puppy & Kitten club membership over the half-year.

It highlighted that consumer demand has stayed strong as a result of record levels of UK pet ownership, despite pressure on household budgets.

Ms McGowan said there had been no sign of a slowdown in pet ownership after a pandemic boom, highlighting a rise in numbers of customers with puppies and kittens.

“We are seeing people bring their second, third, fourth pets into their families and we are also seeing more younger pet owners,” she told the PA news agency.

“There has been a huge increase in millennial and Gen Z ownership, who are much more engaged with the range of memberships and products.”

She added there had been “no sign of trading down” by customers for cheaper products despite the rising cost of living, with many prioritising spending on pets over themselves.

The company also told investors on Wednesday that it is actively managing cost headwinds, such as unfavourable foreign exchange rates, energy costs and wage increases.

Ms McGowan said: “In my first six months as CEO, I have spent my time forming a deep understanding of the business and sector, learning from the ground up how the business operates.

“I am more convinced that Pets at Home is well-positioned to capitalise on an attractive growth opportunity in our structurally growing pet care market, supported by our unique blend of products and services, deeply embedded culture and expert, passionate colleagues and partners.

“Our first-half performance shows progress and resilience across the business.”

Analysts at Liberum said: “This is another strong update and reiterated guidance should be taken well.

“We continue to see Pets as a high-quality business with a strong balance sheet, robust margins and a significant long-term wallet share opportunity as it continues to attract new customers and drive cross-shop across its products and services.”

Shares in the company were 4.9% lower at 289p in early trading.

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