CIBCHave $42.00 target. GLTA
EQUITY RESEARCH
April 26, 2022 Flash Research
PET VALU HOLDINGS LTD.
Q1 Preview: Healthy Demand Trends Set The Tone
Pet Valu will report its Q1 results on Tuesday, May 10. Management will host
a conference call at 8:30am ET; dial-in number is 1-888-350-3870 (ID:
5518274). The quarter ran from January 2 to April 4.
We expect Q1 to showcase another quarter of strength in pet spending,
supported by inelastic demand for the category as well as the accelerating
benefits of pricing. Furthermore, PET will be lapping easier same-store sales
(SSS) comparisons as the company faced nationwide restrictions in the prior
year, including ~9 weeks of store closures in Ontario (53% of the network)
where consumers were limited to curbside pickup. Freight and labour costs
will be the most notable cost headwinds. Putting the pieces together we
forecast systemwide sales of $263MM, driven by SSS of +14% (or +21.9%
on a two-year stacked).
At the corporate level, we expect strong systemwide sales to translate to
$201MM in revenue. Below the top line, we expect 61bp of gross margin
pressure driven by higher logistics and supply chain costs, partially offset by
fixed cost leverage, while we expect SG&A to deleverage 40bp due to higher
wages for animal care experts and the inclusion of public company costs.
This leads to EBITDA of $40MM and EPS of $0.28.
PET shares have been weak year to date as the market shifts away from
discretionary stocks. That said, we remind investors that not only has the pet
category demonstrated defensiveness during past economic downturns (with
food representing the lion’s share of the annual cost of care), but PET has
multiple company-specific initiatives underway that we believe can continue
to drive outperformance relative to the industry.
On the call, we will look for updates on: 1) the outlook for COGS and SG&A
inflation through H2/2022, 2) company-specific initiatives including loyalty
(nearly 2MM active members as of Q4) and owned brands, and 3) any
revisions to full-year guidance. The table in Exhibit 1 summarizes our
estimates and consensus.