Pet Valu Holdings Ltd T.PET

RBC

[retiredcf]

May 9, 2023

Pet Valu Holdings Ltd.

Cool cats: PET reports solid Q1/23 results although a whisker shy of forecast, outlook reaffirmed

TSX: PET | CAD 35.92 | Outperform | Price Target CAD 50.00

Sentiment: Neutral

Bottom line: Neutral. Not the beat and raise markets like to see from PET, but a solid start to the year.

2023 outlook reaffirmed with no changes, and is 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 Q1/2023 results:

• Adjusted EPS $0.32, -8.6% vs forecast/updated consensus $0.36/$0.34, f -3% to +1%.

• SSS growth/revenue growth as forecast: SSS Q1 +9.4%, driven by 3% increase in transaction count, 6.3% increase in average transaction size. SSS negatively impacted by -1.2% due to timing of New Year's Day. Total revenue growth 17.4% and exactly as forecast.

• Relative to 2019, SSS +64.6%, driven by 33.1% increase in transaction count, 23.9% increase in basket size, reflecting estimated 25-30% increase in size of TAM, augmented by market share gains

• Adjusted EBITDA $49 MM +4% Y/Y and 7.5% shy of forecast but only 2% shy of updated consensus $50 MM. Gross margin 40 bps shy of forecast, SG&A 40 bps above forecast.

• Solid balance sheet/CF to support growth, net leverage at Q1 1.8x, +0.1x sequentially.

• Inventory: +39%, a sequential uptick relative to Q4, but below Q3 +48%.

  No change to 2023 Outlook:

  • SSS: +7-10% vs last published forecast +8%.
  • Store openings: 40-50 vs last published 40.
  • Revenue: $1,050 MM and $1,075 MM, +10-13% vs last published forecast $1,069 MM, +12.3%. • Adjusted EBITDA $230-$237,+7-10% vs last published $231, +8.7%.
  • EPS $1.60-$1.66, +1-4%, vs prior published $1.67, +10.2%.
  • Business transformation costs $13 MM, IT costs $7 MM, share based comp $8 MM.
  • Capex: $50 MM.

  Conference call 8:30 am: 1-833-950-0062 (ID: 686748)

  Expect focus of the call to be: i) key drivers of Q1 performance, ii) color around consumer spending trends, notably any trade-down or slowing of discretionary spend, iii) competitive/promotional intensity, iv) surrender/adoption rate, v) update on e-Commerce, consumer uptake of subscription services in late September, v) update on planned capex spend.