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Hello and welcome to the Q3 FY '21 trading statement call for Pets at Home Group plc. [Operator Instructions]. I'd now like to turn the call over to the chairperson for today's call, Peter Pritchard, Group Chief Executive Officer. Please go ahead, sir.
Thanks, Emma. All right. Good morning, everyone, and thank you for joining our call this morning, and I hope you're keeping safe and well in these really challenging times. We're pleased to share with you our Q3 trading update for our financial year 2021. I'm Peter, group CEO, and with me today is Mike, our group CFO. Our quarter 3 covers a 12-week period from the 9th of October to the 31st of December, 2020, and therefore captures trading over Christmas as well as a second national lockdown in England across 4 weeks of the quarter. As an essential business, we've remained open throughout the pandemic, and our operations are well adapted to the world that we now live in, and this is reflected in the update we're giving today. And I'm pleased to say that our performance continues to be strong and that's right across the group, demonstrating the ongoing success of our pet care strategy. Our update today highlights 5 key things at Pets at Home and the market in which we operate. First, the pet care market is robust and is in good health. Our group revenue increased by 17.6% in the quarter on a like-for-like basis despite ongoing COVID restrictions on both a regional and a national level. All parts of the group are seeing good growth. Our Retail operations are growing at 17.5% on a like-for-like basis, and our Vet Group is up 17.8%. Retail sales growth was broad-based across categories and across channels. Whist Accessories performed strongly, in part driven by new pet ownership, we've also seen good underlying strength within Food sales, which is, of course, a good indicator of growth in customer numbers. Trading across the festive period as a whole was strong with like-for-like sales in December of 19.3%. Both core and seasonal accessories are selling, and we're selling particularly well across that quarter. Now turning to our Vet Group, we saw total revenue growth of 22.1% in the quarter, again, with a particularly strong performance over December. Customer revenues remain the most important indicator of the underlying health of our joint venture estate. Like-for-like customer sales across all First Opinion practices increased by 22.6%, which is testament to the strength of our owner-operator model. Like-for-like joint venture income grew by 17.3%. Second, we are only -- we are the only true omnichannel pet care business in the U.K. Our model of providing customers with everything they need to look after their pet, however they want it and however they choose to interact with us, is absolutely working. More customers are choosing to engage with us digitally with our omnichannel revenues growing by 70% in the quarter or indeed 92% on a 2-year basis. The recent launch of our 1-hour Click & Collect from any of our 451 strong store estate is already exceeding our expectations, underpinning an 18% participation of Retail sales from omnichannel during November. Our recent acquisition of The Vet Connection broadens our digital capabilities in providing trusted advice and pet care solutions 24 hours a day. And it will enable us to provide customers with around-the-clock veterinary telehealth advice, triage, and ancillary services, meaning that owners can access quality care for their pet remotely whenever they need to. Third, we are seeing continued growth in our VIP and Puppy and Kitten Club memberships. And that's driving increased spend across our pet care platform. We're seeing more new pet owners, and our Puppy and Kitten Club engages with those new owners at the start of their pet care journey, and they introduce them to all parts of our business. It's grown 47.2% year-on-year in the quarter, with members typically spending 25% more than nonmembers across the group. Our VIP membership now stands at a record of 6.2 million members, with 26% of those members shopping across more than one channel. And our new client registrations across our veterinary practices are now averaging approximately 10,000 new client registrations per week, supported by the continued success of our in-store referral scheme. Fourth, our subscription business is growing, and that's increasing the resilience and the quality of our sales profile. We now have over 1 million subscription customers and it's growing, and that's generating over GBP 85 million of annualized customer revenue. We now have a brand-new, fully recruited propositions team who will build out our road map of providing unique bundles of products and services to customers that our competitors cannot easily replicate. And finally, we're continuing to invest across all channels to make pet care as convenient, as flexible and as engaging as possible. The strong cash generation of the business, along with the recent disposal of our Specialist Hospital Division, provides significant resource to accelerate growth across our omnichannel pet care platform. We're investing to digitize our entire business, making pet care even easier for customers, and we're setting out a bold ambition in this space. We continue to roll out our next generation of store, recently launching 2 new small-format stores inside M25. And we continue to leverage our proprietary data through our enhanced customer segmentation. But we're also at the beginning of this journey and we're starting to leverage the benefits. But there's still so much more left for us to do and I'm genuinely excited about the potential that this offers us. So to conclude, I'm really encouraged by our performance over the last quarter, testament to the strength of our integrated pet care strategy, our agility to respond to changing customer needs and the favorable trends within the pet care market. As we now trade through national lockdown 3, we will play our part in providing customers with the essential pet products and health care that they need. We continue to prioritize the health and safety and the welfare of all of our colleagues to ensure we can provide a safe environment for our customers. High infection rates and restrictions of movement will make the final quarter challenging. But we're confident, as we've already shown, we can flex our business model to suit the environment in which we're in. There's still so much more left for us to do, but we're very much on track with our plans to build the best pet care business in the world. We continue to do the right thing by all our stakeholders, and I'm particularly pleased that despite the challenging external environment, we're able to provide a further GBP 200,000 in much needed funding and support for Support Adoption pet rescue centers across the U.K. And that now takes that total, since the onset of pandemic, to GBP 1.3 million. Finally, I would love to express my amazing thanks and support to our colleagues and our partners who with their commitment and support of our business has just been outstanding in this last year. I'm incredibly proud of the way that every one of them has risen to the challenges that we faced, and they continue to serve our customers and their pets in the best way that they can. So I'll stop there as I'm sure there'll be a number of questions, which Mike and I will be delighted to answer. So I'll hand the call back to Emma.
[Operator Instructions] We will now take our first question from Greg Lawless, Shore Capital.
It's Greg actually. Good numbers. Could you just maybe just give a bit of color in terms of the shape last year of Q4? Obviously, there's a bit of pull-forward through lockdown 1 as customers stockpiled. So just kind of the shape of that and what that might mean in terms of going into FY '22. And then the new 2 stores that you launched inside the M25, is it possible to know where they are and what your thinking is there, please?
Well, look, I'll deal with the point on the stores, and I'll ask Mike to talk on the shape of Q4. So there's 2 new formats. So Camden was an existing store that we've reformatted, and Putney is a brand-new store. They are high street-based. They're typically half the size of a normal Pets at Home, which, of course, is typically on a retail park. In London, retail parks are few and far between. So with the changes that we've seen in the retail landscape this year, we are anticipating a greater availability of these types of sites to open up in London in the short term. And we're really pleased with the performance. We've built these stores in the bottom up. And it's a combination of getting as much service as we can to these stores. So in these cases, a groomer. In future ones, we'd like to put a vet in as well. And it's about refining the range to customers in London. And that's by refining our food offer. Typically, more premium. Typically, smaller pack sizes, basically what you can carry to go home, but still bringing a full assortment. Early days. Camden was a very well -- were very well-established and performing well. The refit has enhanced our performance in Putney, has got off to a cracking start. Although, obviously, we're in pandemic, so we'll need to get a full read on that as we move forward. But we think there is potential in M25 for sort of 20 to 25 stores of this type. And it's an area that we've been underrepresented in. And when you combine that with our digital and physical, we think this is an opportunity for us moving forward. So Mike, do you want to talk about Q4?
Yes. Greg. Yes, you're right when you say Q4 last year was absolutely a bouncy period. You may remember that the COVID pandemic really started to impact sales, particularly as we got towards the end of that quarter into March. So quarter as a whole, our like-for-like in Retail, which was the most relevant I think, was 15.9% for the quarter as a whole. But it sort of went 7%, 7.34% in that final month. And therefore, as we know, we manage the business through that. We've got a pretty tough comp to lap. But so far, so good I think in terms of how first few weeks of January are turning out.
Just on supply, we're kind of reading something in the Accessories business and stuff, port delays. You've obviously stockpiled, maybe stockpiled a bit for Brexit. Just what -- have you got any color that you can give us on that, please?
Yes, I'll cover that off. Look, I think the first thing to -- our imports actually are not a massive part of our business. So from the EU, it's about 2%; and from Asia, it's sort of 15% to 17% of cost of goods. We were building stock in the U.K. in anticipation of Brexit, so that's been beneficial for us. Without question, containers are actually the big issue, and I think you've seen that well reported. As we stand here today, we've tailored and changed our trading offer to reflect our stock levels. We're in a reasonably good position, watching it like a hawk, and we have backup plans in case we need to do a bit more near-sourcing. So we're not flagging an issue, it's just challenging. But we're confident we'll be able to work our way through it.
We will now take our next question from Matthew Garland from Citi.
I had 3. The first one was just, I saw some stats around VIP customers in 2Q, 61% of them then entered in 3Q. I was wondering if you can give some color around how that's trending maybe from new customers from last year or over a longer period and how you expect that trend to continue? Secondly, in terms of the new sign-ups, so obviously the 10k average, has that concentrated in new practices or older practices? Has it changed your view around how fast can new practices might mature? And then thirdly, in terms of the subscriptions, the GBP 85 million annualization of sales, how does that look or how should we think about that from a profit perspective? I imagine it's quite a high-margin kind of area. Can you give a bit more color around how we should think about that?
Yes. Look, I'll deal with the first point, Matt, regarding VIP customers and sign-ups. So you're absolutely right, so we now have 6.2 million VIP members, which is up 12% year-on-year. And encouragingly, 26% of those customers have shopped across more than one channel, which is up 20% year-on-year. And obviously, that reinforces all of the efforts that we've been placing behind driving new customer sign-ups as well as encouraging to get into more parts of our business. Underneath that, it's worth pulling out that the Puppy and Kitten Club, which is a feeder into VIP, had its strongest ever quarter. And year-on-year, that was up 47%. And that really reflects 2 things. One is we've been consciously doing new customer recruitment. So we've had above-the-line campaigns to make that [ step-up in ] customers, as well as we've obviously seen a step-up in puppies and kittens across the U.K. The new client registrations in the vets, we talked about being 10,000. Because we are a business which is in maturing mode, obviously, we've got a lot of brand-new practices, we would naturally see typically between 6,000 and 7,000 new client registrations anyway in our business. So that step-up to 10,000 is a step-up, and it's something we've seen really since not long into the lockdown, actually, we started to see this trend starting to emerge. And I think the important thing to point out here is it's new client registrations of all types. So it could be a puppy, a kitten. It could indeed be a -- someone who's changed practice or indeed somebody who has acquired a new pet. And we're seeing that right across the business. Actually, it helps us enormously, particularly in the new practices because they're maturing, so this really underpins the maturity curve. Actually, in existing practices, we've seen very strong like-for-like performances across all cohorts and an acceleration of their performance. So it's an encouraging factor. But of course, for us, within Vet, this is a really important lead indicator because, of course, that client tends to be more sticky. So once somebody signs up to a vet, the likelihood of them becoming a longer-term valuable client is really important. So this is a great indicator of maturity curve of our business. So a really important one for us and one that we're really pleased to see that play through. Mike, do you want to talk to the revenue on subscriptions?
Yes. Thanks, Peter. So subscription is a key focus as a business. And over 1 million customers now are on some form of subscription, up over 17% and year-on-year. And that, of course, is what we're trying to aim to do there is build a high-quality, annuity-type, sticky revenues to build lifetime value from our customers. A million is great progress, but of course we've got a huge amount of headroom still to go on subscriptions. We've got 6.2 million number as well in the VIP scheme. Those subscriptions are very profitable for us. In fact, within that, our Flea & Worm subscriptions are probably one of our most profitable products. So you'll continue to see that being a focus. It is part of our strategic push. And as a KPI, it's perhaps just as important going forward as looking back at like-for-like sales growth.
What I can add to that, Matt, something we just put out in the announcement is we've actually built a propositions team whose job is now is to build out existing plans across Easy Repeat, across health plans and across Flea & Worm, but also look at how we bolster combinations of products and services together. That's why The Vet Connection was a really important acquisition for us because, obviously, that becomes a service which I think can really enhance value across our existing subscription plans and as we get more granular about bringing solutions together for particularly the types of customers, think about grooming and other parts of our business, where we can create more repeatable revenue opportunities. So that team has been recruited, has been in the last half year, and they literally are just onboarding as we speak now. It will be an area that we've given an awful lot of focus to moving forward.
And just, if I could, a quick follow-up on the VIP customers. So in terms of, I guess, looking back to last year when the lockdown began and the new customers that you took on then, how has that trended in terms of their spending through to now? So obviously, the start, I think, was 2Q to 3Q was 60%, can you give us an idea of what that might be? I know it's a year-on-year comparison, but is it at a similar level? So those customers are still continuing to spend quarter-on-quarter at a very high level and you expect that to continue. Or based on, I guess, previous data that you have, do you expect that to tail off? Or how should we think about that?
Yes. So we -- obviously, we've acquired a lot of customers, Matt. Quarter 2, for example, we acquired a lot of customers. If you look at how our like-for-likes has progressed, the quarter 2 like-for-like for the group was 12.7%. Quarter 3 like-for-like is 17.6%. So we've had pretty much a 50% increase in growth rates. Now a lot of that will be attributable to the retention of customers we acquired in quarter 2 that continue to shop with us. Key to our activities, and Peter referenced it with the proposition team, but also the use of our data, is to actually lock those customers in through subscriptions we've just been talking about and retain those customers. It's a great opportunity for us and bodes well as we look into the new financial year.
We will now take our next question from Owen Shirley from Berenberg.
The first was -- 3 pieces, if that's okay. The first was, just wondering, for your kind of above GBP 77 million of PBT guidance, what does that factor in for Q4? The second one was if you'd be able to give an update on your thoughts around what you think happens to the pet population this year, what's the kind of KPIs you're seeing that's driving it? And how sustainable do you think it is going forward? And that was whether you can update on your kind of investment in the data team, perhaps if you're still seeing the strong results from the mailers recently?
Okay. Well, thank you. Three great questions. I'll talk about pet population and investment in data, and I'll hand over to Mike to talk about our Q4 and PBT. One of the challenges in the pet sector is there aren't very accurate reporting mechanisms at the top pet population, so we look at a lot of measures. Probably the most informed one we look to is actually our own database itself in terms of where we can see in the numbers of pets. The first thing, without question, and I think this is being widely reported in lots of different sources, and actually in lots of different countries actually, is there has been a notable step-up in new pets throughout the pandemic. And we'll often talk about puppies and kittens, but the other thing which is not very well reported is typically now most adoption centers are pretty much empty of pets. So it's actually been a demand across all types. And whilst we're also -- puppies and kittens, when somebody adopts a dog or a cat, often they behave as if they are a puppy or a kitten in terms of the setup, and we've definitely benefited from that. That's why we talk about baby boomers and the factors that we would talk to, there's a few that I think are really important. So Puppy and Kitten Club registrations are a good lead. There's as a step-up in the quarter to over 47%. Now some of that is driven by our own marketing. I think the underlying factor, which is probably more important if we look at the category performance, so actually, the things that people are physically buying in Puppy and Kitten, and that's typically between 17% and 20% step-up in like-for-likes. And they represent things often that you buy -- want only like a cage or a setup. But I think it's probably fair to say we've seen that trend all the way through. So if I -- without holding me to a position, I actually would say that probably means we've seen a step over between sort of 15% and 20% of new pets in the U.K. this year that goes into that new pet category. And of course, that means the overall population has lifted. And of course, pet lives are anywhere between sort of 10 and 15 years depending on cat, dog and species. So that should be that -- there is a step-up in the overall pet population, which means the market should be robust moving forward. So I think that's a really good lead indicator. And of course, that goes alongside the 2 factors which have driven the pet population for the last number of years, which is humanization and premiumization, which has typically led to between a 2% and a 3% step-up in growth. So I think the market is really in a strong position, and you'd anticipate that we should see a good market moving forward because the pet population numbers have changed. So we do think that's sustainable. We haven't seen a slowdown yet in registration. So we can yet say this phenomenon is coming to an end. It's been continuing in the quarter, and we'll continue to measure and report accordingly. The data team were really pleased and encouraged by what we've done. So we're now live on having insourced all of the information and all of our resources to our own teams. That gives us enormous benefit. We can just do an awful lot more work. Our segmentation models are live, live by the fact that all our CRM is now driven from it. And for all our mailings that we've been enacting since September, which is significantly more targeted, we're seeing a really good step-up in redemption rates from customers, and that helped to underpin our like-for-like performance. But behind the scenes, there's loads of other things that our team are adding value to. So they've built a retention model, which predicts when somebody may well churn, and therefore, we can intervene. Only this week, we're seeing some of the work they've done, not just on customer stuff but other business improvement opportunities, where they've -- we've applied our data analytics skills to identify opportunity for the business. So the way I see this is we're building a capability which just -- there's 2 things. It allows us to be very targeted with customers, allows us to subsegment in a way we haven't been able to do before, which creates value in its own way. Also, it's creating business opportunities by using our data and analytics in a significantly better way to allow us to predict better and be able to respond better. So I see this as a capability that just unleashes the business moving forward. Mike, do you want to talk about our PBT?
Yes. So the guidance we gave back on the 8th of January, GBP 77 million full year PBT, took into account, of course, that very, very strong performance we've seen in quarter 3. As we did that, looking forward, assuming that the current restrictions, COVID restrictions, will exist in some form all the way through to the end of March, so for our business, that means clearly numbers of customers in stores -- we're a central retailer, but numbers of customers, numbers of visits. Our grooming businesses are under constraints. We're doing only welfare, only grooms. That's about 60% -- 56% of capacity. We're assuming that the guidance that the RCVS has given for the First Opinion, that doesn't change. That means we can continue to offer services. But clearly, there's a lot of unknowns. And literally, we respond to events, external events and new news as they develop overnight. We're 3 weeks into our quarter 4 now. Trade has not been at the levels as it was in December where we were 20% like-for-likes. But it still remains pretty robust despite the restrictions. So -- but we are literally managing the business week on week. So we've held that guidance at GBP 77 million, not because of things that are going to change the way to operate our business but mainly because of the material uncertainty that exists, as everybody will understand, in the external environment.
Could I ask just a follow-up on that? I don't know whether you'd be able to give a sort of like-for-like figure that you would need in Q4 to get to that kind of GBP 77 million.
Yes. Well, we just had the whole conversation about the comp being really strong. So last year, we were at 15.9% like-for-like in across the quarter 4. We would normally assume our planning growth rates between 4% and 5% normalized, and that's the level we're assuming as we go across quarter 4.
[Operator Instructions] And we will now take our next question from Geoff Ruddell from Morgan Stanley.
Can I just ask one question about vet practices, please? I see that the number of company-owned First Opinion vet practices, the number is still creeping up and the number is still creeping down in the number of JV practices. When do you expect the -- or firstly, are you still committed to moving the company-owned ones back to a JV model? And on what sort of time frame should we -- I mean I realize there'll always be a handful of company-owned ones. But when are we expecting to see the number go back to either a 10 or something like that rather than the 4 you have at present?
Yes, I'll pick up. Obviously, that number is obviously higher from the work that we did 2 years ago where we actively bought some of those practices back, Geoff. And we've always had the ability to buy practice back, and often triggered by a JVP event. So for example, suddenly one of our JVPs died in the 6-month period, and obviously, we buy that back in whilst we've been going [ hard, obviously ], to find a new partner. And I think what we've been able to do is demonstrate our ability to run both. So we can actually move practices either way. We actively do bring practices back out into JVs. And to be honest, it's driven by one factor only, which is finding the right partner in that locality who we think is the right person to do it. So that's an ongoing activity, and you will expect to see those numbers move certainly between each piece.
So are we like -- you still are likely to be running 30 or 40 practices yourself in 2 or 3 years' time?
Yes, I think we'll always have a number where we will own them for different reasons. And we feel very confident and comfortable to be able to do both. I think it helps us, particularly because obviously -- and each one we're dealing with is small business owners. And sometimes life gets in the way and you need to have an ability to be able to bring them in, run them whilst you find the next owner.
We will now take our next question from [ George Packett ] from [ MEAS ].
The first one was just given pet population will have jumped this year, just on your thoughts on kind of the vet rollout versus kind of new practices, whether there's kind of white space, whether you'd be looking to kind of bring new groups in, how easy you're finding it to find the right vet partners to do a JV with? The second one was just a little bit extra, if you could be -- the proposition teams, I'm sure that was really interesting, how will they be working together with the data teams? Can you give any sense of kind of the number of people that will be working on that? How will they be kind of testing or will they be kind of testing on a localized basis? Just anything more you could share there.
Yes, sure. Well, I'll pick up the proposition team and ask Mike to talk about that rollout. So we've recruited a director of what we're calling Pet Care Plans, our proposition team. And we've identified a number of target segments. Obviously, you can think about things like puppy and kitten, they're an obvious target segment, as well as health care plans would be another segment. It's a team of about 10 people, which is a combination of some dedicated analytics support, some CRM support, some marketeers. So these people are part of the commercial team, but their job is to work across both Vet and Retail and using the data to identify the ability to combine products and services. So the first thing we want to do is make sure that the existing plans that we've got are really compelling, and we use all the capabilities of the group to differentiate them. So I use this as an exemplar. But imagine that we bundled in 24-hour test to a vet through The Vet Connection as part of their Flea & Worm plan, that really adds significant value to the product offer. And it brings in something that's got a high-perceived value to customers, relatively low-cost to be part of our group, and it allows us to drive both stickiness but also acquisition. I'd give you a micro example. The most popular dog that we would see in our groomers would be a Shih Tzu, because it needs grooming every 4 to 6 weeks. That customer type behaves quite differently to a German Shepherd owner. So bringing together a proposition that would have grooming built in for that customer type, their grooming, maybe plus their food, plus their flea will be very relevant for those customers. And because we're able to segment our shoppers, not just by pet type but by breed, and breed in dog is super, super important, what we're able to do is start to put things together for customers in ways that nobody else can because we both understand their need, we know who they are, and we've got the capability. So we've got quite a long road map ahead of us because we've got 1 million subscribers, which is fantastic. We think there's a really big runway ahead. And we want to move more of our revenues. So stop waiting for people to turn up, actually make things convenient. So if I use flea is a really good example, there's 18 million cats and dogs in the country, there should be flea-ed every 4 weeks. That means there's a target opportunity of 18 million customers. We've got just under 300,000 subscribers. You can see quite a long road map ahead just on Flea & Worm subscriptions. So we're genuinely excited, because you need to do it. People forget to do it. We want to make it that easier, and we've got the proposition to do it. So we're going to invest in this space and build out stuff that other people can't do. Mike?
Yes, your question on vet rollout. There's a few points, I think, to help answer that question. The first I think is that our model, which is joint venture ownership model with the vets, obviously, the owner-driver, I think has proven its worth through the pandemic. We've been able to stay open. And we've seen very strong customer revenue growth, so 20% customer revenue growth across the portfolio. So unsurprisingly, the incoming from vets interested in our model is quite strong. And we've got a very active team looking at how we turn those into new practices. But of course, one of the things we know is the quality of those vets is of most paramount importance. Looking ahead, you've got to be a good business owner as well as a strong vet. So the supply of new vets, though, in terms of incoming interest is pretty strong. Clearly, while we're in a pandemic, we haven't been opening new practices. I think it'd be wrong to try and launch a business with all the restrictions that exist. But beyond the pandemic, the future is looking pretty positive. We have about 150 stores still without a vet practice. And clearly, one of our intentions is to try and put services including vets in all of our stores. And we have a very strong stand-alone model, which we know is -- from a financial point of view, is at least as strong as our store model. So location-wise and the model-wise, we've got a good runway. So as we head into next year, I think a sensible planning assumption going forward, perhaps 10 to 15 new practices a year. But if the supply of vets get stronger and they are of sufficient quality, we could clearly go faster than that. There's a planning assumption, 10 to 15 new practice a year is where we're sort of thinking.
[Operator Instructions] There are currently no questions in the queue. I'll turn the call back to your host.
Great. Thanks very much. And thank you, everybody, for your great questions. Really appreciate it. What it leaves for me to say is please stay safe, and we'll speak to you soon. Take Care.
Ladies and gentlemen, that will conclude today's conference, and you may now all disconnect.