Have a $44.00 target. GLTA
EQUITY RESEARCH
PET VALU HOLDINGS LTD.
Q2 First Look: Earnings Beat But Slower SSS Growth
PET reported mixed Q2 results with adjusted EPS of $0.36, two cents ahead
of consensus, driven primarily by better-than-expected gross margin while
same-store sales (SSS) fell short of our estimate.
SSS of +6% were driven by basket of +4.8% and traffic of +1.2%, and fell
short of our +10% estimate. Management called out “double-digit growth in
consumables” (~75% of sales), which implies sales in the hardlines category
decelerated meaningfully on a sequential basis.
Adjusted gross margin was down 140bps Y/Y, driven by unfavourable FX
and higher wholesale merchandise sales, partially offset by lower inbound
freight. We had forecast greater pressure (-248 bps) and this was the primary
driver of the earnings beat. Note that adjusted gross margin (not reported by
PET) excludes a 20bps headwind in Q2 related to supply chain investment
costs; as a reminder, these are excluded from adjusted EBITDA/EPS but
included in reported gross margins. SG&A dollars were well controlled and
adjusted EBITDA margin of 21.0% came in ahead of mgmt.’s guide of
“roughly similar” to Q1, where margin was 19.5%.
PET reiterated F23 guidance with consensus sitting towards the higher end
of guidance on revenues ($1.05B to $1.075B; consensus $1.069B) and the
lower end on EPS ($1.60 to $1.66; consensus $1.62). That said, while the
Q2 comps fell short of our estimate, we do not believe the 7% to 10% SSS
guidance is aggressive, given 1) PET will be lapping easier comparisons in
H2, and 2) comps in H2 do not have to re-accelerate sequentially in order to
hit the low end of guidance; by our math, we estimate a +6.5% H2 comp in
order to achieve 7% SSS for the year.
Management will host a conference call at 8:30am EST; dial-in number is 1-
833-950-0062 (ID: 675228).