Economy

Pet Valu reports lower profit as the company targets up to 50 new stores

Pet Value Holdings Ltd. intends to open 40 to 50 new stores this year to capitalize on the surge in acceptance of furry companions during the pandemic.

With more than 700 stores across Canada this year, Pet Valu also plans to expand, renovate or relocate 20 to 30 of them, the company said on Tuesday when it reported its first-quarter results.

Joanne McNeish, a professor of marketing management at Toronto Metropolitan University, said the pet food and supplies retailer’s growth since the pandemic began reflects how many people are turning to dogs at the height of restrictions limiting social interactions with other people , cats and rabbits.

‚ÄúThere has been an explosion of people buying animals during COVID. This is really good news for a pet dealer as pet dealers have continued to operate during COVID,” she said.

“People who had space for a pet, who had houses, for example, often bought a larger animal, which then required all of the accessories that go with keeping the pet.”

She said this extends to specialty foods and clothing for cold-weather protection, as well as services like training courses, which are usually available at pet shops.

“So it’s certainly going to be a booming industry for the next few years,” McNeish said, adding that any retail chain needs to remain cautious in managing growth.

Pet Valu has opened 91 net new stores since 2020 and acquired 66 additional franchised stores last year through its acquisition of Quebec-based Chico.

The company reported Tuesday that its first-quarter profit fell year over year as it faced higher expenses and a weaker Canadian dollar. Earnings attributable to shareholders for the quarter ended April 1 totaled $18.7 million, or 26 cents per diluted share. Earnings came in below earnings of $22.6 million, or 32 cents per diluted share, a year ago.

However, revenue totaled $250.3 million, up from $213.2 million in the first quarter of 2022.

The revenue increase came as the company reported same-store sales growth of 9.4 percent, compared to a 22.8 percent increase in the first quarter of 2022. The company noted that results for the past year are up compared to the first year higher were quarter 2021, which was impacted by COVID-19 restrictions.

The surge in same-store revenue growth last quarter was driven by a 3 percent increase in transactions and a 6.3 percent increase in average spend per transaction.

Richard Maltsbarger, Pet Valu’s chief executive, said the business got off to a great start to the year, with strong sales growth and first-quarter margins that were in line with expectations.

“Exceptional execution from merchandising teams has helped weather significant foreign exchange headwinds, while improving supply chain conditions have enabled our best execution rates for our corporate and franchise businesses in five years,” Maltsbarger said in a statement.

“We are excited about our growth potential in 2023 and reiterate our full-year outlook.”

On an adjusted basis, the company’s earnings were 32 cents per diluted share compared to 35 cents per diluted share a year ago.

That was below analysts’ expectations of 35 cents a share on an adjusted basis, due to the company’s higher SG&A expenses and slightly higher interest expense, Stifel GMP analyst Martin Landry said in a note.

“The pet industry remains resilient despite an economic slowdown,” the research note said.

“However, investors will need to be patient before revenue growth meaningfully feeds into the bottom line as the company copes with inflationary pressures and currency headwinds.”

Pet Valu said its gains were hurt in part by the impact of a weaker Canadian dollar on foreign-origin products, which are valued primarily in US dollars. Meanwhile, spending rose due to higher compensation costs as the company’s headcount grew, along with higher technology costs for modernizing systems and a surge in advertising spend.

This report from The Canadian Press was first published on May 9, 2023.

Companies in this story: (TSX:PET)

Sammy Hudes, The Canadian Press

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