Pet care veterinary and retail chain Pets at Home has seen its profits fall dramatically over the last six months, as the business struggled with rising costs from restructuring in a difficult retail climate.
Its share price fell by as much as 4.8 per cent in early trading.
Overall group revenue rose 6.7 per cent year-on-year to £499m in the six months to 11 October, up from £468m in the same period last year.
Within this, like-for-like revenue rose 5.5 per cent despite spending £4m on cutting prices to remain competitive with online retailers.
Profit before tax crashed 80.5 per cent, falling from £40.8m last year to just £8m.
The costs of restructuring its vet business weighed heavily, as Pets at Home attempts to buy out the joint ventures it runs with several independent practices. The retailer paid £29.9m in charges for the restructuring over the period, including £16.2m of additional provisions for loans to practices which are "no longer expected to be recoverable".
Out of the 471 joint venture practices, Pets at Home will offer to buy back around 55, of which 25 will be operated as company-managed practices. The remainder could face closure.
This is expected to result in around £49m of exceptional costs overall, with cash costs of £27m.
Why it's interesting
Shares in Pets at Home have fallen by more than 63 per cent since their highest peak in 2015, now dwindling around today's low of 109.3p.
The group is now expecting underlying profit before tax for the full year of at least £80m, with a slight decline expected next year, too. The final dividend will be flat at 7.5p per share.
Analysts at Shore Capital Markets said the results were "disappointing", despite the restructuring of the business being a necessary cost to keep the business going.
What Pets at Home said
Chief executive Peter Pritchard said:
"Since becoming the group CEO in May, I have had the opportunity to take stock of the wider group and shape my view of our future. What I have found fills me with confidence.
"Reviewing our vet group has been a priority. I recognise we have grown at pace and more recently, have seen the pressure that rising costs and our fees are placing on this young business. We will need to recalibrate the business to deliver more measured growth, whilst maintaining our plan to generate significant cash profits.
"We are focused on maximising our unique assets and delivering a plan for sustainable cashflow and profit growth. Given the success of the changes we have made in retail, I’m confident we can do this."