Pets at Home tumbles as profits set to drop next year

(Sharecast News) - Pets at Home tumbled on Monday as it said profits were set to fall next year as an uncertain economic backdrop and increased costs take their toll. In an update for the year to 27 March, the company said group underlying pre-tax profit is expected to be £133m, in line with previous guidance. It said fourth-quarter trends have been broadly as expected across the retail and vet segments, "against a challenging and volatile UK consumer backdrop".

For FY26, however, underlying pre-tax profit is expected to decline to between £115m and £125m. Broker Shore Capital said consensus expectations were for growth to £142m.

The company pointed to cost increases, including the upcoming changes to national insurance contributions and the national living wage, which will have an impact of around £18m. In addition, there will be a £2m hit from new packaging regulations and Pets at Home plans to invest a further £3m in marketing costs to drive sales.

"We expect the current market conditions and subdued consumer backdrop to continue into the new financial year," it said.

"Overall, taking into account our current view of demand and costs we expect Retail underlying PBT to decline year on year."

At 1150 BST, the shares were down 11% at 210.25p.

Russ Mould, investment director at AJ Bell, said: "Continued pressure on Pets at Home's retail arm means investors were sick as the proverbial parrot with the company's latest update, which included a damaging downgrade to profit guidance for the current financial year.

"While Britons are famously devoted to their furry friends, consumers have less disposable cash to spend on toys and treats, and are focusing more on the essentials which is making life difficult for a specialist like Pets at Home. There is also competition from larger, non-specialist rivals like the supermarkets who have more capacity to compete on price.

"Pets at Home still hopes to take market share thanks to investment in its digital platform and continued progress in getting customers to sign up to its loyalty scheme.

"It needs to generate some momentum with sales to mitigate the impact of rising costs associated with changes in last year's Budget.

"The struggles on the retail side mean the company is increasingly leaning on its vet operation, which is performing strongly but is operating under somewhat of a cloud given an ongoing CMA probe into the sector."