CIBCEQUITY RESEARCH
August 9, 2022 Flash Research
PET VALU HOLDINGS LTD.
Q2 First Look: Another Strong Beat And Raise
Pet Valu reported a Q2 high quality earnings beat with adjusted EPS of
$0.39, well ahead of CIBCe/consensus both at $0.32, driven by strong same-
store sales, healthy gross margins and SG&A leverage.
System-wide sales increased 35% Y/Y to $313MM (or up 24% excluding
Chico acquisition) driven by same-store sales (SSS) of 21.2% with traffic of
19.3% and basket of 1.5%. Recall this is the first quarter PET began cycling
tougher SSS comparisons, so we view the strong SSS performance as
indicative of both company-specific initiatives aimed at growing market share
as well as the health of the pet industry. GM% of 37.5% came in ahead of
expectations driven by fixed cost leverage and the Chico acquisition, partially
offset by higher wholesale shipments and lower product margins. SG&A rate
deleveraged 37bps Y/Y driven by investments in headcount and the inclusion
of public company costs.
PET also updated its FY22 outlook and now expects revenue between
$912MM and $928MM (from $870MM to $895MM) based on SSS of 13% to
15% (previously 9% to 12%). In terms of profitability, Pet Valu now expects
adjusted EBITDA in the range of $203MM to $207MM (from $191MM to
$198MM), and EPS between $1.47 and $1.51 (previously $1.37 to $1.44).
Capex ($35MM-40MM) and store opening guidance (35-45) is unchanged.
We believe the outlook reflects conservatism as PET cycles tougher SSS
comparisons and manages cost inflation. Factoring in the strong H1
performance and the revised guidance implies: 1) H2 revenue between
$471MM and $487MM (ahead of CIBCe/consensus of $469MM/$458MM),
but 2) limited flow through likely reflecting ongoing cost headwinds. Implied
H2 adjusted EBITDA is expected to be between $104MM and $108MM (vs.
CIBCe/consensus both at $105MM) and adjusted EPS in the range of $0.73
and $0.77 (vs. CIBCe/consensus $0.77/$0.76).
Management will host a conference call at 8:30am EST; dial-in number 1-
888-350-3870 (ID: 5518274). The table in Exhibit 1 summarizes Q2 results,
our estimates, and consensus.