Pets at Home has received a lot of press attention in the last month, most of which has been positive.
At Red Flag Alert, we love to see business success stories. However, when making financial health assessments, we look beyond the headlines to provide trade creditors with a clear view of the risks. It’s a key part of our job to protect clients from trading with businesses that could pose a credit risk.
While Pets at Home appears to be making some positive steps towards success, our data suggests there are some issues that trade creditors should be aware of.
First, Why All the Positive Press?
Pets at Home is in the middle of a major shake-up. Peter Pritchard took over as CEO in April 2018 and has since begun implementing several policies to strengthen the store’s position in the market.
One of the major changes the new CEO has made is putting an emphasis on services and using these to attract customers to Pets at Home stores.
Speaking to The Telegraph, Pritchard said he hopes services the shop offers — things like dog birthday parties, grooming treatments, pet training, and self-wash booths — will help the company fend off competition from online retailers like Amazon which, despite offering cheap prices and convenience, are unable to compete on this level.
Pritchard said he expects these services to make up 50% of all the company’s revenue five years from now, a significant increase on the 30% that services currently generate.
This could be a boon for the business. According to the CEO, those who engage with the services offered by the shop spend an average of £1,200 a year compared to an average spend of £140 a year for those who just use the shop to buy food and pet essentials.
This focus on services has also seen Pets at Home invest in Tailster.com – a website and app that connects a network of pet-carers to those who need dog walking and pet-sitting services. The service allows pet owners to use GPS to track their pet’s activity.
Pet-minding services like the ones offered by Tailster are thought to be a £1 billion market, with dog walking alone generating half this amount. These figures suggest the investment could be another significant source of income for the company. Speaking about the deal, Pritchard said it was a “win-win deal, good for both businesses”.
Many people seem to think the changes the CEO has put in place are positive. At the time of writing on 26 July, Pets at Home shares are trading at over £2 per share. This is a significant increase on the start of the year when they were trading at just over £1.
Sounds Great, Then What is the Problem?
Red Flag Alert always aims to provide a clear view of a company’s finances, and there is more to the company than the good news stories in the press. Pets at Home currently has an Amber rating. This means we consider trading with the company to be a moderate risk, and open credit is only recommended with caution (July 2019).
To be clear, Pets at Home is by no means on the verge of failure. We have three ratings below Amber that we use in situations where we don’t recommend trading. However, there are some characteristics in the company’s financials that suggest a cautious approach is sensible.
- Firstly, its profits have almost halved over the last three years. From a high of £95m in 2017 to £80m in 2018, and £50m in 2019.
- The drop in profits came despite an increase in revenue. The company’s before tax profit margin decreased, from 8.85% last year to 5.16% in 2019.
- The company’s dividend cover is declining. Despite profits going down, they are still paying the same dividends to shareholders.
- Finally, £1 billion of shareholders’ funds are intangible assets. When intangible fixed assets are subtracted, the business has a negative net worth.
All this doesn’t mean Pets at Home will fail. The company is still profitable and, as the articles show, it is doing a lot to attempt to improve its position.
However, that doesn’t mean the above warning signs should be taken lightly. Suppliers and trade creditors should keep a close eye on the company’s financial circumstances, especially while profits are decreasing, and it has few tangible assets.
Red Flag Alert Looks Beyond the Headlines to Help You Manage Risk
Red Flag Alert is a business intelligence solution that provides real-time business data on every company in the UK. This helps business owners avoid risk and spot opportunities.
This is important, because knowing as soon as possible when a company is in a financially perilous position allows you to take steps to protect yourself from the possibility of incurring bad debt.
Here is how Red Flag Alert data can help:
- Red Flag Alert provides information on 6.5 million UK businesses. This means you’ll gain useful intelligence no matter who you trade with.
- We give every company in our system a financial health rating that shows its credit risk. Businesses can quickly use these ratings to make decisions on the amount of risk they are willing to take on.
- Red Flag Alert users can use over 100 indicators to get a more in-depth look at a company’s financial health.
- The data is updated in real-time, around 100,000 times every day. This ensures businesses always have access to the most up-to-date intelligence. These updates are automatically reflected in each company’s financial health rating.
- Red Flag Alert provides 2.6 million GDPR compliant telephone records and information on about 20 million key decision-makers, allowing you to assess the risk of specific directors.
To find out more about how Red Flag Alert can help you spot when companies may be a trading risk, get in touch with Richard West on firstname.lastname@example.org or 0344 412 6699.