Pets at Home (LON: PETS) is set to release its third-quarter trading update on Tuesday, with investors keeping a close eye on the group’s profits after it previously pointed to cost headwinds.

In the pet retailer’s interim results in November, the group reported record customer levels and total group revenue up 7.3% to £727.2m. Pets at Home also said vet group revenue jumped 12.4% and retail revenue grew 6.8%.

However, the group’s underlying profit before tax fell 9.3% to £59.2m due to increased freight and energy costs and a YoY increase in investment in digital assets.

The firm made no change to its full year guidance in its interim results, anticipating full-year underlying profit before tax of between £121m and £136m. However, the retailer added that they see industry-wide cost headwinds “persisting in the near term,” in particular the impact of foreign exchange, energy and national living wage.

Pets at Home benefitted immensely from a surge in pet demand during the Covid pandemic, and even though the RSPCA has recently reported a surge in abandoned cats and dogs due to the cost-of-living crisis, many owners are still prioritising the health of their pets.

Many of those pets taken in by households in 2023 now need treatment for certain ailments, causing demand for the retailers veterinary services.

Meanwhile, the cost of both dogs and cats has decline almost 20% compared to a year ago. Demand for pets has declined, resulting in a price slump as a result of the cost-of-living crisis as consumers attempt to cut discretionary spending.

Despite the recent demand decline, average weekly sign ups for Pets at Home’s Puppy & Kitten club, as reported in its interim results, had increased.

Registrations are now 3x higher than pre-pandemic levels and Puppy & Kitten customers are said to be more engaging and spend more. Therefore, this offers the group a larger growth opportunity over a 12-15 year period. However, a potential decline, while not expected in the Q3 update, may be something to watch out for further into 2023 if demand continues to wane.