With lots of “pawsitively” exciting growth stories now available in the retail sector, not least via the B&M IPO, how do recent floats like Pets at Home avoid getting drowned out?

With lots of “pawsitively” exciting growth stories now available in the retail sector, not least via the B&M IPO, how do recent floats like Pets at Home avoid getting drowned out?

Everybody wants to have a chance to get their story across, but Pets chief executive Nick Wood and his management team gave it a good go some three months ago during the IPO.

And it was a struggle to convince the City then that the business is still a growth story, relative to quite a demanding valuation, and there was a bit of a ‘private equity owned’ backlash, given its ownership history.

As a result, the Pets at Home IPO float only got away at 245p, below best hopes, and the shares soon sank below the float price, trading today at around 216p.

Three months on and Pets at Home had another chance today to tell the story, via the final results, but found itself competing not only with the first day of dealings in the giant B&M IPO but with the final results of the rising star of the online fashion world, Boohoo.com.

Having read in the weekend press that, as a publicity stunt, Pets at Home has unleashed a psychic bulldog named Roo ahead of the World Cup (he has tipped England to beat Italy in their opening game of the tournament), we were half expecting the aforementioned Roo to make an appearance at the analysts meeting inside the hallowed offices of Goldman Sachs today.

Wisely, however, Pets At Home bosses avoided any such tawdry attempts to influence the hard-bitten analysts and restricted themselves to a comely display of their new Wainwright’s own-label dog and cat food range in the coffee room, because such “advanced nutrition” products are a key part of the differentiation strategy in pet food.

Pets at Home’s mantra is that if it is “the best pet Shop in the world” through putting “pets before profit”, opening “world class shops”, having “friendly experts”, being “at the heart of every community”, being “always new and exciting”, being “the best bets and groomers” and being “a truly amazing place to work”, and deliver across that paw-print, then they will be able to drive growth in like-for-like sales, space and gross margin.

Unfortunately, Pets At Home’s recent growth record is solid rather than spectacular, with like-for-like sales up by just 2.4% in 2013/14 and EBITDA ahead by only 12%, to £111m.

Pets at Home says that current trading is line with expectations and that the new-year is on track, but uncertainties persist.

There is only one big specialist pets retailer in the UK and that is Pets at Home, but its biggest competitor is the supermarkets because of their presence in the pet food market, and guess who is having a mini-price war at present?

Pet food isn’t a popular KVI like milk or bread, but any business overlapping with the supermarkets is going to have trouble convincing sceptical fund managers that its sales and gross margins will not be affected.

And the other big competition comes from websites, including those of the online grocery players (such as Ocado’s new Fetch business) and of course the mighty Amazon, as well as some specialists.

Pets at Home has a much bigger and more exclusive range than any of its online competitors, so multi-channel is an opportunity for the business although online is also a threat.

So too, is the fast-growing B&M a threat. The value of its edited pets range was highlighted by management during the recent IPO teach-in. 

Pets at Home’s main focus is on breaking into the highly fragmented market for veterinary and grooming services and progress seems good so far, but whether its out-of-town store base is ideally located for this market remains to be seen.

Just as B&M can point to the success and valuation of its US peer Dollar General as a benchmark for investors, Pets at Home can point to PetSmart in the US.

This hasn’t helped much because PetSmart’s shares have also performed disappointingly over the last few months.

Unfortunately, the City seems to have decided that there isn’t much gas left in the (fish) tank at Pets At Home and the shares are trading on a much lower rating than the “pawsitively” more exciting B&M.

Management can wave all they like, but Pets at Home will have to focus on delivering the goods so that they don’t remain drowned out in the battle for the City’s attention.

About Nick Bubb

Nick Bubb has been a leading retailing analyst for over 30 years. He is a well-known commentator on UK retailing and is a founder member of the influential KPMG/Ipsos “Retail Think-Tank”.