Pet Valu Holdings Ltd T.PET

RBC

[retiredcf]

August 9, 2022

Pet Valu Holdings Ltd.
Puppy love - Q2/22 FGN: Q2 results reinforce constructive investment thesis

TSX: PET | CAD 32.74 | Outperform | Price Target CAD 42.00

Sentiment: Positive Bottom line: Positive

PET Q2/F22 results were strong and higher than expected. 2022 outlook revised upward by 5% at high end of EPS range to reflect strong H1 performance, 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.

Highlights of Q2 results:

• Adjusted EPS $0.39, 22% above forecast/consensus $0.32, a similar magnitude of outperformance as in Q1. Revenue 3% above forecast, benefit of revenue growth flowed through to bottom line.

• SSS growth 21.2%, similar to Q1 +22.8%, driven by 19.3% increase in transaction count from depressed levels prior year (COVID restrictions), 1.5% increase in average transaction size. Total revenue growth 25%.

• Gross margins 40 bps above forecast @ 37.5%, 45 bps SG&A leverage, solid sequential improvement.

• Adjusted EBITDA $52 MM +23% Y/Y and 10% above forecast $47 MM.

• Solid balance sheet/CF to support growth, net leverage at Q2 <2.0x vs 2.1x at Q1.

  2022 Outlook revised upward all the way down the P&L:

• SSS: +13%-15% vs +9-12% at Q1, +6-9% initial guidance.

• Store openings: unchanged at 35-45.

• Revenue: +4-5% to $912-$928 MM vs prior $870-$895 MM, initial guidance $845-$870 MM.

• Adjusted EBITDA +4.5-6% to $203-$207 MM from $191-$198 MM prior, initial guidance $187-$194 MM.

• EPS vs prior +5-7% to $1.47-$1.51 from $1.37-$1.44. Pre-Q2 release consensus $1.44.

• Capex: Unchanged at $35-$40 MM including $15 MM in advanced payments/leasehold improvements related to build-out of new DC in GTA.

  Conference call 8:30 am: 1-888-350-3870 (ID: 5518274)

  Expect focus of the call to be: i) colour around assumptions underlying updated guidance, ii) key drivers of Q2 performance, iii) color around surrender rates and consumer behavior against the backdrop of rising inflation, iv) ability to pass through price increases as inflation in agricultural commodities likely drives higher cost of consumables, which represent 70% of revenues, v) update on thoughts with respect to upside from Chico’s acquisition and growth opportunities, vi) update on e-Commerce initiatives.

  Table of Q2 results/highlights on the following page: