Investors signalled their confidence in new Pets at Home chief James Bailey this week as the former Waitrose boss presided over his first set of results for the troubled retail and veterinary chain.
Shares were up as much as 8% on Wednesday and closed the day almost 7% higher at 198p despite a chunky 28% drop in pre-tax profits to £86.5m in the year to 26 March.
Bailey, who joined the group as CEO in March to team up with new CFO Sarah Pollard, said “material progress” in stabilising the retail side of the business had been made over the past six months, with improved customer satisfaction and better availability. Prices have also been sharpened on thousands of food products, boosting volumes at the struggling division.
The group’s vets operation continued to offset challenges elsewhere, with sales growth of 5%. However, a 1% drop in retail revenues to £1.3bn contributed to a 0.8% fall in statutory turnover overall.
Bailey softened a hefty cut to the annual dividend – down from 13p to 7.4p – with a further £50m share buyback and also reaffirmed underlying profit forecasts of £98m for the new financial year despite the difficult backdrop for the retail sector as a whole.
After the boost from the results, the share price gave up some gains today, dropping by almost 3%. The stock remains down 28% over the past year as a string of profits warnings led to former boss Lyssa McGowan being ousted in September.
Brokers at Canaccord Genuity took encouragement that the retail turnaround plan announced in November had showed early signs of progress.
“We are encouraged by the early traction in the plan and believe delivery from initiatives to restore retail profitability remains a key tenet of the investment case,” the firm said.
Analysts at Panmure Liberum added, with a new CEO and CFO in place, investor focus would shift to the strategic and operational actions the pair have in store. “Encouragingly, the risk of more drastic intervention to address prior concerns around market share and profitability appears to be diminishing, with the announced £50m buyback reinforcing this view,” the firm said.
Jonathan Pritchard of Peel Hunt said the attractive petcare sector and Pets at Home’s “very strong positions” in retail and vets gave the group “opportunity to excel”.
“Recently, however, mostly on the retail side, performance has not reached expectations. There is a fairly long list of areas that need work and the ‘retail turnaround plan’ was introduced at the interims and has started well.
“There is more fundamental work to be done on the range, execution and probably price, too, and while the new team is not tying itself to a new long-term plan, it is clear that both CEO and CFO know their ways around a retail business. We expect evolution with a bit of revolution, but not a massive profit or strategic reset.”
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