Will Fressnapf achieve a 10% annual revenue increase through 2026?

The analytics multinational recently assigned Fressnapf a preliminary ‘BB’-long-term issuer credit rating, indicating low short-term vulnerability but noting broader economic and industry challenges.

This rating is partly tied to nearly €800 million ($865.2M) in unsecured notes (a loan that is not secured by the issuer’s assets) from the company’s acquisition of Arcaplanet earlier in the year.

According to S&P Global, the acquisition of Arcaplanet “will reinforce” Fressnapf’s leading position in the continental European pet care retail market.

The report states that Germany accounted for 37% of the revenue in the 12 months ending 30 June 2024. Italy (20%), France (15%) and Austria (8%) followed. The financial report warns that scale is a “constraining factor” for Fressnapf’s business profile.

Improving cost structure

S&P analysts predict that the German retailer’s push to reduce procurement costs and enhance product mix may face challenges, as investments in online pricing initiatives and loyalty programs will likely offset profits.

“Fressnapf is looking to improve its cost structure through a reduction in overhead costs and investment in warehouse capacity, with three warehouses to open over 2025-2026 to support its online business and lower logistics expenses,” the report reads.

Analysts forecast that, as Arcaplanet will be managed separately for now, there will be limited personnel cost savings but benefits from combined procurement instead.

Future outlook

S&P Global’s financial analysts remain optimistic about the company’s future and believe it will be driven by premiumization trends. The new stores and the plan to roll out online offerings across core markets will contribute to most of Fressnapf’s total revenue growth.

However, the “modest decline” in the overall pet population could offset this positive trend.

A yearly revenue increase of 10% through 2026 is also forecast. Fressnapf posted a turnover of €4 billion in 2023 and expects to increase this to €4.8 billion ($5.1B) this year.

The report does warn, though, “While we expect the slowdown to be temporary, the ambitious store opening plans, which are focused on markets outside Germany, might take longer to ramp up compared with previous cohorts that benefitted from the higher demand during the pandemic.”