Pet Valu Holdings Ltd T.PET

RBC

[retiredcf]

March 7, 2023

Pet Valu Holdings Ltd.

Puppy love: PET ends 2022 on strong paws, 2023 outlooks in line with/slightly above forecast

TSX: PET | CAD 39.90 | Outperform | Price Target CAD 50.00

Sentiment: Positive

Bottom line: Modestly positive

PET Q4/F22 results once again strong, with revenue above expectations at +19%, EBITDA a puppy tail higher than expected.

2023 outlook above/consistent with prior published forecasts, including on capex, reflects normalizing adoption/surrender rates, commissioning of new DC in H2/2023, and as anticipated, upward revision to capex outlook as PET invests to support future growth. Results supportive of our constructive view of PET, company’s premium valuation, and consistent with execution of strong long-term growth opportunity outlined at IPO, augmented by step up investment to support growth.

Highlights of Q4/2022 results:

• Adjusted EPS $0.43, +6.3%, in line with consensus.

• SSS growth/revenue growth above forecast: SSS Q4 11.8%, driven by 4.6% increase in transaction count, 6.9% increase in

  average transaction size. Total revenue growth 19% vs forecast +13%.

• Relative to 2019, SSS +54%, driven by 31.9% increase in transaction count, 16.8% increase in basket size.

• Adjusted EBITDA $59.3 MM +11.2% Y/Y and 4% above forecast/consensus $57 MM.

• Full year 2022 EBITDA $214.8 MM, +17.8%, EPS $1.59, vs forecast $1.58.

• Solid balance sheet/CF to support growth, net leverage at Q4 1.7x, -0.1x sequentially.

• Dividend +67% to $0.10/Q from $0.06/Q.

• Inventory: +29%, a sequential improvement vs Q3 +48%.

  2023 Outlook implies revenue growth strong and above forecast, profitability slightly above/in line with forecasts as PET steps up investments to support growth:

  • SSS: ++7-10% vs last published forecast +3.5%.
  • Store openings: 40-50 vs last published 40.
  • Revenue: $1,050 MM and $1,075 MM, +10-13% vs last published forecast $1,003 MM, +6.9%. . • Adjusted EBITDA $230-$237,+7-10% vs last published $231, +8.7%.
  • EPS $1.60-$1.66, +1-4%, vs prior published $1.67, +5.5%.
  • Business transformation costs $13 MM, IT costs $7 MM, share based comp $8 MM.
  • Capex: $60 vs 2022 $39 MM, last published forecast $37.5 MM.

  Conference call 8:30 am: 1-833-950-0062 (ID: 056004)

  Expect focus of the call to be: i) colour around assumptions underlying 2023 guidance, ii) key drivers of Q4 performance, iii) color around increased capex/return profile/timing, iv) surrender rates and consumer behavior against the backdrop of higher rates and high inflation, v) update on e-Commerce, response to launch of subscription services in late September.