Target Raised National Bank Financial analyst Vishal Shreedhar expects a “resilient” demand for pet merchandise to drive Pet Valu Holdings Ltd.’s fourth-quarter financial results.
He’s projecting earnings per share of 45 cents for the Markham, Ont.-based retailer, up 4 cents (or 9 per cent) from the same period a year ago and above the consensus forecast on the Street of 42 cents. He says gains reflect “strong” same-store sales growth (10.8 per cent versus 16.7 per cent a year ago), new store openings over the past 12 months and contributions from subsidiary Chico.
“Demand expected to remain strong: Management revised its outlook higher last quarter, highlighting strength across most categories and no meaningful trade-down,” said Mr. Shreedhar. “Our review of peer commentary indicates that consumer spending on pets remains resilient despite the weakening economic backdrop, reflecting increasing pet humanization trends, amongst other factors. We note that PET has proprietary brands priced at a 5-20-per-cent discount which it can leverage should economic conditions further deteriorate.
“Our review of StatsCan data suggests that pet industry retail sales (data up to November 2022) were about 13.3 per cent higher year-over-year or about 3.6 per cent higher year-over-year if excluding inflation. Recall that management expressed confidence heading into Q4 despite the weakening macroeconomic backdrop. Our current forecasts are generally at the high-end or ahead of management’s 2022 guidance, including: sssg of 15.5-16.5 per cent (NBF is 17.4 per cent), revenue of $938-$947-million (NBF is $945-million), EBITDA of $212-$214-million (NBF is $215-million), and EPS of $1.56-$1.58 (NBF was $1.61).”
When the company reports its results before the bell on March 7, the analyst expects investor focus will be centred on the outlook for the next fiscal year, calling it “key.”
“Expectations for 2023 will be an important driver, though management’s track record suggests that it may offer a conservative outlook,” he said. “Our 2023 forecasts reflect sssg of 6.9 per cent, revenue of $1.029-billion (consensus: $1.031-billion), EBITDA of $237-million (consensus: $230-million) and EPS of $1.75 (consensus: $1.68).”
After modest increases to his 2022 and 2023 revenue and earnings estimates, Mr. Shreedhar raised his target for Pet Valu shares to $47 from $44, maintaining a “sector perform” recommendation. The average on the Street is $45.67.
“We hold a favourable view of Pet Valu’s business model, its outlook and the industry, supported by secular pet humanization trends and resilient pet ownership rates,” he said. “That said, in the interim, we find better value elsewhere.”