New distribution centre costs take a bite out of Pets at Home profits

Pets at Home Group’s profits tumbled by over a third during the first half as the costs of opening of a new warehouse weighed on the retailer. 

Britain’s largest pet supplies retailer’s statutory pre-tax profits fell by 35.2 per cent to £34.7million in the 28 weeks to 12 October, having incurred costs of £9.4million from transitioning to a new 670,000-square-foot distribution centre in Staffordshire.

It also caused short-term stock issues, with the percentage of products available at the group’s stores declining to around 80 per cent of regular levels at the worst point, compared to 95 per cent during normal times.

Pets at Home estimates the disruption impacted like-for-like retail sales by 3 per cent in the second quarter and will increase its full-year logistics costs by £14million.

But the firm upheld its annual guidance, with underlying pre-tax profits expected to total about £136million and consumer sales set to rise by 7 per cent.

Turnover grew by 6.5 per cent to £774.2million in the six-month period, supported by a robust performance in its veterinary services division and strong first-quarter sales in the retail business.

Pets at Home noted trade since mid-October had ‘started well’ as its new warehouse centre has been able to support all stores, while a further boost came from ‘record’ trading over Halloween and solid demand for its Christmas ranges.

Lyssa McGowan, its chief executive, said: ‘With the benefits of our new DC and new digital platform still ahead of us, we look to the future with confidence that we can deliver our plan to build the world’s best pet care platform.’

Pet ownership has soared in popularity since the Covid-19 pandemic as Britons spent more time at home.

Even though travel curbs have ended and the UK is enduring a tough cost-of-living crisis, demand for animal companions has remained healthy as many consumers have prioritised spending on their pets.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: ‘Fears that the lockdown surge in ownership would subside don’t seem to be materialising.

‘Working from home habits have kept the trend strong and recurring revenue is bedded in.

‘However, given the competitiveness online, the company must ensure it keeps all its ducks in a row as it continues to expand.’

Pets at Home also revealed it had met with the Competition and Markets Authority as part of the regulator’s review into the veterinary services sector.

The firm told investors it anticipates ‘no impact on our growth strategy or ambitions’ from the probe, which was announced in early September.

Pets at Home Group shares were 2.2 per cent up at 285.2p on late Tuesday morning, making them one of the top five performers on the FTSE 250 Index.