CIBCHave a $48.00 target. GLTA
EQUITY RESEARCH
October 31, 2022 Flash Research
PET VALU HOLDINGS LTD.
Q3 Preview: Expecting Positive Momentum To Continue
Pet Valu will report its Q3 results on Tuesday November 8. 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 July 3 to October 1.
We expect Pet Valu to post another quarter of healthy system-wide sales
supported by a continued normalization in consumer behaviour and return to pre-pandemic shopping habits (i.e., casual customer visit with pet, usage of in-store services, etc.). System-wide sales will also benefit from the inclusion of the Chico acquisition for the full 13-week period. Overall for Q3, we forecast same-store sales (SSS) growth of 11%, supported by an increase in store traffic and inflation, partially offset by normalization in basket size (fewer units per basket). We expect strong system-wide sales and square footage growth, along with Chico, to translate to 17.5% growth in revenue. Below the top line, we forecast 185bps of gross margin compression due to higher freight and distribution costs as well as lapping favourable USD/CAD FX rates last year. Recall, 30% of PET’s products are purchased in USD and
the company does not hedge. We forecast the SG&A rate to deleverage due to investments in headcount, translating to EBITDA of $51MM and EPS of $0.37, both in line with consensus.
On the call, we will look for updates on: (1) any shifts in basket composition between food, treats, and toys; (2) the current landscape and outlook for pricing and industry promotions; (3) performance of Halloween seasonal sales; (4) early customer feedback to PET’s autoship subscription (launched on September 21); and (5) any revisions to full-year guidance. Given PET’s strong share price performance over the last two months (PET +10% vs. TSX -2%), we believe investor expectations are elevated, though we note that FX and high interest rates will likely cap EPS upside in Q4 even if the “implied” top line for Q4 comes in ahead of expectations.