Pets at Home has today posted a robust set of figures for its first full year of trading as a listed company, seeing pre-tax profits reach £87.0m, nearly quadruple the £22.5m posted last year. Over the period, the retailer continued its pattern of positive LFLs, seeing growth across core categories such as Advanced Nutrition and Health & Hygiene, as well as gaining further traction in Services, which now represents a greater proportion of total revenue.
Pets at Home has indicated that Merchandise revenues were up 8.3% to £666.1m (+3.7% LFL) over the period, with Food (+9.8%) showing an outperformance compared to the traditionally lucrative Accessories (+6.6%) category. Advanced Nutrition (+17.2%) is proving to be an important breadwinner for the pet care specialist in Food, with its private label brand, Wainwright, seeing sales soar by 44.1% to £40.1m, and the retailer introducing new brands such as Meowing Heads and other high protein food varieties. This area is proving to be an important growth spot for the wider £4.0bn UK pet care market in general, as consumer confidence and disposable income continues to recover, and shoppers can afford to be more discerning about the food they are feeding their pets. To this end, more speciality food varieties, such as grain-free and low calorie items have become increasingly popular, and Pets at Home’s significant range depth and staff expertise in these areas draws customers to store. More importantly, these products typically offer higher margins for retailers, providing an important boost. Elsewhere in Merchandise, Accessories growth was driven by strong Health and Hygiene sales, the retailer’s Christmas range and wider dog accessories. Pets at Home’s equestrian business was a weak spot, declining YOY, and while this impacted gross margin, it was not enough to offset wider revenue growth in the category.
The retailer saw Services revenues grow by 25.2% to £63.0m (+10.7% LFL), and this arm of the business is representing a greater proportion of total revenue (8.6% vs. 7.6% in FY14). Pets at Home has also recorded a strong performance at its Joint Venture veterinary practices, with fee income up a sizeable 30.7% to £28.2m. Services revenue is becoming more important to specialists such as Pets at Home, as a key retail function that is inherently immune from the shift in spend to online. Moreover, for Pets at Home, services such as grooming drive footfall to its larger out-of-town stores, boosting their destination status. The retailer’s strategic decision to retrofit some vets and Groom Rooms to existing stores has enabled cross-selling of associated Merchandise goods, providing a further uptick in sales.
Pets at Home has successfully established itself as the leading multichannel pet retailer in the UK; its physical presence is now a sizeable 400 stores, with 25 new openings over the period. The retailer also opened a further 61 vet practices and 50 Groom Rooms, some of which include refits. In its coming financial year, it has ambitions to open a further 20-25 full-size stores, 50-55 vet practices, 55-60 Groom Rooms and five upmarket Barkers stores. The retailer also continues to invest into its online proposition, expanding its online-only product range to over 11,500 SKUs. Elsewhere, wifi is being rolled out across its portfolio, while tablets (or PetPads as the retailer refers to them) are being introduced to store staff.
Another element of the business which is becoming crucial is the retailer’s VIP Club loyalty scheme. Pets at Home added a further 1.2 million members over the year compared to FY14, bringing membership up to 3.2 million. Not only does this show the extent of its customer base, but it is also extremely useful as a source of customer data.
Overall, this is another healthy set of results from Pets at Home, which continues to deliver solid progress since its IPO in March of last year. While the pet care market continues to remain highly fragmented, the retailer is likely to face growing competitive threats, primarily from the grocers and discounters, including Poundstretcher which continues to roll-out its Pet Hut fascia, and from retailers like B&M, which is expanding both ranges and space. The retailer will also have to carry on investing significantly into its Services arm, which is growing as a proportion of total revenue. This should ultimately help to offset any falling footfall to physical retail destinations, especially out-of-town retail parks that remain its heartland. However, we believe its pattern of consistent LFL growth is indicative of a business that is clearly well-managed, and this, paired with a coherent, sustainable growth strategy, should be enough to safeguard, and indeed grow its market share in the year ahead.
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