Pets at Home ‘outperforms’ subdued market

In its interim results for the 28 weeks ending October 10, the group reported revenue growth of 1.9% to £789.1m, with strong performance in its veterinary business offsetting slower retail sales. Underlying profit of £54.5m was up 14% on the previous year.

Lyssa McGowan, Pets at Home CEO said: “The first half of FY25 was characterised by a subdued market, against which we outperformed. In Vets, our differentiated joint venture model continues to drive material outperformance over peers. In Retail, our customer satisfaction is excellent, our price position is strong, and we have tight control of our cost base.

“We have a clear and consistent strategy to unlock value and H1(first half of financial year) has seen further progress against this.

“The launch of our new digital platform has seen app sales almost double – a key enabler of even greater engagement with consumers. We have now moved through the transitionary impacts that impacted web sales in H1 and see significant opportunities to win incremental, profitable sales in digital.

“Our Stafford distribution centre is performing well, supporting near record availability in stores, and we will unlock efficiency savings through automation in e-commerce into next year.

“Our stores remain a clear competitive advantage giving us unrivalled presence and bringing the passion and expertise of our store colleagues to a nation of pet lovers. We continue to invest to improve our presence with 3 new stores and 14 refits in H1.

“However, we are operating in an unusually subdued pet retail market which we now expect to continue through H2 (second half). We are confident this will be temporary, and growth will return to historical norms with the longer-term attractive outlook for the UK pet care market unchanged.

“The bulk of our investments and peak operational risk are behind us and our market leadership and well invested platform underpin our confidence in continued outperformance.”

Financial highlights

The company delivered growth in Pets Club members of 3%, to 8.1m consumers, supported by the relaunch of Pets Club on our new digital platform. Vet Group new pet registrations remained robust at 18k sign-ups a week.
Total Group revenue growth of 1.9% to £789.1m, with Group like-for-like (LFL) revenue up 1.6%.
Vet Group revenue growth remained strong at 18.6% with LFL of 18.2%, with our practices delivering double digit revenue growth supported by growth in subscriptions, visits, and average transaction values.
Retail revenue growth of 0.1% with flat LFL. A resilient performance against a declining retail market and with the previously flagged impact of our new digital platform transition.
Consumer revenue up 4.1% to £1,048.6m reflecting a subdued market with our Retail and Vet Group delivering outperformance against their respective channels.
Group Gross Margin of 46.3% flat YoY due to an increased contribution from Vet Group and higher Vet Group gross margins, offsetting Retail gross margins down 31bps due to adverse mix.
Group Net operating costs were down 3.5% driven by lower non-underlying costs alongside good cost control and productivity measures offsetting cost inflation (primarily National Living Wage). On an underlying basis costs were down 0.5%, with underlying opex to sales ratio improving 93bps.
Statutory PBT of £51.1m increased 47.3% reflecting solid underlying profit growth within the Vet Group (+£11.3m). Retail (+£9.3m) mainly driven by a significant reduction in non-underlying costs.
Underlying PBT# of £54.5m was up 14.1% on last year supported by the strong growth in our Vet Group, with Retail impacted by the slower sales growth.
Statutory earnings per share (EPS) was 7.9p up 51.9% with underlying EPS# of 8.4p, up 13.5%.
Pets at Home have declared an interim dividend per share of 4.7p, up 4.4% on last year. This is consistent with our progressive dividend policy, targeting a 50% payout ratio over the medium term.
Free cash flow# up 43.3% to £33.1m, representing 61% conversion of underlying PBT#. This reflects the step up in cash profits, lower non-underlying costs and lower share purchases linked to our employee benefit trust (EBT).
Balance sheet remains robust with adjusted net debt# of £8.3m (before lease liabilities of £364.7m). Cash and cash equivalents was £40.0m at the end of H1.
Current trading and outlook
Our H1 performance shows the resilience in our model and our proven ability to outperform our markets, winning share in both Retail and, particularly strongly, in Vets. However, pet retail market growth has been subdued for longer than we anticipated as consumers have remained cautious in recent months.
The company now plan for current rates of market growth to persist through the remainder of this year, lower than initially planned. As such, we now expect underlying PBT# for FY25 to grow modestly from last year.
The lower profit outlook for FY25 is mitigated at free cash flow# level as we continue to look for ways to make our investment plans more efficient and we now expect capex of c£55m for FY25.
We are confident we have made the right investments building the capability to deliver attractive growth and returns for shareholders in the future, and do not believe it would be in shareholder interests to compromise this by stretching for short term profits now at longer term cost.
Periods of slower pet market growth are not unprecedented but are historically short-lived and we are confident that market growth will improve in future, supported by long established and unchanged structural growth trends and a stable but higher pet population. As growth returns to historical long-term averages of c4% (c3% Retail and c5% Vets) in future we would expect to deliver revenue and profit growth in line with our medium-term ambition.
In the October Budget, the government announced planned changes to the National Living Wage and employers National Insurance Contributions. Combined these changes represent a £18m cost increase for our business in FY26. We will continue to proactively mitigate these cost increases where possible, including through our ongoing productivity programmes and investments in automation.