Profit warning and CEO departure send Pets at Home shares tumbling

(Sharecast News) - Pets at Home tanked on Thursday as it announced the immediate departure of chief executive Lyssa McGowan and downgraded its full-year profit guidance. The search for a permanent CEO has begun, but until then, non-executive chair Ian Burke has assumed the role of executive chair.

In an unscheduled trading update, Pets said its existing guidance assumed a central scenario for the retail division of 1% market growth against which it expected to return to market outperformance through FY26 as the investments it made in digital bore fruit.

However, it said the underlying pet retail market has remained subdued through the second quarter, declining slightly year to date.

"Against this, we have seen the performance of the retail business improve sequentially, narrowing the gap to the market, but the rate of improvement has been below expectations," the company said.

Pets said it continues to see double-digit digital sales growth, outperforming the online retail market, but store sales have proved "more challenging", falling 5% year to date.

The Vet Group business continues to deliver high-single digit sales growth and Pets said it's on track to deliver its planned 10 new practices in FY26, alongside 15 vet extensions and another year of profit progress.

"In light of the performance gap we have seen in retail versus our plan, we now expect FY26 underlying profit before tax in the range £90-100m," it said. This is down from guidance in July of £110m to £120m.

At 1125 BST, the shares were down 12% at 202p.

Dan Coatsworth, investment analyst at AJ Bell, said: "When a CEO leaves a business with immediate effect, you know something serious has happened. In Pets at Home's case, a nasty profit warning has cost Lyssa McGowan her job.

"Problems have been building up for some time and it's clear that time had run out as far as the board was concerned. 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, £1 billion 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.

"Someone must take responsibility and that inevitably falls on the business leader. The board might have felt they had no choice but to seek a new CEO, particularly if shareholders were disgruntled behind the scenes.

"Lyssa McGowan joined from Sky UK where she was the chief consumer officer. She was an expert in marketing and customer experiences, and in data and digital transformation - exactly the type of skills Pets at Home needed to thrive with its physical and digital stores. Unfortunately, market conditions deteriorated soon into her tenure, and it's been an uphill battle for most of her time.

"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."