Image source: Getty Images
When the market opened today (26 November), Pets at Home (LSE:PETS) was the biggest advancer in the FTSE 250. At one point, it jumped over 6%, before falling back to a more modest 3.3% gain.
Still, at 214p, it remains a long way back for investors who bought shares at 425p five years ago.
What are the chances this FTSE 250 stock can reclaim its former glories? Let’s take a closer look.
Tale of two businesses
Pets at Home has two parts to its business: retail (pet food, accessories, toys, grooming services, etc) and vets. The first one is struggling, with low footfall in its stores and consumer spending under pressure (resulting in fewer toys and treats being bought). The vets side remains strong though, and is far more profitable.
The news out today was the company’s half-year results for FY26, covering the 28 weeks to 9 October. There wasn’t too much to get excited about, with group consumer revenue basically flat at £1.06bn.
Drilling down, we see the same pattern as above. Retail sales fell 2.3% year on year to £680m, while vet revenue grew 6.7% to £376m. One weak, one strong, basically.
Group pre-tax profit fell 33.5% to £36.2m, with the damage coming from the retail side, where profits crashed 84.1% to just £3.5m. This was due to weaker store sales and targeted price reductions.
By contrast, the vets unit saw profits growing 8.3% to £45m. This business accounts for the vast bulk of profits. Indeed, without it, I dread to think where the company would be right now. Possibly outside the FTSE 250!
For over 30 years, Pets at Home has been a business with a clear purpose, an established market and loyal customer base, but it’s clear that urgent and necessary action is needed to return the Retail business to growth. Interim CEO Ian Burke.
Some positives
It wasn’t all negative, though. After two profit warnings earlier this year, the company still expects to meet its revised full-year guidance of £90m-£100m in pre-tax profit. Over 80% of that is expected to come from the vets business.
The company opened five new practices in H1, and remains on track for 10 new openings in FY26. Over the medium term, it’s aiming for 100 new vet practices, as it leverages its capital-light joint venture model.
Meanwhile, there are no balance sheet issues, with adjusted net debt of £12m. And the interim dividend was maintained at 4.7p per share, while 50% of this year’s £25m share buyback is complete.
Finally, the firm has outlined a four-step plan to turn its retail operation around. This involves improving the product range, keeping prices competitive, better execution, and reducing overheads by £20m.
The stock
The company is still searching for a new CEO, and we don’t know what direction it will go in. But Pets at Home has a trusted brand, strong vets business, and 7.9m active Pets Club customers. So there are ingredients here for a possible turnaround, in my view.
The stock is trading cheaply at around 12.8 times forward earnings, and there’s a 6.15% yield (though the dividend may be cut to preserve cash).
Weighing things up, I think the stock is worth watching as a potential comeback story. But not one to consider buying, at least not yet.
