Release Date: November 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pets at Home Group PLC (PAHGF, Financial) reported a 14% increase in underlying PBIT, driven by strong growth in the vet business.
- The company launched a new digital platform, resulting in app sales doubling and improved consumer engagement.
- Subscription revenue grew to 12.4% of sales, up from 10% at the start of the year.
- The company opened three new stores and two new vet practices, alongside 14 store refits, enhancing its physical presence.
- Pets at Home Group PLC (PAHGF) continues to attract and retain clinical talent, growing its vet and nurse workforce by 8%.
Negative Points
- The overall market environment remains subdued, with growth broadly flat and below the company's medium-term expectation of 4%.
- Retail sales were flat, underperforming the company's medium-term ambition to grow at 7%.
- The company faces significant cost increases due to planned changes in national living wage and national insurance contributions, totaling an 18 million pound cost increase for FY26.
- The digital platform transition caused some initial challenges, impacting core web sales during the first half.
- The consumer market remains weak, with no anticipated improvement in consumer behavior for the remainder of the fiscal year.
Q & A Highlights
Q: On the retail side, considering the subdued market, is there a risk of further decline, or is the current guidance a conservative estimate to ensure stability?
A: (Lisa McGowan, CEO) The guidance reflects the current subdued consumer market, with no expected improvement for the rest of the fiscal year. We anticipate normalization and inflation pressures to ease next year, but for now, the guidance assumes no change in the environment. (Mike Eden, CFO) We have a strong grip on costs, and our retail fundamentals are solid, but we don't expect market improvement until spring next year.
Q: Regarding wage inflation, what was your initial expectation before the budget, and how much of the incremental cost do you think you can mitigate?
A: (Lisa McGowan, CEO) Last year, we faced an £18 million wage inflation hit, and we managed to mitigate it. This year, the increase is similar, with £8 million from the national living wage and £10 million from national insurance contributions. We have a track record of managing these costs through productivity and efficiency, and we're exploring all options to mitigate the impact.
Q: How have you managed additional cost offsets to counter revenue shortfalls, particularly in marketing spend?
A: (Mike Eden, CFO) We initially planned to increase marketing by £12 million, but we've adjusted that to around £4-5 million to offset lower sales. Overall, our costs are down 3% year-on-year, and we've made significant reductions in our support office, which will yield a full-year benefit of about £10 million next year.
Q: Can you clarify the historical market growth trend of 4% per annum, and when do you expect to return to this level?
A: (Lisa McGowan, CEO) The 4% growth is a long-term average, including the COVID boom. We expect normalization and inflation to phase out next year, but the weak consumer market is unpredictable. Our strategy focuses on unlocking share of wallet and deepening customer relationships, positioning us well for when market growth returns.
Q: How is the accessory segment performing, and what are your plans to drive growth in this area?
A: (Lisa McGowan, CEO) Accessories have lagged behind food growth, but we're seeing stabilization. Our Christmas range is performing well, and we're reviewing our category architecture to drive growth. Our digital platform offers significant opportunities to increase accessory sales through improved user experience and targeted marketing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
