Good morning everyone. Welcome to our full year results. Sarah and I will take you through our FY26 results and particularly the progress made through half two and we'll give you some early impressions of the business we joined around eight weeks ago. So a little about me and why I'm here. I've spent my career in retail and it's part of the reason that I'm passionate about the opportunity that Pets at Home represents. I joined Pets around eight weeks ago as chief exec coming from Waitrose where I spent five years as managing director and before that I spent 18 years at Sainsbury's. Lastly as commercial director for the grocery business. When I was approached about this role two things stood out. Firstly Pets at Home is the clear market leader in a genuinely attractive sector. If we get the basics right and leverage that competitive advantage we have we can create significant value for shareholders. Secondly I can see an opportunity to create value by improving execution and building on the strong foundations the business already has and i want to reassure you that the current priorities are the right ones for now the team is talented and there's meaningful headroom to do better i spent my first eight weeks immersing myself in the business spending time in our stores in our vet practices with our amazing colleagues and with our customers and i am genuinely encouraged by what i've seen so far today i'll share some of those early impressions with you. So Pets at Home is the market leader in a structurally attractive market. Let me start by why I think Pets at Home is such an exciting opportunity. The UK pet market is structurally attractive. Pet ownership benefits from a deep emotional connection and pet owners increasingly want the best products, care and advice for their pets. This drives premiumisation and humanisation in the sector that supports structural growth over many years. These underlying trends are alive and well even though growth in the sector has been more subdued in the past couple of years and within this market we are the leading pet care business with a 20% market share and delivering close to 2 billion sales over 1.3 billion from retail sales alone and over 650 from our vet consumers, 460 pet care centers, 455 vet practices, 339 grooming salons and a well-invested modern online platform. No other business in the sector brings together retail, vets, grooming and digital in the way we do and this is a genuine competitive advantage and it's one I'm excited to build on. And those competitive advantages are underpinned by a set of genuine hard-to-replicate strengths. Our colleagues sit at the heart of our business. The expertise and passion of our store teams, our vets and our groomers is something you can really feel when you walk into our pet care centres. I've been a customer of the business and since joining have visited many of our stores and vet practices and the quality of our people is undeniable. They know their products, they know their customers and they do genuinely care. Our vet business is unique in the UK market. The joint venture model we have built partnering with clinical entrepreneurs creates aligned incentives and genuine quality of care. There is nothing quite like it. Our physical estate across 460 locations gives us unrivalled reach and combined with our digital capabilities and our Pets Club membership base of over 7 million active members we have a compelling platform that I think is difficult for any of our competitors to replicate and of course we have that trusted brand. In a sector where pet owners want reassurance and expertise, being the most recognised and trusted name matters enormously. So diving deeper into our vet group, we have a truly unique business built around the alignment that our JV model gives us, bringing together our best-in-class infrastructure and service with the entrepreneurial and clinical expertise of our practice owners. Our vet business delivers differentiated economics for us and for our partners, while delivering great outcomes for pet owners and their pets. The JV structure means that we support practices in running a great business, leveraging the scale and expertise we have as a group, bringing our trusted brand, commercial rigour, large customer base to support our practice owners who are free to run their practice with clinical autonomy and take the best care of their pets. We know that our practices are most productive in the sector because of this with average practice revenues reaching one and a half million this year and plenty more to go for in this respect they benefit from co-location in our stores great infrastructure which will get even better with the deployment of our new practice management system and this combination drives differentiated economics while delivering great customer outcomes and this was confirmed in the recent cma report which found our practices are considerably better value than our corporate competitors while delivering significantly higher levels of customer satisfaction something we can see in our own data with vet satisfaction up a further one and a half points in the year from already high levels this is a high quality cash generative business that supports the resilience of the group this winning combination has supported a long track record of revenue profit and cash growth over the course the last five years, we've compounded practice revenues at a 13% growth rate, leveraging the proven growth levers of driving out maturity, extending practices, rolling out new practices and growing our care plan revenues. Profits have compounded at 18%, reaching 83 million in this financial year and our practices have seen similar benefits with 48 million in dividends taken out by our practice owners and the capital light nature of our VEC group means that free cash flow has compounded at 28% and now represents the vast majority of group free cash flow. This is not a one-year story that is a sustained track record of growth built on a sustainable model that delivers great outcomes for all stakeholders and there is more to come leveraging the proven growth levers we have consistently executed against practice sales growth we've grown average practice revenue significantly over recent years reaching one and a half million per practice in this financial year from only 1.1 three years ago but there is plenty of headroom here as our practices continue to mature as we drive further optimization of core practice operations and through the continued growth of our extremely successful care plans. In practice rollout in the last financial year we accelerated our openings to eight and this is a marked acceleration from previous years and then we expect to further accelerate this year with plenty of white space in which to grow through in-store practices and standalone both of which are successful models. We will bring our winning formula to more of the UK pet owners in the years to come. alongside new openings we have a strong pipeline of practice extensions this is a proven model with attractive returns and advanced capabilities we're building clinical specialisms that deepen the offer for our most committed pet owners which will help us expand our revenue pool now let me return to retail we've built a retail business on great foundations our infrastructure is solid, having undergone significant investment in recent years, and it was aimed at the right areas and gives us a strong foundation for the future. And while execution and core retail basics have led to some underperformance in recent years, this remains a market-leading business with significant competitive advantages. At our interim results, we announced our retail turnaround plan to address shortcomings and sharpen focus around some clear priorities of product, price, cost and execution and these are the right priorities for the business now we're executing against this plan and we've seen good improving momentum in retail including winning back some share as a result bringing my retail experience to this turnaround planned this is how i see it in product we need to ensure our ranges are relevant to today's pet owners consumer tastes have shifted and for a period our ranges didn't evolve with that and that's changing we've brought on a number of new brands in food and there's more to come and we're launching strong and well supported own brands and we will bring innovation to accessories on price we need to be competitive we've dug deep to understand where we are competitive and where we need to do more and late last year executed nearly a thousand targeted price cuts to put us in a much more competitive position and we've seen a really encouraging volume response as a result on cost we committed to remove 20 million pounds from our support office which had grown too large and we have completed that program cost control outside of this has been strong in recent years but productivity is a constant requirement and you'll hear much more from me on this in the future on execution retail is a discipline getting the basics right in store every day is what drives customer satisfaction and sales and we have raised the bar here and will continue to do so. Against these priorities we've made meaningful progress and we are starting to see these flow through into our results. Having invested price on around a thousand lines by an average of 12 percent price discipline is a must and we will remain vigilant but right now we've taken the action we need and we'll focus on making sure we get the deserved credit for this from our customers and with our suppliers. We executed our half two trading plan well and delivered positive sales growth through half two with improving momentum as we move through the half and that continues into this financial year and this has enabled us to deliver the PBT outcome of 93 million in line with expectations. We have improved execution and as a result improved customer experience which has helped us drive customer satisfaction higher. It's up four points in the year and a good improvement in product availability and on cost we've delivered our commitment to remove 20 million from our group overhead. I am encouraged by the progress we've made. It is delivering results and it puts the business on a more solid footing but there is more to do. We will continue to deliver improvement to our product range this year and beyond and will work hard to delight customers and improve customer satisfaction further. We'll look closely at cost at all levels to ensure we have the right cost structure to deliver great value to customers, recover the gross margins and deliver better outcomes on the bottom line for our investors. Some of this will take time and we are focused on the right areas and moving quickly. The progress we've delivered against our retail turnaround plan is showing up in our results and those early results are encouraging. Volume momentum has been building through the second half of the year as we've sharpened the offer. Our Q4 volume growth was over 5% with broad-based growth across food, consumables and accessories. And this is translating into sales growth which turns positive in Q4, taking half two overall into positive territory. And we've continued this momentum into the new financial year. This improvement is sustainable with customer satisfaction up as we focus on doing the right things for them but it's still early and we're not complacent we have clear plans for this financial year coming and we're focused on delivering our plan and embedding a volume-based recovery in our business now moving on to pet insurance pets insurance is an exciting addition and it's ready to launch in 2026 in may 25 we announced this move and we said that we launch a pets branded insurance offer leveraging the considerable advantages we have to gain our fair share of the 2 billion UK pet insurance market we've made considerable progress in just a year and we're on track to launch in 2026 we have a team in place with deep experience in building insurance businesses including for pets we have FCA approval in place with a technology platform built from the ground up a a strong endorsement of the way we've built our new digital platform and this is a genuinely exciting opportunity that represents a further complementary business for the group. I've talked in detail about the strengths of our business and the competitive advantages we have but what genuinely excites me about the future and our ability to unlock value is the talented and passionate team I found at Pets at Home. The quality, the passion and the commitment of our people across retail vets insurance grooming and our support office is an advantage few other businesses in retail and pet care have our people are a special advantage they care about what they do and they genuinely care about our customers and their pets and they care about our business so as i look across the business i'm excited about the future and the opportunities we have in front of us. We are the market leader in a structurally attractive and growing sector. We have very hard to replicate competitive advantages in our VET businesses, our physical estate, our brand and our people. We have a turnaround underway in our retail business that is showing real early signs of momentum and we have exciting adjacencies in insurance and beyond. Our VET group has a clear focus and a number of proven growth levers to execute against. We will continue to deliver against this with a relentless focus on delivering growth and great outcomes for our clients, our practice-owning partners and our shareholders. Our retail business has better sales momentum and transaction-led recovery. Continuing to embed this is a core focus and in time our profits, margins and cash will follow. And we have an early stage opportunity in insurance that has the potential to create significant value over time. We have a clear plan and are executing this plan off strong foundations with well-invested infrastructure and an enviable balance sheet. As we deliver against our priorities, I see a tremendous opportunity to create sustainable value for shareholders. So what can you expect from me? You can expect a relentless focus on customers. I've spent the vast majority of my career in retail and I've been through turnarounds. I know the importance of a consumer customer focus in everything we do and everything we do will start with the customer. And you can expect discipline and consistency on costs, on capital allocation and on execution. So what next for me? I will continue to spend most of my time in the short term in the business, listening and learning, talking to our colleagues, our customers and our suppliers. I'll be focused on continuing the momentum we've begun to build and I look forward later in the year to coming back and talking to you more about our plans and the opportunities that lie ahead. I'll hand you over to Sarah now to take you through the financials in detail.
Thanks James and hello everyone. I'm Sarah Pollard, the Group's new CFO. I joined the business back in March and I've already reconfirmed for myself the opportunity that Pets represents, an opportunity to create meaningful value for our shareholders, success from which all our stakeholders can benefit. I took over the reins from Mike Iden, who has earned himself a very well-deserved retirement. Having spent my career in listed UK and global consumer and retail businesses, Diageo, Tesco, Unilever and latterly PZ Cousins, I'm thrilled to be here and reporting my first set of Pets results with James. So let me start with an overview of our financial performance in FY26. Retail underperformance impacted our results, but the pet's underlying financial position remained strong. While group consumer revenue grew by 1% to close to £2 billion, underlying profit before tax reduced by a third to 93 million, generating free cash flow of 62 million pounds. Within this, the strong structural economics of VETS has remained resilient, thanks to our proven JV model, contributing 688 million pounds of revenue. But by contrast, our retail business underperformed during the financial year with revenue down 1% to 1.3 billion. Retail profit of 31 million is some 60% lower generating 3 million in cash and we know that that level of performance is neither good enough nor sustainable and the business has clear plans to improve it and we're starting to see some improvement already including volume growth off the back of the retail turnaround plan which centred on four priorities product price execution and cost as James explained so pausing now on our current trading whilst only nine weeks into our new financial year we are quietly encouraged by the volume and sales growth plus progress in some operational metrics namely customer satisfaction and availability but we know there is much much more to do the underlying financial strength of the overall business remains very strong our capex investment requirements remain in line with our previous guidance normalizing now after the peak tech platform and distribution center investments of prior years the spend in fy27 will be focused on our retail store or Space Reset Programme, the largest we've ever done, and we will employ a disciplined return on investment mindset. We continue to have very little debt on our balance sheet, meaning growth investments need not be restricted, nor do we have any liquidity concerns. Our leverage is low for a business of our size and risk profile, at only 0.1 times. We remain fully committed to our capital allocation approach, with surplus cash being returned to shareholders in a sustainable way. The overall quantum returned in FY26 was in line with the year before. Turning now to a more detailed breakdown of the group's revenue performance, where continued VET growth offset the retail decline. Statutory revenue was very slightly lower in the year, defined as our retail sales, plus for vets, primarily the JV fee income paid to the pets group. Vet revenues therefore constitute a smaller proportion of our overall statutory revenue than they do our consumer revenue. Overall consumer revenue, measuring actual vet practice revenues, grew 1% to approximately £2 billion. This comprised vet growth of 6%, and a decline in retail revenue of 1%. And this VET JV practice revenue growth generated a 5% increase in fee income for the group. Revenues in our company-managed VET practices, which we have now returned to a position of profitability, were 3% lower as we continue our strategy to transition them onto our proven JV model. As I mentioned, retail revenue declined by 1%, But we saw sequential improvement, with sales improving as we progressed through FY26, exiting Q4 at a growth rate of 2%. And volumes grew ahead of sales as we invested in price at the beginning of the second half, supporting an improved performance against a subdued UK pet retail market, overall broadly flat, during FY26. Within this, Pets at Home retail food sales were flat, with volume growth offsetting deflation of around 1%. Our own label products performed better than branded food as we maintain our focus on strengthening our own label proposition, introducing two new pets brands, Ruff's Recipes for dogs and Willows for cats. own label food sales were up 3% in the year, while branded food sales declined 2%. Discretionary accessories continue to be our main area of challenge, with a sales decline of around 3.5%, and it remains a key area of focus for us. We've already taken steps to strengthen our team, and they're focused on bringing innovation and newness to our product ranges. The performance of consumable accessories was held back by the lapping of a very strong weather-related flea season in FY25. Looking now through the important retail channel lens, store sales experienced an overall low single-digit decline, but we saw the rate of that decline slow, exiting Q4 down approximately 2%. We've seen further green shoots so far in FY27. online again delivered double digit sales growth in FY26. Turning now to profit performance in the year. Group underlying PBT was 93 million, 41 million lower than the prior year. The retail sales decline of 1%, alongside a gross margin rate reduction of 175 basis points, with half of that explained by our targeted price investments, are the key contributors to the decline in overall group profitability. We know that our retail gross margins can't continue to be eroded and we have plans in place to improve them. VETS again improved its profitability, but not enough to offset retail. Cost control was strong, with productivity largely offsetting cost headwinds and underlying inflation. Insure and start-up costs and the reinstatement of an employee bonus for our hard-working colleagues complete the picture. And both of these figures came in in line with our expectations. Now to cash flow. Within the context of our performance, the business has continued to deliver strong cash flow. We generated overall free cash flow of approximately £62 million, £22 million lower than in FY25 due to the decline in retail profitability. VETS, however, generated cash of £74 million, £7 million more than the prior year, demonstrating the predictable, high-quality and capital-like nature of our VETS JV model. Lower, non-underlying costs, tax payments and CapEx outflows all benefited free cash flow in the year, with CapEx maintained at normalised levels. We booked some impairments on some old investments, totalling approximately £6 million. pounds. So more now on our investment programme. We invested 42 million pounds in capex in the year with just over 30 of that being in our pet care centres. We opened three new stores, we relocated three and we completed 23 store refits which helped to drive higher sales. We also continued to invest in our digital capabilities but this has normalised versus prior years. The capital requirements of our vet business remain very low with the pets group contributing only modest sums to practice expansions with the vast majority funded by the JV practice owners themselves. Now we partner with the practice owners to ensure the investments will yield a good level of return for all and we have significantly reduced our level of operating indebtedness with practice owners over the years to now less than two million pounds. Being disciplined with our capital investments allows us to maintain a very strong balance sheet, which you can see on the next slide. Our balance sheet is flexible and robust, allowing us to invest in the future growth of the business as well as reward shareholders now. We have net debt of £19 million after returning a total of £84 million to shareholders in either ordinary dividends or share buybacks. We've maintained our overall cash returns to shareholders despite lower profitability as an indication of our commitment to and confidence in the future prospects of the business. We have flexible funding arrangements and good financial capacity, with leverage of just 0.1 times, and significant headroom on our borrowing facilities. Let's take a look at capital allocation in some more detail. Our refreshed capital allocation approach highlights the importance we attach to effectively rewarding our shareholders. We have been consistent and clear on the four elements of our capital allocation policy and have been disciplined in the execution of it. We've returned over $430 million of surplus capital to shareholders in the last five years. Following extensive consultation across our shareholder base, we announced a rebalancing between dividends and share buybacks at our pre-closed statement at the end of March. We're not changing the overall quantum we will return to shareholders in FY27, but we will rebase our dividends back to a sustainable 50% payout ratio and increase the cash amount returned to shareholders via our buyback programme to £50 million. Looking now more broadly to the year ahead, we're comfortable with current consensus expectations And this will represent a year of profit growth for the group from another strong VET contribution and critically an increase in retail profitability as the benefits of the retail turnaround plan and other actions come through. We will see the £20 million support office overhead saving flow to the bottom line. Now, as is the case for everyone in the UK consumer and retail sector, we have sizable cost headwinds to navigate, with our productivity programs geared up to offset these. This will allow us to continue to invest in the right areas to support both the short and the long-term growth of the business. So, in closing my first set of PETS results, I would leave you with the message that the business has a unique set of strengths and the actions that are being taken are starting to deliver. These factors, together with our very strong balance sheet, give me confidence in the future prospects for PETS. And with that, I'll hand us back to James to close the call, and I look forward to meeting you all very soon.
So thanks for listening, everyone. Thank you for your time. Sarah and I are confident about the future for this business, and we look forward to seeing and hearing from some of you over the coming days. Good morning, everyone. James, CEO here. Thank you for joining us. We're looking forward to hearing your questions. I'm joined in the room by Sarah, CFO, and Andy and Aaron from our investor relations team. So we should have all the bases covered. So very happy to hear the first question.
Operator
You know what, sir? Ladies and gentlemen, once again, if you wish to ask any questions, please press star 1 and just make sure your line is not muted to allow you to reach your equipment. Our very first question today is coming from Tim Ramskill of Bank of America. Please go ahead.
Morning, folks. Thanks for taking my questions. I've got a few, please. So maybe just to kick off with the price investment in food, there's a few different data points you've given. instead of trying to sort of square the circle, I guess, you've got the 12% price investment and the observation about volumes improving close to 4%, but that was obviously just those two numbers together would be a net decline of about eight. And yet you've obviously talked about getting the retail business back into mid single digit revenue growth in the current period. So if you could maybe just frame that and alongside that, just some help around the timing of the price investment that went in. Obviously, you talked about it explicitly at the interim stage, so is it fairly reasonable to assume that the 80 basis points of investment in gross margin in FY26 will also recur in FY27? That doesn't sound like it, but that was question one. And then question two, I guess, is just moving to your guidance and observations around around the vets business. Just some thoughts about how the next few years might play out. And I appreciate both, James, you guys are going to come back, obviously, with perhaps a bit more of a medium term view later in the year. But consensus has the vets business growing at six to seven percent every year going forwards. Year just gone. Your statute revenues are up one. And I guess your guidance is a little more cautious. So just some thoughts around when we might see an uptick driven by the the market backdrop of the sort of covid cohort maturing etc and then if i can just one last one um on on pets club um again the stats you give the actives are down 11 the spend is up 12 so is that is that really a growing constituency of the of the of the revenue base just some thoughts there as well would be helpful thank you uh thanks tim we will um we'll going up on these questions if you don't mind i'll go first on price investment uh so before my time but let me let me try and bring some of the math to it so that so there was a more than 12
investment in around a thousand products uh which we have seen a material response to from the customer so as you said q4 volume growth q4 transaction growth and we've seen a strong start to this financial year as well so that's very encouraging that 12 though on those thousand products is a is a subsection of the overall sales and the four percent volume growth is overall sales so uh the the eight percent the minus eight percent math don't quite work out what we're seeing is four percent volume growth across the whole of the retail business which in context is very encouraging uh you are right on the 80 basis points investment that was made midway through last year. And that investment carries through into this year until we lap it. I think that's a good investment of gross margin. But more broadly than that, our intention is to begin to recover gross margin in the medium long term. So I think for now, it's the right thing to do. But you're right, it carries on into this financial year as well.
I'm going to ask Sarah to talk to us about the vet business and how we feel about the next few years if that's okay let me do that tim good morning and and thanks for your questions so i think i think firstly on guidance um for fy 27 uh you'll you'll of course recognize that we're we're only eight weeks into the current financial year that also happens to be the uh the same eight weeks that james and i are into our uh pet's tenure and we're very excited to have joined the business so we've reconfirmed guidance for FY27 more broadly today I think you know encouragingly that assumes market share gains in a retail market back to growth and improvement in profitability but to your question on vets for vets it represents another year of profit growth but off a a little bit more subdued revenue outlook of around about low single digit for FY27 so let me let me try and unpack that that a little bit um so the vet market is one that will continue to see structural growth and a market in which pets is well positioned to capitalize so we are the clear number two first opinion vets um our satisfaction scores have improved and as we were confident would be the case the culmination now the cma investigation has confirmed that the value that we bring to to our customers and their pets um it's also a business as we know given our proven jv model that has very strong economics and the growth drivers are proven in terms of increase in average transaction uh values and our ability to continue to drive our uh our practice uh uh footprint if you like we also i would remind you have seven million active pet club customers not all of whom our vets customers and we see that as a real opportunity as we go forward in terms of our overall business ecosystem. The reason it is a little more subdued at the moment of course is the COVID cohort are in healthy midlife. Pets are typically between four and six years old and although the trajectory is slightly different for dogs and cats as those you know beloved pets age a little bit they will be even more in need of our very skilled veterinary clinicians and that should see an uptick in growth beyond FY27 and similarly between FY19 and FY24 we were seeing a maturing of our vets estate we were quick in FY26 to start rolling out more new practices and extensions we will accelerate again on mad in fy 27 um so so we see good future growth
momentum let us come back later in the year and set out some medium-term targets let me let me not do that today uh and so just really quickly oh sorry i was just gonna say your last question yeah go on then yeah you go you go sorry it's a quick one so you're right that in the kpis the number of active PetSob members looks like it's down 10% and average consumer value is up nearly 12. There's been a methodology change in the way we model those customers and so you should see those two numbers as equal and opposite. It's more about the maths than the actual customers.
We've tightened the definition of what we call an active member but that has in turn increased uh those customers value to us so a methodology change nothing else more uh interesting okay great and maybe just coming up what you were saying sir about the uh the outlook in in vets if if this year is a little more subdued you feel like almost like that might be the low point and f fy 28 should should be a little better from that from that starting point yes i think i think that's that's probably right tim and also you know i know if you look at you know our fy26 exit momentum we had revenue growth in vets of only one percent so so please don't see that as a as a
proxy for for future years we we took the opportunity to clean up some legacy accounting uh some investments on the balance sheet that that ultimately we concluded weren't recoverable so you see you know a two to three million uh impact on that on that q4 revenue growth it's closer to three percent three four percent on an underlying basis okay understood thank you very much guys well thank you what's your question sir we'll now move to andrew wade calling from jefferies please go ahead andrew your line is open morning uh hope all the world team um uh first one from me um sort of looking at where you're where you're uh comfortable with consensus we're talking
about sort of 5 million of year-on-year profit improvement and that sort of set against a positive retail like for like 20 million of cost saves uh the tailwind from pet plan termination and another year of growth in vet i'm sort of i guess the question mark is and that doesn't have any impact for middle east in there as well so just sort of thinking why it's not a bit more than that um why you're not comfortable saying a bit there's a higher number than that so that that's that's the first one um the second one is um i interested james's um i know you haven't been in the business that long but um your initial take on sort of the broader um pet retail space um do you think that the industry like for likes have been more impacted by the the sort of covid cohort effect than than sort of previous management did they they sort of talked to that effect having worked its way through about 18 months ago um but but the industry's still been posting negative like the likes i'd be interested as your early take on on whether that has been more of a sort of super cycle factor and perhaps previous management talk to um and then thirdly um i appreciate this is probably for another day but any thoughts on the long-term target for where we could get to on vet site thanks very much andrew if i take take the first one then i'll i'll hand
the baton to to james on on the second um so so you're you're right to characterize our guidance as being a five million increase in pbt year on year um another year of profit growth in vets critically uh the start of the restoration of the profitability of our retail business with a plan that you know should see us gaining market share over a market that is back to low single digit growth not flat and as you rightly say underpinned by our commitment to take 20 million pounds worth of costs out of our support office and with our ongoing productivity initiatives set to offset external cost wins and underlying inflation. What we've also got in FY27 though is another year of investment and that's both our startup costs in our insurance business which we think will be a um a valuable adjacency for the pets business but but also you'll you'll see james and i having a look at the strategy over the summer um and and may choose to you know to dial up some high roi investments if they present themselves and and underpin out a year growth so so we're comfortable with with the range of estimates out there we're eight weeks in that there is some external volatility for for all uk retailers so you'll forgive us not making any any big calls on the numbers at this stage but we're comfortable with the consensus range and if we can do better than the midpoint we absolutely will and then maybe if i if i talk middle east conflict a little bit i guess that impact for us comes in three parts the good news is is none of those see us feeling the need to take consensus down at this stage one is continuity of supply where given what we know today in terms of you know alternative arrangements we might be able to put in place we don't see any any negative impacts on the business secondarily it's it's it's cost where in terms of forex and energy we are pretty much hedged for the year i could hedge out a little bit further but you know the market forward rates don't don't suggest we need to do that just yet but we'll keep it under review and of course the other impact is consumer confidence where the pet market has typically shown itself to be very resilient we've talked a lot about the price investments we've made we can see that coming through in volumes we can see that coming through in customers you know getting our value for money positioning feeling better so that hopefully also positions as well so so as things stand today we're we're comfortable we'll we'll be able to manage through that conflict but we'll we'll come back and update the market if things change uh and i'll pick up the baton andrew on your on your question on the pet uh retail market and
like for likes and covid and etc so uh yeah you're quite right i've only been here uh about eight weeks i'm not going to profess to being the market expert on the on the pet market i do remember from previous roles that pet was always seen as a very, very attractive category, maybe a bit more resilient to peaks and troughs in consumer confidence. People tend to protect their pet spend quite strongly. So from that perspective, a positive market to be in. um i'd also say you know some of the long-term trends that tend to underpin optimism about the pet retail market i think are still definitely in effect so premiumization humanization demographics you see a lot of younger uh cohorts owning pets whether that's cats in shared spaces or other things like that and being more interested in uh accessories and and more premium products for them so I think some of the long-term trends are still there and will play a positive role in the future it's hard to tell I mean certainly after eight weeks I'm not going to opine particularly on whether Covid had a big or a small effect it would put I can't believe it wouldn't have had an effect it had an effect on a lot of things can we see that in the pet market numbers I think maybe a little bit but I'm a bit more interested in how robust it is in terms of underlying trends and everything I've seen says uh very robust yeah okay thanks and uh that that sites was the other one sorry yeah sure so uh again we're going to play the we've only been here eight weeks card if that's okay yeah uh you know we started there's a there's a history to the bets business with space and openings um and resetting the space and going again uh and uh what we're doing at the moment is last year we were in the the foothills of beginning the process building the muscle again to reopen good value added high returning space uh and the plan this year is to accelerate that growth and i think we have we've sarah and i've been through those growth plans in quite a lot of detail with the teams and on first pass they look robust it looks like there is plenty of headroom out there and white space and it is a the vets for pets brand whether that's And whether it's a CMA confirming it or what I've seen in our customer satisfaction or even the feedback I've heard firsthand when I go and visit our vet practices from happy customers, it's a very attractive brand in the market. So I think the long term targets on that space growth are very achievable. And that's a muscle, as I said, we've rebuilt and you should see, I suspect, a growing impact from that space on our numbers in the future. Good stuff. Thanks very much.
Operator
Thanks very much, sir. Your next question will be coming from Manjari Dar of RBC. Please go ahead.
Good morning. Thank you for taking my questions. I just had three as well, if I may. The first one was on discretionary accessories. I just wondered if you could give some color on how you see the competitive backdrop there and sort of what you're sort of setting up in terms of the steps and the timelines for improvement in that business. My second question, James, I appreciate you've talked about that you've spent some time in stores. I just wondered if you could give some colour on your views on sort of the size and the locations of the retail estate at the moment and whether you think that there's any changes needed there. And then my final question just on margin. I just wonder if you could give some colour on sort of your expectations for where retail margin could get to for this year.
OK, then let's let's do those one at a time, shall we? So accessories, I understand the question. Obviously, it's an important category and especially in terms of underpinning the gross margin. And it's been a dynamic market in the last few years. You know, I'd make a couple of points. um again having only been here a short while i have been encouraged by a lot of the things i've seen in the business uh and one of the things that's encouraged me is the is the uh the momentum that has been gained from the early execution of the retail turnaround plan and i call it early execution because executed on price in terms of retail operations and execution it's been much stronger so much more consistent delivery for customers you can see that in customer satisfaction uh but on product actually we have only begun to land the new ranges so far so the momentum we've seen the strong start we've made to the year the the good finish we made to last year is actually about getting the basics right more often rather than launching new ranges we're beginning to see those ranges come through in the stores now and into the summer and accessories will be towards the end of the year and I think we have uh you know accessories have been uh returned to growth positive growth uh in the way the rest of the retail categories have and that's encouraging because it means the customers are are still in our stores and still visiting and still have a discretionary spend mindset when they're there and I think when we get the chance to land those new products and ranges in front of them I'm I would be quietly optimistic that we can begin to grow that category in a really creative way um so i am uh encouraged really encouraged by what i've seen in that space so far um your second question on the number of stores i think uh i mean a couple of points again things that have um impressed me in my first in my first couple of months in the business the one of them is the quality of the store assets we have uh and you can uh sarah probably might look at that on a spreadsheet and so would i a little bit about returns and uh and marginal profits and those are generally uh good across the estate i'm looking at as much as anything from a consumer and a colleague point of view when i visit the shops and i see reasonably well invested stores well laid out but with plenty of opportunities to grow within that footprint so i don't think uh anything i think no kind of dramatic change to our store footprint is one of our is definitely not one of our priorities i think we might start thinking about white space because obviously a lot of our stores the majority of our stores have a vets business within them as well and that combination of uh the vets and the retail does exceptionally well so there may be white space to put the put the business into some new areas but in terms of the overall priorities um any kind of dramatic change the store estate is definitely not on the priority list at the moment and then in terms of margin for this year as it was mentioned uh earlier by tim we've got we are uh still lapping our price investment which was a very good thing in my opinion and is playing a material part in our momentum at the moment so we'll lack that investment that will continue through the year but I'm also again going back to things I'm encouraged by we have a new commercial director Amanda we have some external support in the building with the commercial team and all of that early work points to a rebuild on margin I've been I've run big commercial teams in retailers I know how it works some of those things we can uh pick up in the short term and some of them take good constructive work with our suppliers and across our whole supply chain our end-to-end costs so some this year and then some into future years would be my very early impressions but i'm gonna i'm gonna play the i've only been here two months card one more time if that's okay and james maybe if maybe if i build on on the margin point because it because it's one very close to our hearts so you know gross margin is a barometer for the quality of the volume and the revenue growth now getting volume and sales moving in the in the right direction was our
first key priority and we're seeing some early signs of momentum it's also of course the way in which a business can can self-fund high returning investments and James and I although we we'd not met before uh before our joining of pets we both if you like spent our careers in in uk retail and consumer businesses where margins are always tight and the competitive landscape is you know it is always full so i think you should assume we are healthfully dissatisfied with where the the gross margin currently sits we're not going to give any specific guidance on fy 27 but but the levers that that james has quite rightly talked to are around having our pricing and promotional strategy be really complementary and additive for our customers of course first and foremost but also in our P&L and for our shareholders. A business that is starting to recover has the opportunity to engage in rather more mutually beneficial relationships with our branded suppliers once we are back to being a winning business. Our product ranges are important in that we can play at different price tiers and different margin profiles and of course you'll see us really looking at productivity throughout the supply chain and distribution so we've got lots of lots of ideas lots of themes and even more conviction so so we'll come back and talk about our plans that's great thank you very much thank you we'll now go back to mr jonathan pictured appeal hunt jonathan your line is open thank you and apologies if i kept dropping out um three big topics i'll get to them quite quickly uh data use you've obviously got a lot of data slushing around in the business how you're going to use that better um service levels i know you've
you've expressed a degree of satisfaction with execution and attitude etc within the business but are service levels right in the retail business and then and then forgive a non-pet owner but you talk a lot about product relevance could you just just apply in a little bit on what are the key areas that you've missed out on and and for everything that's relevant there's something that's irrelevant so what is becoming less on the mind of a pet owner uh yeah no problem jonathan let's do those one by one again so uh data use first of all it's a business with a lot of good
data a unique uh competitive advantage compared to almost everyone else and certainly in the pet specialist world uh with our pets club members and our all the information we have from our vets business you know one interesting take out of that is that the is the kind of data we'll be able to use when we launch our insurance business so being able to join those different data sets on pet health pet life cycles behaviors customer behaviors that's undoubtedly a strategic asset that we're going to seek to exploit um at the moment we have a decent level of personalization in our digital systems uh but you know there's i don't think there's any retailer in the world that thinks there's not more work and more opportunity in the use of data in the business and we're definitely in that camp as i say especially because we have such unique strategic asset in that database we already own um so service levels in the stores uh are they right i don't think any uh good retail business is ever resting on their laurels or complacent about service levels if i can talk about a little bit about what i've seen relative to my experience i have i mentioned i think already i've been encouraged by the level of commitment and i guess the lack of fatigue i found across the business so it's been a difficult period for everyone but when i visit our shops i see colleagues interacting and greeting customers at the door by name i see them uh i see them uh knowing the pet's names when they walk through the door and having a conversation about that pet's history and where they've been whether they've been to the vets and that level of engagement in a quite an emotional category is exceptional in my experience that's very hard to replicate our colleagues are very well trained and they're very passionate and they care about uh their customers and their and their pets and i think uh i think that is an incredible foundation to build on but like i say you can't be complacent about service it's got to be you've got to be able to express that service level across all your interactions with customers you've got to be consistent and customers expectations of service change over time and i think that's a good thing because it keeps pushing us to push the boundaries on what we uh and what we're delivering and what our ambition is um and then you know in terms of product relevance you know again only into the business for a couple of months but you know some some definite uh categories that we would be and that we would flag as uh very relevant and growing and good for our business as an advantage so clearly pets has uh an existing unique strength in our own brand offer so brands like wainwrights and ava and the newly launched rough recipes are unique in the market um they are uh amongst the biggest pet brands in the country and you can only buy them with the pet's business and you know investing in those brands driving them it's good for value for money it's good for our quality perception it's good for for brand trust it's good for a lot of different reasons so certainly in terms of those more advanced nutrition own brand food ranges that's a significant opportunity for us I think you can definitely see growth and opportunity in the health and well-being categories and maybe also in technology pet technology and so there are distinctly areas that are that are relevant and will become more relevant for our customers especially maybe for as innovation comes onto the market and we are an exceptional gateway to UK customers in the pet market for new innovative brands and then you know we as we launch our insurance business I think you know with the backdrop of the CMA and the challenge around cost of living more generally in the market and consumer confidence. I, I think it's, uh, a, uh, I can't claim any credit for it, but I think it's an excellent time to be launching an insurance business to go alongside our existing vets and pets businesses, because I think we can bring a unique take to that market. And I also think that we can use the strengths of our existing customer base and position ourselves as um as the as the go-to partner for pet owners and pet lovers in the market we can cover every element of that pet's life cycle and that pet owner's concerns in one brand and and eventually in in one app probably so look i think i think there are areas to be optimistic about i think uh and i and i think the the way the business is set up and our unique competitive advances give us extra unique rights to win in some of those areas.
Great. Thank you very much.
Operator
Thank you, sir. Next question will be coming from Andrew Whitney, coming from Investec.
Hi, James. Hi, Sarah. It's Andrew Whitney from Investec. Thanks for taking my question. Just one left from me on the VET group. That actually relates to a comment I think I heard on the pre-recorded presentation you flagged up the really strong average revenue per practice growth over the last three years and i know that was sort of ostensibly while the cma investigation was running now i guess there is a maturity factor in that because some of your younger practices mature i'm just interested to understand how the cohort of mature practices over that time period and going forward have you got a sense of how those practices can can grow from here the mature ones and is there any limitation to how big those practices could um could ultimately get
many thanks uh thanks andrew yes um uh it's uh it's been a feature of the vets market uh it appears over the last few years that um revenue growth per practice that's first things first i think that's a testament in some ways to the model the unique model we run with our jv partners because a lot of that drive and that local knowledge and entrepreneurship comes from the practice owners themselves and we're there to support that growth and that ambition and so i think that is a an accretive model and it's and it's proving its worth over that time period but i also think there are plenty of opportunities i think there probably is some mature i think there is a maturity curve to a vet business, which is why we have a very good pipeline of requests from our practice owners for extensions to their existing facilities, which have a high payback because they facilitate their extra demand. And as a vet business matures and they continue to attract new local customers, I think those extensions for a start can provide a real lifeblood for growth. um i also think you know we mentioned it in the presentation advanced capabilities is a is something i'm learning about in the vets business but you know on the on the practices i've visited i've been uh slightly blown away by some of the capabilities our practices have behind the scenes uh you know we can talk all day about the um commitment and care of the colleagues and that is that is amazing i think it's a huge asset but the investment our practice zonas are making things like mri scanners endoscopy um and you know my favorite example i visited a practice um down in essex where i live and they have a hydrotherapy pool for dogs um and i think you know the more of these propositions we bring to our customers the more choices we give them about how we might care for their pets and look after them and and improve their quality of life the more we might be able to grow revenue through what we call advanced capabilities. And we have a lot of those advanced capabilities in the group at the moment. So I think there's an opportunity, we know there's an opportunity to link those up more effectively within the group, rather than see that revenue escape to other practices. So I think there are plenty of opportunities to continue that average revenue per practice growth into the medium and maybe the long term as well.
Okay, thank you very much.
Thanks a lot. thank you much andrew ladies and gentlemen as a reminder if you have any questions or follow questions please press star one at this time we'll now go to richard taylor of barclays please go ahead richard your line is open yeah good morning team um i've got three questions please firstly on the cost savings can you just remind us exactly what's been removed here um before your time i realized but the 20 million pounds or so there's like a large number just understanding what the organization potentially loses from people departing. It's a big number in the bridge for this year. Secondly, can I just follow up again on accessories? Keen to hear early observations on the product set and why you may have lost share. Was it innovation? Was it convenience versus the likes of Amazon? Do you think you need to lower prices here? And then finally, sorry to come back on this, but still keen to understand retail PBT margins that's sort of embedded within your guidance for this year because it looks like there's quite modest growth from both retail and vets and you say vets are going to grow we can see retails growing top line quite strongly so um you know is it implicit within your assumptions for for the for the consensus that retail margins go down this year uh or are you baking in some conservatism or you're leaving some room to lower prices again if required thank you uh okay thank you richard We will take those off for you and try and clear up any leftovers.
So the cost savings are clearly before Sarah and I's time. That 20 million relates entirely to a restructure at the support office near Manchester. That support office, my understanding was, had grown in line with the investment schedule and a lot of the work that needed to be done over the course of the last five years. And when Ian and Anya looked at the cost structure and looked at the requirements for the business, it was felt that a one-off restructure was necessary to bring the cost back in line with the needs of the business. So all of that £20 million saving comes from the support office. My understanding is it's slightly less than a fifth of the number of colleagues, but that brings us back to a position we would have been maybe five years ago. So from what I've seen so far, I don't believe we've lost any crucial capabilities. Clearly, the teams are leaner. And so if we need to reshape a little after that, we will look at that. But I haven't seen any missing capabilities from the restructure. And so at the moment, the support office is supporting the stores and the vets and the grooming and the growing insurance business in the way we'd need it to. So at the moment, I think that was a sensible move to make in the context of where the business was. On accessories, I can't talk too much about why we might have been losing share. There's a well-trailed channel mix story. And I think we've talked before about maybe losing focus on our commercial execution, maybe not bringing enough innovation to the market. um and accessories is clearly a discretionary purchase and i think you need a bit of excitement a bit of engagement and a degree of newness to keep customers interested and so maybe we have uh we we lost our way slightly in terms of engaging our customers at the fixture um but like i said the as i said the retail turnaround plan has product at the center of its priorities it will it has been slower to get to market because we can't turn new product ranges around on a sixpence but they are beginning to arrive now and later in the year we should start to see new accessory ranges new space executions for accessories and I'm hopeful we'll also see some some new exciting brands and accessories landing in the stores because you know it's a way to leverage our our unique uh market position if you if you're a new innovative accessories brand uh who who else should you be partnering with other than pets at home with our 7 million customers 460 stores 20 market share you know it should be a no-brainer so that's just about building good commercial relationships and setting out an exciting proposition for the customers and that's that that work is underway and we'll start to see the fruits of that towards the end of this year I believe. Sarah do you mind picking up on the margin question?
Yeah let me do that Richard so I think we've talked about some of some of the variables in in the retail business and the guidance more broadly so so maybe if I just summarize that yes absolutely we see FY27 being a first positive step on our multi-year glide path to improve retail profitability.
I margin up embedded within the guidance at the pvc level yes okay thank you thank you much sir there's a follow-up question from tim revskill of bank america please go ahead hey thank you probably one for sarah so you answered one of my earlier questions you you referenced the sort of tidy up of some historic items within within vets um impacting revenues does that explain why fee income grew slightly more slowly than vet practice consumer revenues um and again maybe just help us understand what what was the what was the cleanup that was necessary so to to the
best of my ability without uh blowing our mind with with too much technical detail um some of our previous practice arrangements were constructed in a way such that some of the investments that pets group had made into those practices were considered to be capital in nature and held on the balance sheet well as as we looked uh last year and indeed this year ie fy 26 at the substance of some of those agreements they're all legacy agreements we couldn't fully justify the recoverability of those assets so the prudent stance was to write them off and and effectively we have them as an offset to underlying fee income from those JV practices. So it's one-off, it's past us now, and all new contractual arrangements support the accounting and the recognition of those benefits.
Operator
Okay, understood.
Operator
Thank you very much, sir. As we have no further questions at this time, Mr. Bailey, I'd like to turn the call back over to you for any additional or closing remarks. Thank you.
Okay. Thanks, everyone. Really appreciate your time and your questions. We look forward to talking to you all a lot more over the coming period of time. In closing, as I said, Sarah and I being careful to caveat here that we've only been in the business a couple of months. I think I've mentioned already I've been really encouraged by what I've found from committed and capable colleagues and well-invested infrastructure and a really strong underlying brand and customer metrics especially are very encouraging to me and it's far too soon to say but i think i i can probably say that i am quietly confident that it's a business with a bright future we've got a lot of work to do but sarah and i are here to make sure that work gets done and we can deliver for our customers our colleagues and of course for our investors so thank you very much for joining us and look forward to seeing some of you soon.
