CIBCHave a $43.00 target. GLTA
EQUITY RESEARCH
July 24, 2022 Flash Research
PET VALU HOLDINGS LTD.
Q2 Preview: Sales Momentum Should Mitigate Cost Inflation
Pet Valu will report its Q2 results on Tuesday August 9. Management will
host a conference call at 8:30 a.m. ET; dial-in number is 1-888-350-3870 (ID:
5518274). The quarter ran from April 3 to July 2.
We expect Q2 to showcase another quarter of healthy system-wide sales.
Key drivers are continued growth in pet population, inelastic demand for the
category as well as PET’s focus on the devoted pet lover, who have a pet-
first mentality and are less price sensitive relative to other pet owners.
System-wide sales should also benefit from the inclusion of the Chico
acquisition for the full 13-week period. Furthermore, PET will also be lapping
easier same-store sales (SSS) comparisons for 10 weeks of the quarter
when more than half of stores were restricted to curbside pickup only due to
the third wave of COVID. Putting all the pieces together, we forecast
$281MM in system-wide sales based on SSS of 15%.
At the corporate level, we expect healthy system-wide sales to translate into
$216MM in revenue. Below the top line, we expect 81bps of gross margin
compression due to higher freight and supply chain costs, partially offset by
fixed cost leverage, while we expect the SG&A rate to deleverage 60bps Y/Y
due to the inclusion of public company costs as well as higher wages for
animal care experts. This translates to $46MM in EBITDA and $0.32 of EPS,
both in line with consensus.
On the call, we will look for updates on: 1) any changes in basket size and
mix (between food, treats, and toys) amidst elevated inflation and greater
consumer mobility, 2) commentary around both pet adoption and surrender
rates, 3) loyalty program initiatives to drive greater customer engagement
across multiple categories, and 4) any revisions to full-year guidance. The
table in Exhibit 1 summarizes our estimates and consensus.