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Tough trading conditions have whacked the Pets at Home (LSE:PETS) share price in recent times. The FTSE 250 share fell another 11% on Monday (31 March) too after it slashed profit guidance for the upcoming financial year.
Britain’s largest dedicated petcare retailer said that “a challenging and volatile UK consumer backdrop” had persisted in recent months, and predicted that “the current market conditions and subdued consumer backdrop to continue into the new financial year“.
As a result, Pets estimates that full-year underlying pre-tax profit will fall to between £115m and £125m during the 12 months to March 2025. That’s lower than the £133m it says it’s on course to bank in financial 2024.
But despite the bad news, I’m wondering if now represents a good dip buying opportunity for me.
Cost pressures
Don’t get me wrong. There’s a good chance Pets at Home’s shares could remain under the cosh given the worsening economic outlook and predictions of rising inflation.
The company’s troubles aren’t consigned just to the top line, though. Like other major retail chains, near-term earnings are also under pressure from rising costs.
Changes to the National Living Wage and National Insurance will cost the company £18m in financial 2026, it said. New packaging regulations and variable pay rebuild will cost it another £2m and £18m, respectively.
Looking good longer term
Yet as a long-term investor, I’m prepared to endure a little temporary pain if the longer-term outlook remains compelling. It’s why Pets at Home’s shares remain highly attractive to me despite its current problems.
Make no mistake: the outlook for the UK petcare market remains extremely bright. And with its ‘Pets Club’ loyalty scheme helping cement its market leader status (share: 24%) — the number of members currently stands at record highs — the FTSE 250 retailer is in good shape to capitalise on its opportunity.
Researchers at IMARC think the market will grow 5.7% a year between now and 2033, driven by “increasing pet ownership, growing focus on pet health, significant technological advancements, such as smart devices and telemedicine, rising humanization of pets, and heightened demand for premium products“.
Pets has a great record of outperforming the broader market. New digital platforms to boost cross-selling and sales frequency mean this is likely to continue. I’m also excited by further strong growth at its veterinary services division as site expansion continues. Like-for-like sales here rose 18.2% in the first half.
Trading at a discount
I’m also attracted by the excellent value for money Pets at Home shares currently provide.
Following Monday’s price fall, the retailer trades on a price-to-earnings (P/E) ratio of 9.4 times. To put this in perspective, the five-year average for Pets shares sits significantly higher, at around 19 times.
The share price has dropped around a fifth over the last 12 months. But history shows that weakness in the petcare market tends to be very short-lived. When I next have cash to invest, I’ll consider buying the FTSE 250 stock to exploit a potential rebound.
