Pets at Home warns of lower than expected profits due to subdued consumer demand

The UK retail firm said it expects 'unusually subdued' conditions in the pet market to continue over the coming months and also cautioned over a future cost hit from Budget tax increases

Pets at Home has issued a warning that profit growth will be lower than anticipated due to weak consumer sentiment and the slowing of the pandemic-induced pet ownership surge.

The UK retail giant anticipates "unusually subdued" conditions in the pet market to persist in the upcoming months, and also warned of potential future costs resulting from Budget tax increases. Shares plummeted by over 10% in early trading on Wednesday after the company reported to shareholders that total revenues had increased by 1.9% to £789.1m for the 28 weeks leading up to October 10, compared with the same period last year.

Despite strong growth in its veterinary business, this was counterbalanced by 0.1% growth in retail revenues, impacted by the "declining retail market" and the transition to a new digital platform. Pets at Home's CEO, Lyssa McGowan, stated: "We are operating in an unusually subdued pet retail market which we now expect to continue through the second half."

“We are confident this will be temporary and growth will return to historical norms with the longer-term attractive outlook for the UK pet care market unchanged.”

She highlighted that pet numbers are continuing to grow but the rapid acceleration in new puppies and kittens witnessed in recent years has “now stabilised”.

On Wednesday, Pets at Home reported that pre-tax profits for the half-year were up 47.3% to £51.1m.

Pets at Home has indicated that profits for the current financial year are expected to "grow modestly" from around £132m last year, which is below its previous guidance of £144m. The company has been trimming expenses to bolster profitability, revealing a decrease of 3.5% in group net operating profits for the half-year.

Additionally, they warned of an upcoming £18 million cost impact in the next financial year due to changes to employers National Insurance contributions and the rise in the living wage recently announced by the Government. As a result, the firm's shares took a significant hit, plunging 13.9% on Wednesday morning.