CIBCHave a $48.00 target. GLTA
EQUITY RESEARCH
May 9, 2023 Flash Research
PET VALU HOLDINGS LTD.
Q1 First Look: Mixed Results, Outlook Reiterated
Pet Valu reported mixed Q1 results with headline adjusted EPS three cents
below consensus but relatively in line with our estimate. The variance vs. our
model was driven by higher-than-expected SG&A dollars (and deleverage),
partially offset by better-than-forecast gross margin and revenues.
Same-store sales (SSS) came in at 9.4% driven by basket of +6.3% and
traffic of +3.0%. Price inflation was certainly supportive of comp growth but
we take note that on a two-year compounded basis traffic growth accelerated
sequentially. We believe this highlights PET’s relevance amongst pet owners
and likely market share gains in the quarter. Of note, management also
highlighted that sales of discretionary goods slowed, though super premium
food continues to outperform.
The gross margin rate contracted less than we expected – and was in line
with consensus – with pressure driven by unfavourable FX, higher wholesale
merchandise sales partially offset by lower freight costs, and the acquisition
of Chico. More importantly, SG&A was higher than forecast, both on a dollar
and rate basis, and the company called out investments in headcount, wages
and technology as the primary drivers. The SG&A deleverage is somewhat
surprising to us given management had previously hinted that SG&A would
begin to leverage in 2023 (though no cadence was provided). We believe this
is still a reasonable expectation but will likely be more H2-weighted. The
outlook for SG&A will likely be a key focus on the call.
As expected, management reiterated top- and bottom-line guidance provided
during Q4 results. Consensus sits towards the upper end of management’s
guidance, and we suspect that it is unlikely earnings revisions climb after the
Q1 results.
Management will host a conference call at 8:30 a.m. ET; dial-in number is
1-833-950-0062; passcode ID: 686748.