Pets at Home Group (LON: PETS) – FY20 Interim Results for the 28 week period to 10th October 2019.
· First anniversary of launching our pet care strategy, which continues to deliver strong results
· Sustained momentum in Retail business, with like-for-like# (LFL) revenue growth of 7.8%
o Omnichannel revenues# up 31.7% to £46.5m
o Stores delivering positive LFL# revenue growth and a solid operating margin
· Vet Group underlying business performing well, with LFL# revenue growth of 6.4%
o First Opinion customer sales# growth across all vet practices of 11.8%, with Joint Venture (JV) practice LFL# of 14.0% and mature practice sales again growing ahead of the market
o Planned changes to fee arrangements for Joint Venture practices starting to have positive impact: increasing practice profitability and improving our Group cash performance
o JV practice buy outs now complete: total of 57 sites, with 36 having subsequently closed
· We are introducing more customers to our complete pet care offer:
o Number of VIPs who purchase both products and a service has grown 22% year-on-year, and now represents c16% of all active members
o Number of subscription customers across the Group is now over 790,000
· Group underlying PBT, on a comparable pre-IFRS16 basis, up 18.9% year-on-year to £45.0m1,#, driven by quality revenue growth in Retail converting strongly to profit
· Given progress in the first half, we remain confident about the rest of the year despite continued consumer uncertainty, and expect full year profit towards top end of current market consensus2
· After over 9 years as Chairman, succession plan for Tony DeNunzio commenced
Comment from Peter Pritchard, Pets at Home Group Chief Executive Officer
“I am very pleased with what we have achieved in the first half of the year. We have executed our plans well, and this has been reflected in the strong customer sales growth across the Group. Our commitment, and that of the Group’s Joint Venture Partners, is to make sure pets and their owners get the very best advice, care and products; and this has led to record levels of VIPs, First Opinion practice clients and subscription customers. In short, our pet care strategy is working.
We have seen sustained momentum in Retail, with a 2-year like-for-like of 13%. This has been complemented by a meticulous delivery of our Vet Group recalibration. The programme to buy out a number of Joint Venture practices is already complete, whilst changes we have made to the fee arrangements for ongoing practices are already showing signs of positive progress and will be followed by further planned adjustments in the second half of the year.
All this provides a strong foundation, meaning we have much to look forward to in FY20 and beyond, and we now expect to return to profit growth a year ahead of our original plan. In the meantime, we will remain focussed on serving our customers, their pets and our partners better than ever before.”
We have been successful in sustaining profit growth in Retail and expect this to continue. In the Vet Group, the second half of FY20 will see the full impact of changes to the fee arrangements for ongoing JV practices, in line with our original plan. In addition, we will incur certain pre-opening costs associated with the capacity extension at Dick White Referrals, plus the opening of our fifth Specialist Referral centre in Scotland, all of which will reduce Vet Group underlying profit in the year.
Due to the progress we have made in the first half of FY20, we are confident about the rest of the year and now expect to deliver full year underlying profit growth, with Group underlying profit before tax# on a pre-IFRS16 basis towards the top end of current market consensus.
We now expect full year Group underlying free cashflow to be broadly flat, despite the previously disclosed one-off outflow of £10.7m relating to a change in timing to Corporation Tax payments.
New openings will include up to five new stores, grooming salons and vet practices, and the one-off programme to buy out a number of JV practices is now complete.
Our focus remains on sustaining the return to profit growth and we expect to generate further underlying profit and free cashflow growth from FY21, despite the potential headwind posed to Retail gross margin by USD currency movements.