Pets at Home: smarty animals


If you want a friend, get a dog. The advice of fictional Wall Street arbitrageur Gordon Gekko has contemporary resonance. Homeworking Britons have spent the pandemic investing in animal companions. The trend was reflected in Thursday’s positive trading statement from Pets at Home. Peter Pritchard has taught a retailer with a big stores estate some new tricks to deal with the threat from Amazon.

Mr Pritchard’s update certainly got the market to sit up and beg. Double-digit percentage rises in like-for-like sales for the eight weeks to mid-July point to dividend treats at the full year stage. A share price leap of 26 per cent on the day suggested optimism running ahead of the numbers, perhaps because of a partial UK lockdown. The move is even more impressive given a record share valuation of 30 times earnings.

If that reaction seems excessive, it might be because finding UK stock market winners in this pandemic year has not been easy. The All-Share index has trailed broader European and US benchmarks, given the UK’s relative weakness in technology and ecommerce companies.

Pets at Home was helped by government permission to stay open when other shops had to shut, as well as a pet-buying surge. Together they have guaranteed that the retailer’s positive free cash flow stays strong at about £73m in the year to March 2021, nearly double the expected dividend on Numis forecasts.

Mr Pritchard’s willingness to compete with online retailers on price helped the company to clean up in recent years. Offering services such as grooming and in-house vets has kept shoppers coming through the door and browsing the aisles. They should continue once the pandemic dies out. Investors will want their chief executive to regain the lost 200 basis points of operating profit margin from that discounting.

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That will require either a lot more footfall, or more online sales. For now, Pets at Home stock shows no sign of rolling over and dying for anyone.



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