A Pet Valu store in Ottawa in September, 2022. The company's stock has slumped 56 per cent since last August, including a 14-per-cent nosedive on Tuesday.Sean Kilpatrick/The Canadian Press
Add pet owners to the list of consumers who have recoiled from inflation and an unstable job market, challenging the notion that we’ll do anything for our furry friends.
Just ask anyone who has invested in Pet Valu Holdings Ltd. PET-T over the past year. The stock has slumped 56 per cent since last August, including a 14-per-cent nosedive on Tuesday after the company reported disappointing quarterly financial results.
The share price fell to a five-year intraday low of $16.58 earlier this week. That’s well below the debut price of $20, after an initial public offering in 2021.
If Pet Value can’t reward investors today – several years into the Great Dog Boom of the COVID-19 pandemic – will it ever?
Oh sure, bargain-hunters might find a lot to like here.
At its low point this week, the stock traded at a little more than 10-times estimated earnings from analysts. That’s the lowest price-to-earnings ratio on record and nearly half of the five-year average, according to data from S&P Global Market Intelligence.
Pet Valu also commands a large network of more than 860 corporate-owned and franchised stores.
Size gives the company significant competitive advantages – including product selection and an efficient distribution system – over smaller players. And it’s likely to improve. The company completed its national distribution network last year with a new facility in Calgary.
If the case for grocery chains and convenience stores has rested on a massive footprint, then Pet Valu is following a similar business model.
But there’s a key difference. Loblaw Cos. Ltd. and Alimentation Couche-Tard Inc. have navigated inflation and weak consumer sentiment, rewarding shareholders with gains of 220 per cent and 70 per cent, respectively, over the past five years.
Why this money manager is buying Pet Valu and selling Major Drilling
Pet Valu, on the other hand, has been producing lacklustre financial results that suggest cat and dog owners are price sensitive – if not on food and treats, then the more discretionary stuff such as beds and collars.
If there’s a choice between a new squeaky toy and a full tank of gas, Rover might have to make do with an old tennis ball.
In the first quarter, Pet Valu’s revenue increased by just 3.2 per cent from last year. Net income declined 7.9 per cent over the same period, with the gross profit margin narrowing to 31.4 per cent from 33 per cent last year – the lowest in company history, according to Doug Cooper, an analyst at Beacon Securities.
Pet Valu chief executive officer Greg Ramier acknowledged that economic uncertainty has weighed on consumer confidence, and pushed the company to respond with price cuts.
“Over the course of the year, we made measured enhancements to our value proposition, including lowering everyday prices on key national brands and our most popular proprietary brands,” Mr. Ramier said on a conference call with analysts.
That might be a relief to cash-strapped consumers. And it can reward Pet Valu with a rising market share as competitors are squeezed out.
But investors can be a tough crowd when they see disappointing numbers.
One that stood out: Same-store sales growth, which sheds light on performance at existing stores, was unchanged in the first quarter compared with last year. The outlook for 2026 doesn’t look much better: The company expects growth of just 0 per cent and 2 per cent.
“While an end to the Iran War could alleviate some of these pressures, we also take note of a weakening Canadian job market and are not inclined to be particularly positive on an incremental improvement in consumer sentiment anytime soon,” Mark Petrie, an analyst at CIBC Capital Markets, said in a note.
Mr. Petrie slashed his target price on Pet Valu – or where he thinks the stock will trade within a year – to $22 from $28 previously. Other analysts made similar cuts.
But every stock needs a bullish case, so here’s mine: Pet Valu gets taken out by a bold grocery chain looking to take its pet supply aisles to the next level.
Hear me out: Loblaw picked off Shoppers Drug Mart in 2014, when the company decided that pharmaceuticals were a natural fit with food (and vice versa). Metro Inc. acquired The Jean Coutu Group (PJC) Inc. in 2018 for similar reasons.
Many large grocery stores already offer some pet food and poop bags, so the pet category is already there, albeit with limited selection. And large grocery chains, which have mastered warehousing and delivery logistics, could deliver even greater efficiency.
The best part: Pet Valu is going cheap. Anyone? Anyone?