Pets at Home Shares (LON:PETS) Drop As Retail Revenue Weak

Pets at Home shares (LON:PETS) are trading down 4.35% today following a downward revision in profit guidance and a weaker than expected Q1.

After what had been a solid start to the year for the share price, with gains of 34% leading into early June, the ~15% pullback since has moved PETS below the 240p support level that has previously provided support and resistance.

A modest 0.4% increase in consumer revenue to £591 million on the period initially hid a 3% decline in retail revenue. While the company managed to post growth, it fell short of initial market expectations, particularly given the company's previous outlook.

Drilling down, the Vet Group segment delivered solid results, with consumer revenue climbing 7.1%. This growth was fueled by higher average transaction values and an increasing number of customers subscribing to the company's Care Plans. In contrast, Retail consumer revenue experienced a 3.0% decline, reflecting the broader challenges in the pet retail sector.

The company has adjusted its underlying profit before tax (PBT) guidance for FY26 to a range of £110-120 million, a reduction from previous forecasts. This revision is directly linked to the slower-than-expected growth in the retail market, which is now projected to expand by only 1% this year, half of the initial forecast.

Lyssa McGowan, Chief Executive Officer of Pets at Home, acknowledged the challenging environment but emphasized the company's progress. “We are pleased to have seen momentum in our business build through Q1, against a subdued market backdrop and uncertain consumer environment,” she stated, also highlighting the over 40% growth in subscription revenues.

Despite the headwinds, Pets at Home is actively managing costs and pursuing productivity improvements to mitigate external pressures. Furthermore, its balance sheet remains robust, and the company is continuing its £25 million share buyback program, having completed approximately 25% in Q1, reducing the share count by around 2.7 million shares.

The stock is currently trading below its 50-day moving average (256.08p), signaling short-term negative momentum, but remains slightly above its 200-day moving average (238.24p), indicating longer-term support.

The sequential improvement in retail revenue, despite the overall decline, could also indicate a turnaround is underway. Perhaps the market is underestimating the company's ability to navigate the current challenges and emerge stronger.