Wednesday 22 May 2019 9:03 am

Pets At Home shares rise as profits plummet almost 40 per cent amid restructure plan

Pets At Home saw profits plunge almost 40 per cent last year as it set aside more than £40m for a huge restructure programme, it revealed today, but the set of results still beat low market expectations to send shares climbing.

Read more: Short sellers tailing off at Pets at Home

The figures

Profit before tax slumped 37.7 per cent year on year to £49.6m in the 12 months to the end of March as it ringfenced £40.4m to fund more buyouts of joint ventures with vet practices in the retailer’s latest financial year.

However, underlying profit rose 6.1 per cent to £89.7m.

The hit came despite revenue climbing 6.9 per cent to £961m.

Like-for-like sales also rose 5.7 per cent year on year, though the firm’s gross margin narrowed to 50.7 per cent, down one percentage point from 2017-18.

Pets At Home boosted cashflow by 14 per cent to £63.6m and despite profits taking a hit it maintained last year’s dividend of 7.5p per share.

Why it’s interesting

Pets At Home shocked investors late last year when it revealed profits had crashed 80 per cent amid vet practice closure plans.

It launched a restructuring plan to buy out the joint ventures it runs with independent vet practices, sending shares down further from a peak of 311p in October 2015 to their current 148p value.

Pets At Home’s profits were stung by its decision to set aside £40.4m to buy out more vet partnerships with 19 now closed.

It also warned profits in the current financial year would fall slightly as it continues the buy outs under its turnaround strategy.

However, shares rose 7.6 per cent to 159.2p as investors welcomed the latest results, with underlying £85m profit beating poor market expectations by eight per cent. Numis advised investors to buy up the stock with a 200p target price.

Numis said in a research note: “These results offer further evidence that management action to stabilise retail has proven successful. From a base of sharper pricing and better invested and presented offer, we expect the business to achieve sustainable revenue and profit growth. Action in the Vet business encourages, and beyond FY20 should return to being a profit and cash growth opportunity. That combination looks very attractive in the context of the sector, something valuation doesn’t appropriately reflect.” 

Morgan Stanley said it expected the consensus on Pets At Home's current financial year to be raised by up to five per cent from current predictions of £82m underlying profit following today's results. 

“Our focus remains on returning the business to profit growth and we expect to generate underlying profit and free cashflow growth from FY21, following the completion of the Vet Group recalibration,” the company said.

In its latest set of results the retailer highlighted “solid” market growth and pointed to its robust retail like-for-like figures while saying omnichannel revenue grew 43 per cent to £73.5m.

Its vet practice business also grew 13.1 per cent to £106.4m.

What Pets At Home said

Chief executive Peter Pritchard said: “We are trading strongly and taking share across the pet market. Customers are loving our lower prices, the convenience of subscription packages, high quality veterinary care and pet healthplans.

Read more: Pets at Home profits crash as restructuring costs mount

“We launched our pet care strategy last year and we’re already making good progress, bringing our retail and vet businesses closer together. Our commitment is to make sure pets and their owners get the very best advice, care and products, and we’re able to join this up for customers in a way that competitors just can’t.

“I’m pleased with our progress and the results we have delivered, but there remains plenty to do. I’m confident we will successfully reposition our vet group so that, with the strong performance in Retail, we will be well placed to deliver our strategy.”