Investing.com -- Pets at Home (LON:PETSP) on Wednesday reported an 84% drop in underlying profit in its retail division to £3.5 million in the first half, as margin pressure and weaker discretionary spending outweighed growth in its veterinary arm, the UK pet care retailer said on Wednesday.
Group underlying profit before tax fell 33.5% to £36.2 million and statutory profit before tax declined 29.1% to £36.2 million.
Group statutory revenue decreased 1.3% year over year to £778.3 million, with like-for-like revenue down 1.3%.
Retail consumer revenue fell 2.3% against what the company described as a flat market. Retail statutory revenue was £679.9 million, down 2.3% from a year earlier. Food sales declined 0.3%, while accessories revenue fell 6.5%.
The company said gross margin in retail fell 105 basis points, attributing the decline to targeted price investment and lower supplier income.
Free cash flow rose 2.6% to £34 million, supported by timing in working capital, and adjusted net debt increased to £12 million from £8.3 million a year earlier. The board declared an interim dividend of 4.7p, unchanged from the prior year.
The Vet Group remained the strongest contributor to the business, reporting underlying PBT of £44.9 million, up 8.3% year over year.
The division achieved consumer revenue growth of 6.7% and a gross margin of 54.7%, up 29 basis points.
Interim Executive Chair Ian Burke said he had visited more than 100 Pet Care Centres since assuming his role 10 weeks earlier and initiated a plan to address retail performance.
Burke said the company is returning to its “retailing roots,” outlining priorities across product, price, cost and execution. “Having visited more than 100 Pet Care Centres over the last 10 weeks, we are returning to our retailing roots,” he said.
Jefferies in a note described Pets at Home’s first half as reflecting “well-flagged challenges” in retail, citing a negative 2.3% like-for-like sales result, gross-margin pressure and operating-cost inflation.
The analysts said sequential retail improvement was visible, with like-for-like sales improving to a 1.7% decline in the second quarter from a 2.8% decline in the first quarter and a 5.2% decline in the fourth quarter of fiscal 2025.
Jefferies noted continued strength in veterinary operations, where consumer revenue grew 7% and PBT increased 8% to £44.9 million.
The analysts said management had identified two primary issues affecting retail: advanced nutrition ranges losing share to premium entrants and accessories affected by “self-inflicted” gaps in product, price and execution.
The firm reiterated its full-year underlying PBT guidance of £90 million-£100 million and said the restructuring programme aims to deliver £20 million in cost savings. Jefferies raised its FY27 PBT estimate by 15% to £108 million and increased its price target to 265p from 250p.
Pets at Home said its branded pet-insurance launch remains scheduled for 2026, and the £25 million share-buyback programme is 50% complete. The search for a new chief executive is ongoing. The company said market conditions are expected to remain close to flat in the second half.