May 22, 2018 / 6:27 AM / 4 months ago

Pets at Home sees more price cuts as competition grows

(Reuters) - Price cuts to tackle rising competition hit full-year profits at Pets at Home Group Plc (PETSP.L), Britain’s biggest pet shop company said on Tuesday, signalling it expected more reductions this year.

FILE PHOTO: Caroline Wagstaff, and her dog Boots wear crowns outside Windsor Castle, in Windsor, Britain, May 15, 2018. REUTERS/Marko Djurica/File Photo

Shares in the group fell as much as 8.7 percent to an all-time low of 143 pence, among the biggest falls on the FTSE 250 midcap index .FTMC.

Pets at Home, which also offers veterinary care and grooming services, said profit before tax for the year ended March 29 fell 12.3 percent to 84.5 million pounds.

Margins fell to 51.7 percent from 54.2 percent a year earlier due to price investments, it said, adding it expected a further drop of 75 to 125 basis points this financial year.

“This year we will see some further price investments,” Chief Executive Peter Pritchard said, referring to the company’s efforts to stay competitive as German rival Zooplus (ZO1G.DE) tries to wade in to the UK market with its low-price model.

Last week, Zooplus said it was expanding its UK fulfilment centre area by three times to improve deliveries.

Pets at Home said it invested about 13 million pounds last year in its merchandise business, which sells pet food and accessories, as part of its efforts to sharpen prices.

Pritchard, who took up his post last month, said price investments this year would not be as large as last financial year.

“We do not currently see enough evidence that Pets are able to compete well enough against the likes of a rapidly growing Zooplus, who are consistently taking market share”, Liberum analysts said in a note.

At 1010 GMT, Pets at Home shares were down 7.8 percent at 145.7 pence.

GROWTH AHEAD

The company, which listed on the London Stock Exchange in 2014, forecast a low single-digit percentage rise in profit this financial year.

Pritchard also said he expected high single-digit profit growth the year after, despite pressures on consumer spending.

“We know from history that when times are tough people are likely to cut back on a sofa, car, or holiday, but the pet market tends to fare pretty well through recessionary and tough times,” he said, adding the pet market was continuing to grow.

Pets at Home, which has 448 stores and 461 veterinary practices across the United Kingdom, said it would open 10 to 20 grooming salons and 20 to 25 vet practices during the year.

Comparable sales at it merchandise business rose 5 percent in 2017-18 compared with just 0.8 percent the year before.

Overall revenue rose 7.8 percent to 898.9 million pounds.

Reporting by Sangameswaran S in Bengaluru; Editing by Arun Koyyur and Mark Potter

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