Pets at Home reported 28% dip in pre-tax profit but analysts are reassured

Pets at Home has reported “better momentum” in its bid to return to growth, even as both profits and revenue continued to decline while its recovery remains in its early stages.

The FTSE 250 pet supplies retailer and veterinary group recorded a 28 per cent drop in pre-tax profit to £86.5m, with group revenue slipping by one per cent to £1.47bn for the year to March.

Shareholders had been looking for encouraging signs of a recovery under new chief executive James Bailey, following the departure of the retailer’s previous boss amid declining sales.

A significant element of Bailey’s recovery strategy centres on Pets at Home’s retail division, where consumer revenue slipped one per cent to £1.3bn, attributed to a “subdued market backdrop”.

The company stated that its plans to revamp its retail operation are beginning to bear fruit, with sales and volume growth accelerating towards the latter part of last year, as reported by City AM.

Mr Bailey said: “Material progress has been made over the past 6 months stabilising the Retail business, delivering improved satisfaction and better availability.

“We have the opportunity now to build momentum through profitable volume led growth in Retail while continuing to execute the proven growth levers of our Vet business and launch our Insurance offering.”

Pets at Home endured a turbulent period last year, when a series of profit warnings preceded the exit of former chief executive Lyssa McGowan.

Mr Bailey, the former Waitrose chief, assumed control in March following interim leader Ian Burke’s unveiling of an ambitious recovery strategy encompassing back-office redundancies, aggressive discounting and product overhauls.

The company slashed prices across roughly 1,000 items in an effort to counter declining demand driven by weakening consumer sentiment.

On Wednesday, the retailer reported that shoppers have responded favourably to these price reductions.

Dan Lane, lead analyst at Robinhood UK, suggested the business “needed to show a credible route to recovery” and has probably reassured investors by maintaining its profit forecasts.

“The question now is whether this will stem the tide or we’re looking at a temporary reprieve from heavy price investment and cost cutting,” he said.

Pets at Home reported customer satisfaction has risen by four per cent across its retail outlets and 1.5 per cent within its veterinary division.

The chain witnessed pre-tax profit surge by 10 per cent to £83m in its veterinary group, as it accelerated growth with eight new practice launches in the year to March.

Expanding its veterinary operations forms part of Pets at Home’s approach to capitalise on its “unique strengths” throughout the turnaround, the company said.

“As the only UK pet care specialist with highly complementary exposure across omnichannel retail, vets and soon insurance, we have considerable advantages which are difficult for our competitors to replicate,” it added. The business is preparing to launch its “disruptive” insurance division later this year, with the company hoping that breaking into this £2bn market will strengthen its retail and veterinary operations.

The firm’s share price dipped into negative territory on Wednesday morning before clawing back gains to sit one per cent higher, although the stock remains four per cent down since the start of the year.