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Why is the Pets At Home share price up 6.5% today?

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For most retailers, lockdown has been weighing on finances. For a few though, it has helped. This is why Pets At Home (LSE: PETS) was able to upgrade its outlook for the financial year this morning, helping its share price to hit record highs.

The numbers

Pets At Home said today that it expects to beat expectations for the current year, as it is able to remain open during lockdown. Specifically, it said sales momentum accelerated during Q3 in stores and online.

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Though the company did not provide an exact growth figure, it did imply it would be greater than the 12.7% seen in Q2. It also said there was a “high teens” percentage increase in group like-for-like sales in December.

Pets At Home said it expects to deliver underlying pre-tax profits of at least £77m for the year. This excludes £28.9m in business relief it said it will pay back.

Though this is technically less than its previous guidance of £93.5m, that number did not take account of the business relief repayment. The figure is around £65m with this taken into account. This means today’s guidance represents an increase of 18% in expected profit.

The £80m in cash proceeds, after the company’s sale of Specialist Group last year, is also helping the numbers. The Pets At Home share price climbed as much as 12% today, though soon settled a little lower as profit taking took hold.

Long-term prospects for the Pets at Home share price?

To me, today’s news indicates the strength of the company during the Covid-19 pandemic. Pets At Home has seen its share price double since the first March lockdown. Its position as an essential retailer has helped it maintain its already strong business model.

In addition, pet ownership during lockdown has increased across the board. Though I am reminded of the old adage “a dog is for life, not just for Christmas”, it is to the benefit of Pets At Home.

This is not surprising, of course; working from home offers the perfect opportunity to give a pet the attention it needs. When you are stuck in your house all day, walking a dog is a very attractive prospect.

As well as the headline positivity from today’s guidance, other long-term factors can be seen. The increase in retail sales, for example, is very positive given the broader move to online shopping.

For many, going to Pets At Home is more than just buying your pet essentials. The combination of veterinary services, grooming, and shopping has a lot of cross-selling potential. You go to have your dog’s hair cut and come home with three new toys.

Its customer base is also loyal, with its Very Import Pet (VIP) loyalty programme helping create a close customer bond even for such a large retailer. Your pet even gets a birthday card, and deliveries are addressed to your pet “care of” you. Silly, perhaps, but it works for those of us who love our furry friends.

Today’s update may be helping the Pets At Home share price in the short run, but I think investors may have even more to look forward to in the coming years.

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Karl has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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