PetSmart in Line, Lifts Outlook - Analyst Blog

PetSmart Inc. (PETM), the specialty retailer of products, services, and solutions for pets, recently posted third-quarter 2010 earnings of 38 cents a share that came in line with the Zacks Consensus Estimate, and rose 22.6% from 31 cents earned in the year-ago quarter. Consequently, the company has lifted its outlook.

Management now expects fiscal 2010 earnings between $1.96 and $2.00 per share, up from $1.91 to $1.99, previously anticipated. The company also projects fourth-quarter 2010 earnings between 71 cents and 75 cents. In the long run, PetSmart expects the bottom line to grow annually between 11% and 17%.

Following an improved outlook, a positive sentiment may be palpable among the analysts covering the stock, and we could witness a rise in the Zacks Consensus Estimate in the coming days. The current Zacks Consensus Estimates for the fourth quarter and fiscal 2010 are 74 cents and $1.99 per share, respectively.

PetSmart delivered a top-line growth of 7.2% in the quarter to $1,388.1 million, which came ahead of the Zacks Revenue Estimate of $1,378 million. Merchandise sales grew 6.3% to $1,230.9 million, whereas service sales climbed 8.5% to $148.3 million. Other revenue in the quarter came in at $8.9 million.

Phoenix-based pet products retailer hinted that comparable-store sales elevated 5.6% in the quarter, aided by a 3.6% growth in comparable transaction. PetSmart forecasted comparable-store sales growth in the mid-single digits for the fourth quarter and fiscal 2010.

The company's innovative and differentiated products as well its sustained effort to expand its portfolio of brands and assortments have helped deliver healthy results. PetSmart has collaborated with Martha Stewart Living Omnimedia Inc. (MSO) to launch different lines of pet products.

Despite a 6.5% rise in the cost of goods sold, PetSmart posted a substantial increase of 9.2% in gross profit to $389 million, aided by top-line growth. Consequently, gross margin expanded 50 basis points to 28%. Operating income surged 17.3% for the quarter to $83.6 million, whereas operating margin increased 50 basis points to 6%.

During the quarter, PetSmart opened 10 stores and closed 2, bringing the total store count to 1,172. The company now plans to open 16 net new stores in the fourth quarter. The company ended the quarter with cash and cash equivalents of $235.4 million, capital lease obligations of $528.3 million and shareholders' equity of $1,172.6 million.

PetSmart has a Zacks #3 Rank, which translates into a short-term ‘Hold' recommendation.

 
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