Pets at Home Group H1 2025 Pre Recorded Earnings Report

Pets at Home Group EPS Results

• Actual EPS: GBX 8.40
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Pets at Home Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Pets at Home Group Announcement Details

• Quarter: H1 2025 Pre Recorded
• Date: 11/27/2024
• Time: Before Market Opens
• Conference Call Date: Tuesday, November 26, 2024
• Conference Call Time: 7:00PM ET

We are the UK’s leading pet care business, providing pet owners with everything they need to be able to look after their pet – from food, toys and bedding, and grooming services, right the way through to first opinion veterinary care. Our stores represent a unique environment and provide a practical, fun and unique experience for pet owners. We’ll help owners select the right food for their pet with nutrition consultations, help test the water is safe for their fish tank before new fish are introduced, and help socialise a new puppy with socilaisation and training classes - and much more. We’re also online and our customers can order their pet products for home delivery or collect in store. Because we are a specialist pet care business everything we sell is tested specifically for pets, which is something we believe makes us unique, giving the customer peace of mind that they are buying a quality item which has been responsibly sourced and tested and is specific to an animal. When we sell a pet to a new owner we use our unique Pet Pad process which ensures a perspective owner understands the welfare needs of their pet to be, asking customers to sign to say they have understood how to look after their new family addition. Our in store and stand-alone veterinary practices provide full veterinary care from preventative healthcare including health checks and vaccinations right through to digital x ray and operating theatres.

Pets at Home Group H1 2025 Pre Recorded Earnings Call Transcript

Key Takeaways

• Consumer revenue grew by 4.1% to over £1bn with underlying PBIT up 14%, free cash flow up 43%, and EPS growth, highlighting strong H1 performance despite a flat market.
• Launch of the new digital platform saw app sales double, subscriptions rise to 12.4% of sales, and consumer satisfaction improve by 10%, although core web sales experienced transitional drag.
• Vet Group revenues increased by 13% and EBITDA by 6%, generating £46m of free cash flow, supported by 18,000 new weekly pet registrations and expanded clinical capacity.
• The UK pet care market remained flat in H1, below the medium-term 4% growth expectation, prompting a revised outlook of only modest full-year profit growth.
• Strong cash generation—with £33m free cash flow, net debt of £8m, a £25m share buyback, and a 4.7p interim dividend—demonstrates disciplined capital allocation.

Presentation

[Lyssa McGowan, CEO at Pets at Home]

Hello, and welcome to our H1 results. I am Lyssa McGowan, CEO of Pets at Home, and with me today is Mike Iddon, our CFO. Our strategy continues to deliver even in a subdued market environment, as our H1 results show. We have conviction that this strategy is the right one, and we remain laser-focused on executing against it. Our strategy is to build an integrated, omnichannel, consumer-centric platform that will leverage Pets at Home's competitive advantage and deliver significant growth and value for our shareholders. Our competitive advantages are already significant as the UK's leading pet care business, and as we continue to strengthen our integrated, omnichannel, consumer-centric platform, we will drive differentiated economics over the long term. H1 has been a further period of strong execution and market outperformance across both our Retail and vets businesses.

[Lyssa McGowan, CEO at Pets at Home]

We launched our new digital platform for consumers, which has seen app sales double already, with plenty more improvement to come as we exit the transition phase and begin to build out our differentiated and data-enabled consumer journeys. We sharpened our price position further with the launch of Price Drop & Lock. We continue to drive innovation in our own brand portfolio with the launch of NutriBalance. We grew our subscriptions revenue to 12.4% of our sales, from 10% at the start of the year. We continue to invest in our physical assets, opening three new stores, two new vets, and doing 14 refits, including two of our brand-new format. We continue to attract and retain vets and nurses, growing clinical talent by a further 8%, which underpins strong visit growth, and we continue to engage with the CMA

[Lyssa McGowan, CEO at Pets at Home]

Really importantly, we remain true to our values, progressing our sustainability agenda with the addition of solar panels on our Stafford DC and, as the largest grant maker, continue to support pet charities across the UK. But throughout H1, we've been dealing with a tough market backdrop, with growth broadly flat and lower than our medium-term expectation of 4%.

[Lyssa McGowan, CEO at Pets at Home]

We grew our vet consumer sales by 13% in H1 in a market that grew only slightly. In retail, our sales were broadly flat, but this outperformed a market that was in decline. So you can see that with total consumer revenue growth of 4.1%, we're delivering the outperformance we targeted in the context of a very subdued market. So against that backdrop, we can be proud of our H1 performance and remain convinced our strategy is the right one, as our strategic KPIs show.

[Lyssa McGowan, CEO at Pets at Home]

We grew consumer revenue to over GBP 1 billion in H1. Underlying PBIT was up 14%, fueled by really strong growth in the vets. Free cash flow was up, and so was EPS. Moving on to an update on how we're delivering against our strategy. We're a market leader in an attractive and structurally growing market, and within that market, we have a unique position. The trends that drive growth in pet spend are long-established and evident over many decades. They are premiumization, as pet owners seek higher-end products and services. Humanization, as the expectations around pet and human converge, driving changes in food and healthcare choices. And penetration, where the pandemic resulted in a step change in pet owners, and we're now stabilizing at that higher level of pet ownership.

[Lyssa McGowan, CEO at Pets at Home]

And we're uniquely placed in this market as we're the only player in the market with the scale and the credibility in all key verticals and the only player that can provide everything and anything that consumers need to care for their beloved pets. But while the market is one that we know is attractive over the long term, not every year is a vintage one, and we now expect the subdued trend that we've seen in the first half to continue for the rest of the year.

[Lyssa McGowan, CEO at Pets at Home]

So digging deeper into those drivers of long-term growth, the pet population normally has little impact since, for so many years prior to the pandemic, it was stable, and we expect this going forward too, albeit at a higher penetration. But right now, we've got the continued impact of normalization as the last of those bulge cohorts moves through.

[Lyssa McGowan, CEO at Pets at Home]

Not much has changed from our previous expectations here, and this will annualize as we exit the year. Second, inflation. Normally, we would expect low single-digit inflation, but currently, across our retail business, there's no inflation at all, and that's a touch lower than we would have expected at the start of the year, and lastly, premiumization and humanization. These trends normally show up in an improvement in mix at industry level, from which we're the main beneficiaries.

[Lyssa McGowan, CEO at Pets at Home]

Although we're still not seeing trading down at the moment, nor are we really seeing trading up, as that anticipated recovery in UK consumer behavior still hasn't materialized, as confirmed by the recent GDP figures. This, again, is a little below our expectations at the start of the year, so this all adds up to a market that, over the long term, averages 4% growth but currently is not growing at all.

[Lyssa McGowan, CEO at Pets at Home]

The important thing to remember here is that periods of slowest growth are not unprecedented and historically have been short-lived. The fundamentals of our business remain strong, as our outperformance of the market proves, and we're very well positioned for when growth returns. Looking into the future, the long-term outlook for pet care remains bright. The pet boom cohorts are now evident in our business, and the long-term structural trends remain in place. Those pets provide a long-term opportunity for us, as we were and continue to be extremely successful in recruiting them across retail and vets, and now we have the opportunity to meet their needs increasingly well and drive share of wallet while providing the care those pets will eventually need in the later years of life in our vets business.

[Lyssa McGowan, CEO at Pets at Home]

There is a material long-term opportunity for us, and we continue to invest to ensure we capitalize on it. Now, our digital investments make up a critical enabler of our strategy to integrate every part of our business. Our ACE devices are already improving efficiency in store and helping colleagues interact more effectively with our consumers, driving material improvement in consumer satisfaction, which improved by 10%, and we're on track to roll out Provet, our new practice management system, which will deliver operational improvements for our vets and allow us to integrate vets into our full digital ecosystem, and after our launch in March, we've now fully replatformed to our consumer app and website, and I want to share an update on how we're doing.

[Lyssa McGowan, CEO at Pets at Home]

Our new digital platform will allow us to dramatically improve our user experience, enabling us to engage more dynamically and effectively with consumers and leveraging our wealth of data, and I'm pleased to say it's working effectively, and we're beginning to build out those consumer-centric, data-enabled, omnichannel experiences. We've doubled app sales, helped by higher app traffic and better conversion, and moving our customers onto an app-based environment is really important as it helps us engage with them more effectively and win more share of their wallet.

[Lyssa McGowan, CEO at Pets at Home]

We've also seen an impressive step up in Easy Repeat subscription sales, as our new platform makes it easier for customers to sign up for subscriptions, and we've broadened the range of products they can add to over 3,000 SKUs, and we've begun to leverage our full data set, including all of our store transactions, to inform recommendations and consumer targeting.

[Lyssa McGowan, CEO at Pets at Home]

As you know, we've had some transitionary impacts to our core web sales as we've moved to our new platform. These were a drag during the first half, but we're now on an improving trajectory. Over the coming months, as we optimize journeys, add new features, integrate advice, and further leverage our data, we will drive cross-sell, upsell, and stickiness.

[Lyssa McGowan, CEO at Pets at Home]

Moving on now to our Vet Group, which again delivered a stellar performance in H1, as our differentiated model that empowers practice partners to deliver industry-leading experience and outcomes continues to drive material outperformance versus the market. In H1, our practices grew revenues by 13%, EBITDA by 6%, and this was supported by the growth in the number of visits and care plans as well as average transaction value. We continue to acquire significant numbers of new consumers and pets, averaging 18,000 new pet registrations every week.

[Lyssa McGowan, CEO at Pets at Home]

This showed up in our numbers as GBP 352 million of consumer sales and GBP 42 million of PBIT, with free cash flow of GBP 46 million highlighting the attraction of our capital light model. We and our partners continue to invest behind the growth opportunity, opening two new vet practices, extending another seven practices, and continuing to identify opportunities to move our company-managed practices into our preferred JV ownership model with four flips completed in H1. We also continue to invest and execute well in retail. We opened three new Pet Care Centres in H1 in Sutton, Whetstone, and Beckenham, all within the M25. We completed 14 refits, including two with our brand-new format at Brentford and Hull, with New Malden and our flagship about to launch.

[Lyssa McGowan, CEO at Pets at Home]

Our stores are looking better than ever, with excellent store standards and structurally higher availability as we drive out the benefits of our Stafford DC, which is now functioning really efficiently. This enabled our stores to significantly outperform the physical channel in H1. Bringing all of that together, we have a clear, consistent strategy and a conviction that we're on the right track. H1 was a demonstration of this with further progress against our strategy and outperformance versus our underlying market. That market was subdued and has been so for longer than we anticipated at the start of the year. We now factor this into our guidance, where we expect modest profit growth for FY2025. The market we operate in is structurally attractive, and we expect growth to return to historic norms of 4%.

[Lyssa McGowan, CEO at Pets at Home]

When growth does return, we have clear competitive advantages and a well-invested platform. We are through the bulk of our investment and beyond the peak of operational risk, with the benefits all to come. And so, as growth returns, we expect the benefits of our investments to become increasingly apparent and reward our shareholders with growth, strong cash generation, and returns of excess cash.

[Mike Iddon, CFO at Pets at Home]

Thanks, Lyssa. And I'll now give you an update on our performance and financial results for the first half of the year. It's been a solid start to the year. We continue to deliver, and that's reflected in our strategic and financial measures, and we achieved this despite the very subdued market. Consumer revenue grew by over 4% to GBP 1 billion, and we've grown market share in a flat to declining market.

[Mike Iddon, CFO at Pets at Home]

Our underlying profit was GBP 55 million, and that represents year-on-year growth of 14%, driven by our vet business, which continues to go from strength to strength. Free cash flow remained strong at GBP 33 million, and that grew year-on-year by over 40%. In the half, we launched our new Digital platform, which is now performing better despite some initial challenges, and we've seen good growth, for example, in our Easy Repeat subscriptions.

[Mike Iddon, CFO at Pets at Home]

We now have 8.1 million members of our pet club. That's up 3% year-on-year, and our average consumer value has grown to GBP 175. And we've achieved all of this despite the market being subdued for longer than we planned, and whilst we've continued to grow share in a weaker market. As a result of the macro environment, we are now only expecting modest profit growth for the full year.

[Mike Iddon, CFO at Pets at Home]

Turning now to give you more detail on our revenues, which grew by over four%. That's ahead of the market but below our medium-term ambition to grow at seven%. Total group like-for-like growth was 1.6%, with retail like-for-like flat and vet group strong with like-for-like growth of 18.2%. Breaking that retail like-for-like performance down, stores performed more strongly, while online saw the impacts of the transition to the new digital platform. The vet business continues to perform very strongly, underpinned by increased vet capacity. We have eight% more clinical talent year-on-year, and that has helped improve our recruitment and retention alongside visit growth. Here, we have a number of proven growth levers. We opened two new practices and extended seven existing practices, as well as converting four group-managed practices to our successful joint venture format.

[Mike Iddon, CFO at Pets at Home]

Our average practice revenues improved 13% to over GBP 750,000 per practice in the first half, and we still have plenty of embedded maturity to come. We nearly have a third of our practices still less than 10 years old. Our care plan revenues were also up significantly, as changes to our proposition were well received by consumers, as well as the impact of changes to better align our care plan revenue recognition across the life of the plans, and that reflects the way that consumers are utilizing those plans.

[Mike Iddon, CFO at Pets at Home]

Turning now to our profits, we deliver profits of close to GBP 55 million, driven by strong vet performance and the benefit of lapping last year's restructuring costs. We saw very strong vet revenue growth, which together with the changes we've made to recognizing revenue on care plans helped lift profits by over 26% to GBP 41 million.

[Mike Iddon, CFO at Pets at Home]

Retail profit did decline slightly to GBP 22 million, and that's partly linked to a very subdued market where growth is well below the long-term averages. Overall, gross margins are just over 46%. That was flat year-on-year, as we saw an improvement in vets' gross margin linked to their improved performance and productivity, which is offset by a slight decline in retail, as our food business continues to see faster growth compared to our higher-margin accessories business. We continue to keep a tight grip on operating costs, and these are flat year-on-year.

[Mike Iddon, CFO at Pets at Home]

We've delivered efficiency and productivity savings to help offset some known headwinds, and these, of course, include the 9.8% increase in the National Living Wage. Within the half, we treated GBP 3.4 million of costs as non-underlying, which is considerably down year-on-year, as we've now completed in the main our restructuring program.

[Mike Iddon, CFO at Pets at Home]

Our underlying profit margin was 6.9%, and as planned, vet group profit margin stepped up close to 300 basis points to just under 45%. Looking forward, the government recently announced plan changes to both the National Living Wage and employers' National Insurance contributions. Combined, these two changes represent an GBP 18 million cost increase for our business in FY2026, and we are looking to proactively mitigate these costs as much as possible using our self-help initiatives. Turning now to cash flow, the business continues to generate a significant amount of cash. In fact, we grew free cash flow and returned over GBP 50 million to shareholders, as well as maintaining a robust balance sheet. We generated free cash flow of GBP 33 million in the half.

[Mike Iddon, CFO at Pets at Home]

That was up year-on-year by 43%, and that was after cash CapEx of just over GBP 24 million, and we closed with net debt of only GBP 8 million. The vet group generated GBP 46 million of cash flow on the back of a very strong revenue growth and is well on track to deliver the long-standing target of GBP 60 million. We paid GBP 38 million in dividends in the first half, and we're in the process of completing a GBP 25 million share buyback. Both of these are consistent with our very clear capital allocation policy, and this continues with our announced interim dividend of 4.7p, which will be paid in the second half. Our balance sheet remains robust with little debt and lease-adjusted leverage of only one and a half times.

[Mike Iddon, CFO at Pets at Home]

Turning now to our capital investment, our capital investment remains fully aligned to delivering our strategy, and we invested just over GBP 24 million in the first half. This investment remains focused on the three big strategic growth areas: digitizing the business, improving our distribution network, and improving our store estate by investing into our stores, including both new stores and refits. We opened three new stores in the first half, all within the M25, alongside two new vet practices. 17 Pet Care Centres also benefited from investment. Seven of these have had a vet practice extension, and we continue to demonstrate our focus on capital light growth. We refitted both Hull and Brentford Pet Care Centres to our new format, and this showcases our strengths as the home of nutrition, as well as the expertise of our colleagues.

[Mike Iddon, CFO at Pets at Home]

Overall, we now expect capital for the year to be around GBP 55 million, as we continue to move beyond our period of peak investment. And in future years, we expect our capital investment to taper down to a normalized run rate of around GBP 50 million a year. As we look forward, these significant investments we've made will set us up to drive value for our shareholders. Our strategy is on track, and we expect pet care market growth to recover, and that's supported by long-term structural growth trends, meaning we look to the future with confidence.

[Mike Iddon, CFO at Pets at Home]

Given the current market softness has lasted longer than originally planned, and although we are growing market share, we have updated our guidance to only modest profit growth for this financial year. Our vet momentum continues. That performance is fueled by proven growth drivers alongside our unique business model.

[Mike Iddon, CFO at Pets at Home]

Our peak investment and period of heightened operational risk is now very much behind us, and the benefits of those strategic investments are all ahead of us. As the benefits of our investments come through, our clear competitive advantages position us to deliver growing sales and profit, strong cash generation, and create significant value for our shareholders.

Participants

Analysts

• Lyssa McGowan, CEO at Pets at Home
• Mike Iddon, CFO at Pets at Home