WITH The cost-of-living crisis nipping at its ankles, is this the end of the pandemic-inspired pet boom for Pets at Home (PETS)? When Royal Bank of Canada recently downgraded Pets at Home’s shares to underperform and said earnings growth would be “more challenging” than it had been, its share price dropped like a stone.
In its briefing note the broker said: “While we think the defensive nature of pet care should provide Pets with some top-line resilience, we think that further growth will now be more difficult to achieve in the light of the rising cost-of- living and the benefits from higher spend on new pets fading away”1.
But fans of the stock will no doubt be focusing on that ‘pet is for life…’ resilience and wondering whether that might just be what it takes to ride out the current economic strain. Especially when, as Royal Bank of Canada’s analysts note, according to data from Statista 62% of households now have a pet, compared to 40% pre-pandemic.
Pets at Home, which is the UK’s largest pet supplies retailer, undoubtedly reaped the rewards of the pandemic pet boom. Pre-tax profits soared as all areas of the business grew. And it would still appear to be well-positioned, offering something of a one-stop-shop for pet-owners, with everything from food to pet fashion at its stores in 450 locations across the UK, plus on-site grooming and veterinary services .
But since the start of this year, as the ‘heating versus eating’ issue has become all too real, the persistent question has been whether the pet care market can sustain itself in the face of the cost-of-living crisis. The past year has seen Pets’ shares drop from a high of 524.50p to as low as 266.80p.
Not even beloved fur babies are totally immune to the cost-of-living crunch, of course. But, it was fund manager Terry Smith who once jested that pet-owners “would stop feeding their children before they stop feeding their pets”, and if he’s right then pets at Home could have enough of that much-needed resilience to see it through . Next Friday’s trading update should give us some insight into whether that is indeed holding true, as the cost-of-living has taken hold.
There is no denying that Pets at Home’s pandemic positioning as a one-stop-shop was a defensive move and still a potentially shrewd one. These pets will require long-term TLC and Pets at Home’s decision to invest heavily in the expansion of its ancillary pet care services as soon as lockdown struck, was the right thing to do.
More recently the roll-out and expansion of its same-day delivery service shows Pets at Home knows constant innovation is a must. Time will tell, but fans of the stock will no doubt tell you this old dog may still have a few tricks up its sleeve.
Five year performance
As at 22 July
|Pets At Home
Please be aware that past performance is not a reliable guide indicator of future returns.
FE from 22.7.17 to 22.7.22 Basis: Total returns in GBP. Excludes initial charge.
1. City AM 04.07.2022
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