CIBC ReactionEQUITY RESEARCH
May 10, 2022 Flash Research
PET VALU HOLDINGS LTD.
Q1 First Look: Strong Beat, Cost Pressures Weigh On Outlook
Pet Valu reported another high-quality Q1 earnings beat with adjusted EPS
of $0.35 well ahead of CIBCe and consensus, both at $0.28, driven by strong
same-store sales, healthy gross margins, and SG&A leverage.
System-wide sales increased 30% Y/Y to $286MM (or up 26% when
excluding the impact of the Chico acquisition) and were supported by strong
same-store sales (SSS) of +22.8% with traffic +18.4% and basket of +3.7%.
Pet Valu also now has over 2MM members in its loyalty program.
Gross margins of 36.1% came in well above forecast and up 106 bps from
LY despite ongoing inflationary pressures (i.e., freight). Margins benefited
from favourable product margins while the SG&A rate leveraged 29bps Y/Y
driven by store productivity, partially offset by public company costs.
Pet Valu also revised its FY22 outlook and now expects SSS in the range of
9% to 12% (previously 6% to 9%) with revenue between $870MM and
$895MM (previously $845MM to $870MM). Given the continued industry
growth and strong momentum at PET, we believe the outlook incorporates
conservatism but there are two implications worth noting: 1) after factoring in
the Q1 beat, the implied revenue through the balance of the year (Q2-Q4)
edges up slightly, bracketing both CIBCe/consensus at the mid-point, and
implies room for upward revenue revisions; and 2) earnings guidance does
not rise by the magnitude of the Q1 outperformance, implying ongoing cost
pressures. Adjusted EBITDA is now expected to be between $191MM and
$198MM (previously $187MM to $194MM) while adjusted EPS guidance of
$1.37 to $1.44 remains unchanged with a higher capex forecast ($35MM to
$40MM, was $20MM to $25MM).
Management will host a conference call at 8:30am ET; dial-in number is
1-888-350-3870 (ID: 5518274). The table in Exhibit 1 summarizes Q1 results,
our estimates, and consensus.