Pets at Home Group (LON:PETS) executives said the company is seeing early signs of momentum from its retail turnaround plan, while cautioning that the veterinary business is likely to see more subdued revenue growth in the near term before improving as the pandemic-era pet cohort ages.
Speaking on the company’s preliminary results call, Chief Executive Officer James Bailey, who said he has been in the role for about eight weeks, said he was “encouraged” by what he has found in the business, citing “committed and capable colleagues,” well-invested infrastructure and strong customer metrics. Bailey was joined on the call by Chief Financial Officer Sarah and members of the investor relations team.
Price investment supports retail volumes
Bailey said the company’s price investment in food covered more than 1,000 products and represented more than a 12% reduction across that subset. He said the move had generated a “material response” from customers, including Q4 volume growth, Q4 transaction growth and a strong start to the current financial year.
Addressing questions about the relationship between the price cuts and reported volume improvement, Bailey said the 12% investment applied only to a subset of sales, while the roughly 4% volume growth referenced by the company applied across the whole retail business.
“What we’re seeing is 4% volume growth across the whole of the retail business, which in context is very encouraging,” Bailey said.
Bailey also confirmed that the 80 basis points of gross margin investment made midway through the prior year will continue into the current financial year until the company laps it. He described the investment as appropriate, while adding that the company intends to begin recovering gross margin over the medium to long term.
Guidance points to profit growth, with investment continuing
CFO Sarah said the company had reconfirmed guidance for FY 2027 and remained comfortable with the current consensus range. She characterized the guidance as implying a roughly £5 million year-over-year increase in profit before tax, supported by market share gains in a retail market returning to low-single-digit growth and an improvement in profitability.
She also pointed to the company’s plan to remove £20 million of costs from its support office, along with ongoing productivity initiatives intended to offset external cost pressures and underlying inflation.
However, Sarah said FY 2027 will also include another year of investment, including startup costs for the company’s insurance business and potential higher-return investments that Bailey and Sarah may consider as they review strategy over the summer.
On geopolitical risks tied to the Middle East conflict, Sarah said the company does not currently see a need to reduce consensus expectations. She said Pets at Home does not currently expect negative supply impacts based on known alternative arrangements, and is largely hedged for the year on foreign exchange and energy. She added that the pet market has historically been resilient in periods of weaker consumer confidence.
Veterinary growth subdued near term, expected to improve later
Sarah said the Vets business is expected to deliver another year of profit growth, but with a more subdued revenue outlook of around low single digits for FY 2027. She said the veterinary market continues to offer structural growth and that Pets at Home remains well positioned as the “clear number 2” first-opinion vets provider.
She said satisfaction scores have improved and noted that the conclusion of the CMA investigation had confirmed the value the company brings to customers and pets. The company also sees opportunity in its 7 million active Pets Club customers, not all of whom currently use its veterinary services.
Management attributed the softer near-term revenue backdrop partly to the pandemic-era pet cohort being in “healthy midlife,” with pets typically between four and six years old. Sarah said demand for veterinary services should increase as those pets age, supporting growth beyond FY 2027.
Sarah also said Q4 vet revenue growth of 1% should not be viewed as a proxy for future years. She said a legacy accounting cleanup affected Q4 revenue growth by about £2 million to £3 million, and that underlying growth was closer to 3% to 4%. In a follow-up response, she said some older practice arrangements involved investments that had been held on the balance sheet, but the company concluded certain assets were not recoverable and wrote them off as an offset to underlying fee income. She described the issue as one-off and now past the business.
Bailey said the company plans to accelerate new practices and extensions in FY 2027. He said the Vets4Pets brand is attractive and that there appears to be “plenty of headroom” and white space for growth.
Accessories and stores remain focus areas
Bailey said discretionary accessories remain an important category, particularly for gross margin, and acknowledged that the market has been dynamic. He said the retail turnaround plan has so far gained momentum through better execution on price and operations, while new product ranges are only beginning to arrive.
He said accessories are expected to see more meaningful new range activity later in the year, including new space executions and potentially new brands. Bailey said the company may previously have lost some focus on commercial execution and innovation in the category, but said the company’s scale should make it an attractive partner for emerging pet accessories brands.
On the store estate, Bailey said he had been impressed by the quality of the company’s store assets. He described stores as reasonably well invested and well laid out, with opportunities to grow within the existing footprint. He said a dramatic change to the store estate is not currently a priority, though management may consider white space opportunities over time.
Margins, data and Pets Club
Sarah said gross margin remains an important indicator of the quality of volume and revenue growth, as well as a way for the business to fund investments. She said she and Bailey are “healthily dissatisfied” with current gross margin levels, but did not provide specific FY 2027 gross margin guidance.
She said opportunities include pricing and promotional strategy, supplier relationships, product range work across different price tiers and margin profiles, and productivity across supply chain and distribution. Asked whether retail margins are expected to improve within guidance, Sarah said FY 2027 should represent a first positive step on a multi-year path to improve retail profitability, with margin up at the profit-before-tax level.
Bailey also addressed Pets Club metrics, saying an apparent decline in active members and increase in average customer value reflected a methodology change rather than an underlying customer issue. He said investors should view the changes as “equal and opposite.”
On data, Bailey said the company has a unique competitive advantage through Pets Club and its veterinary business. He said combining data on pet health, life cycles, behaviors and customer behavior could support the company’s planned insurance launch and broader personalization efforts.
Bailey closed the call by saying it is still early in his tenure, but that he is “quietly confident” about the company’s future, while emphasizing that management has work to do to deliver for customers, colleagues and investors.
About Pets at Home Group (LON:PETS)
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.
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