Pets at Home shares have fallen due to lower footfall.
The pet superstore reported a like-for-like revenue growth however this was offset by their subdued sales over the Christmas period.
HSBC downgraded the stock to ‘hold’ from ‘buy’ and lowered the target price to 230p from 290p after the company reported its third quarter trading update.
“Structural market growth and maturity should have been strong supporters of positive like-for-like growth, so this is a disappointing performance,” said HSBC.
“Lower footfall was the main cause, with customer feedback suggesting Pets at Home (PAH) needs to improve its value credentials.”
HSBC believes the investment in its own label, which is higher margin than branded products, should support margins.
“Pets at Home’s shift of strategy is likely to see it become more sales growth led and less gross margin led – an encouraging move, in our view. It suggests Pets at Home will increasingly share the benefits of its dominant advanced nutrition position with consumers.”
“It may be a few quarters before we see the benefits of the shift in strategy,” HSBC said.
Ian Kellett, chief executive officer, said in the update: “Vet services yet again performed strongly this quarter, where our strategy of providing a quality service to clients across both primary opinion and specialist referral centres is delivering results, and is a platform for continuing strong growth.
“In merchandise, whilst overall sales were softer than anticipated, online grew strongly, reflecting the momentum gained from our investments in seamless shopping. We saw a good performance in our Christmas range, where customers are responding to innovative products at great value for money, which we will reflect in new range launches later this year.
“We will also focus on delivering best value, starting with a very clear message to customers about the benefits of our high quality, UK produced private label foods, where we will be leveraging our competitive advantage.
“With a quarter to go, our profit outlook for the year remains in line with expectations, reflecting both the continued investment in our customer offer and ongoing efficiency initiatives.
“Our focus on becoming more specialist, and doing the right thing for our customers, remains at the forefront of our strategy.
“Our colleagues worked extremely hard over the busy festive period and I want to thank them all for their commitment and dedication.”