Pets at Home shares plunge on weak outlook

Investing.com — Shares in Pets at Home Group Plc fell sharply by more than 10% on Tuesday following the release of its FY25 interim results. 

The company reported subdued market conditions that are expected to persist into the second half of the financial year, dampening near-term growth expectations.

“Pets at Home has reported its H1 results this morning, highlighting a subdued UK pet market which we think is particularly weighing on the Retail business,” said analysts at RBC Capital Markets in a note.

The pet care retailer outlined in its financial update that while it outperformed a challenging market in the first half of the year, the overall trading environment remained lackluster. 

Revenue growth was marginal at 1.9%, with retail like-for-like sales flat at 0.0% and total retail revenue inching up by just 0.1%. 

In contrast, the Vet Group segment demonstrated more robust performance, with revenue growth of 18.6%.

Despite these, the company revised its full-year expectations downward, citing prolonged pressures on consumer spending within the pet care sector. 

“However, we are operating in an unusually subdued pet retail market which we now expect to continue through H2. 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,” said Lyssa McGowan, chief executive at Pets at Home.

In response to the prevailing market challenges, Pets at Home said its continued focus on operational efficiency and investments. 

This includes leveraging its digital platform, improving in-store experiences, and optimizing its supply chain. 

Pets at Home operates within a relatively stable and defensive market segment, but UK pet market growth is anticipated to remain subdued in the near term following expansion during the pandemic period, as per RBC. 

The brokerage expects the ongoing negative impact of product mix shifts to continue exerting pressure on retail profitability.

While the Vet Group is recognized as a strong and appealing part of the business, RBC notes that valuations in the UK veterinary sector are likely to stay under pressure in the short term due to the Competition and Markets Authority’s investigation into the market. 

Additionally, the company’s medium-term target of achieving about 10% annual profit growth appears ambitious, considering historical trends, slowing growth in the UK pet sector, and the high levels of capital expenditure and investment required to sustain business operations​.