Pet Valu posts lower profit as company sets sights on up to 50 new stores

Pet Valu Holdings Ltd. is looking to open 40 to 50 new stores this year as it looks to capitalize on the surge in adoption of furry companions during the pandemic.

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

Joanne McNeish, a marketing management professor at Toronto Metropolitan University, said the pet food and supplies retailer’s growth since the start of the pandemic reflects how many people turned to dogs, cats and rabbits at the height of restrictions that limited social interaction with other people.

“There was an explosion in people buying animals during COVID. That’s really good news for a pet retailer because pet retailers during COVID continued to operate,” she said.

“People who had space for a pet, who had houses, for example, often bought a bigger animal, which then require all the accessories that go with having the pet.”

She said that extends to specialty food and clothing for protection during cold weather, along with services such as training classes typically offered at pet stores.

“So for the next several years, it’ll certainly be a booming industry,” said McNeish, adding that any retail chain must 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 takeover of Quebec’s Chico.

The company reported Tuesday its first-quarter profit fell compared with a year ago as it faced higher costs and a weaker Canadian dollar. Its profit attributable to shareholders totalled $18.7 million or 26 cents per diluted share for the quarter that ended April 1. The result was down from a profit of $22.6 million or 32 cents per diluted share a year earlier.

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

The increase in revenue came as the company saw same-store sales growth of 9.4 per cent, down from a gain of 22.8 per cent in the first quarter of 2022. The company noted the results last year were elevated as they were compared with the first quarter of 2021, which was affected by COVID-19 restrictions.

Same-store sales growth for the most recent quarter was driven by a three per cent bump in transactions and a 6.3 per cent rise in average spend per transaction.

“While people aren’t acquiring pets to the same degree that they were, they still have these pets and they’re still spending on them,” said Lisa Hutcheson, managing partner at consulting firm J.C. Williams Group.

“Even in an economic downturn or recession, people are still going to want to spend on their pet.”

The retail analyst said pet retailers that create “experiential” reasons to enter their stores, rather than purchase products online, will be the most successful coming out of the pandemic boom. She referenced a promotion offered in recent years by some companies for pets to have their photos taken with Santa Claus at Christmas.

“Creating community and those kinds of things that get people to come to the store, I think it’s going to be a way to continue to grow that part of the business,” said Hutcheson.

Pet Valu chief executive Richard Maltsbarger said the business was off to a great start for the year, with strong top-line growth and margins in the first quarter performing in-line with its expectations.

“Exceptional execution from merchandising teams helped to navigate significant foreign exchange headwinds, while improving supply chain conditions enabled our best fill rates to our corporate and franchise stores in five years,” Maltsbarger said in a statement.

“We are excited for our growth potential in 2023, and are reaffirming our full year outlook.”

On an adjusted basis, the company’s profit was 32 cents per diluted share, compared with 35 cents per diluted share last year.

That fell below analysts’ expectations of 35 cents per share on an adjusted basis due to the company’s higher selling, general and administrative expenses and slightly higher interest expenses, Stifel GMP analyst Martin Landry said in a note.

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

“However, investors will need to be patient before revenue growth flows through the bottom line in a meaningful way as the company copes with inflationary pressures and currency headwinds.”

Pet Valu said its profits were partially driven down by the impact of a weaker Canadian dollar on foreign-sourced products primarily priced in U.S. dollars. Meanwhile, expenses grew due to higher compensation costs as the company’s employee head count grew, along with higher technology costs to modernize systems and an increase in advertising spending.

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

Companies in this story: (TSX:PET)

Sammy Hudes, The Canadian Press