Benzinga·2025-12-25 17:01Core Insights - U.S. pet spending demonstrated resilience in 2025, maintaining defensive appeal amid affordability pressures and shifting spending patterns [1] Economic Context - Pet and pet product inflation decreased to 0.3% year-over-year in November, down from 1% in September, providing some relief after years of high costs [2] - Despite inflation easing, broader cost-of-living pressures persist, with concerns about rising "pet poverty" affecting nearly 94 million pet-owning households in the U.S. [2] Consumer Behavior - Demand for pet products remained strong, driven by emotional attachment, with 97% of U.S. dog and cat owners viewing their pets as family [3] - During the 2025 holiday season, about half of dog owners and four in ten cat owners planned to purchase Christmas gifts, averaging $30 per gift [4] Shifts in Spending - There was a notable shift in consumer preferences towards pet technology, enrichment tools, and health-oriented products, moving away from novelty toys and impulse buys [5] - Younger pet owners are increasingly favoring technology and DIY solutions, balancing wellness with affordability [6] Market Dynamics - A bifurcation in pet spending emerged, with the top quartile of earners maintaining their consumption patterns while approximately 75% of households shifted towards value and store brands [7] - This divergence influenced operating performance across the sector and affected investor capital deployment [8] Investment Outlook - Pet care remains structurally strong within consumer discretionary, supported by resilient demand and lower exposure to tariffs compared to other consumer goods [9] - IDEXX Laboratories Inc. is highlighted as a high-quality compounder with recurring revenue characteristics, despite softer growth expectations due to clinic traffic [10] - Analysts noted that while most pet care stocks ended 2025 lower, the focus has shifted to fundamentals as demand remains steady [11] Future Projections - The muted M&A activity over the past three years is attributed to valuation gridlock rather than deteriorating fundamentals, with a backlog of potential sellers building up [12] - Expectations for 2026 and 2027 indicate strong transaction activity across premium, value, and contract-manufacturing segments once pricing expectations adjust [13] - Certain categories, particularly accessories sourced from China, face tariff risks and competition from overseas manufacturers, impacting margins and valuations [14]