WITH the cost of living crisis nibbling at his ankles, is this the end of the pandemic-inspired pet boom for Pets at Home (PETS)? When Royal Bank of Canada recently downgraded shares of Pets at Home for underperforming and said earnings growth would be “more difficult” than it had been, its share price fell like a Pierre.
In its briefing note, the broker said: “While we believe the defensive nature of pet care should provide pets with some resilience, we believe further growth will now be more difficult to achieve. given the rising cost of living and the benefits of higher expenses for new pets are fading”1.
But fans of the action will no doubt focus on the resilience of “pet is for life” and wonder if that might just be what it takes to ride out the current economic strain. Especially when, as Royal Bank of Canada analysts note, according to Statista data, 62% of households now have a pet, compared to 40% before the pandemic.
Pets at Home, which is the UK’s largest retailer of pet supplies, has undoubtedly reaped the rewards of the pet pandemic boom. Pre-tax profits soared as all areas of the business grew. And it would still seem well-positioned, providing a sort of one-stop-shop for pet owners, with everything from food pet fashion in its stores in 450 locations across the UK, as well as on-site grooming and veterinary services.
But since the start of this year, when the ‘heat versus eat’ issue has become all too real, the lingering question has been whether the pet care market can hold its own in the face of the cost of living crisis. Last year Pets shares fell from a high of 524.50p to a low of 266.80p.
Even beloved fur babies aren’t totally immune to the cost of living crisis, of course. But, it was fund manager Terry Smith who once joked that pet owners would “stop feeding their kids before they stop feeding their pets,” and if he’s right, Pets at Home might have enough of that much-needed resilience to see it through. Next Friday’s trade update should give us some insight into the validity of this as the cost of living has taken hold.
There’s no denying that Pets at Home’s pandemic positioning as a one-stop-shop was a defensive and still potentially shrewd move. These pets will need special attention in the long term and Pets at Home’s decision to invest heavily in expanding its ancillary pet care services early on in the lockdown was the right thing to do.
More recently, the rollout and expansion of its same-day delivery service shows that Pets at Home knows that constant innovation is essential. Time will tell, but fans of the stock will no doubt tell you that this old dog may still have a few tricks up its sleeve.
As of July 22
|Pets at home||-17.8||73.3||19.1||105.7||-29.9|
Please note that past performance is not a reliable indicator of future returns.
FE from 22.7.17 to 22.7.22 Basis: Total returns in GBP. Excludes upfront costs.
1. City AM 04.07.2022