Pets at Home is in the doghouse as investors abandon the stock after the retail chain ousted its chief executive and issued a surprise profits warning.
CEO Lyssa McGowan has left the business with immediate effect as non-executive chairman Ian Burke takes charge until a replacement is appointed.
Pets at Home, which has been battling subdued conditions in the pet retail space, also downgraded expectations for its underlying pre-tax profits for the year to the range of £90m-£100m.
The unscheduled trading update outlined declining sales in the retail side of the group in the second quarter as the market failed to stabilise as hoped.
While sales online continued to generate double-digit growth, conditions in store proved more challenging, with sales declining 5% year to date.
It is the second profits warning in recent months for the group, having dropped expectations for the bottom line to £110m-£120m in July during its Q1 update. The group originally set profits forecasts for the year at £115m-£125m at the beginning of the year.
Pets a Home thanked McGowan “for her commitment to leading the business” since taking charge in 2022.
Shares sank by almost 17% in early trading today and are currently down 14.5% on yesterday at 196.1p. The stock, which has been a lockdown winner as petcare sales boomed during the pandemic, is down more than 35% over the past year.
Troubles in the market
“Problems have been building up for some time and it’s clear that time had run out as far as the board was concerned,” said AJ Bell investment analyst Dan Coatsworth. “McGowan was given quite a bit of time to turn the business around, but her strategic decisions haven’t yielded the necessary success.
“Prior to today’s news, £1bn had been wiped off the value of the company since McGowan was appointed CEO designate in February 2022. That’s significant value destruction and shareholders will only be patient for so long.”
Jonathan Pritchard of Peel Hunt, which cut its rating for the stock from ‘buy’ to ‘hold’ today, said that with the profitability of the retail arm “coming under extreme pressure”, it was “hard to argue” the recovery would be V-shaped, even with a new CEO.
“The issues Pets at Homes faces in retail are structural: refreshing ranges and approaches does not happen overnight, and while the new CEO may have some new ideas, the die is cast for the time being at least,” he added.
“Most retailers are finding the headwinds of ever-increasing costs very difficult to deal with.”
Coatsworth said: “Pets at Home is one of the UK’s biggest pet retailers.
“A nation of pet lovers should be keeping its tills ringing all day long, but unfortunately business hasn’t been as good since the pandemic boom.
“During the pandemic, people were bored at home, and we saw a big increase in pet ownership as furry friends brought a welcome bit of joy. The working from home trend also encouraged more people to get pets, as the daily commute could be replaced by a dog walk before and after work. With more people going back to the office in the past few years, pet demand normalised and that removed a major tailwind for companies like Pets at Home.
“Making matters worse was fierce competition for all things pet-related. Names like Pets Corner and Jollyes have been grabbing market share and leaving Pets at Home trailing behind.
“Finding a new CEO won’t be easy. They will walk into a tough job and be expected to produce rapid results.”
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