PetSmart Reports Healthy 4Q

Zacks

PetSmart Inc. (PETM), the specialty retailer of products, services and solutions for pets, recently posted healthy fourth-quarter 2011 earnings. The quarterly earnings of 91 cents a share jumped 18% from 77 cents delivered in the year-ago period. Moreover, the reported earnings were a penny ahead of the Zacks Consensus Estimate.

Higher consumer transactions coupled with healthy sales during the quarter facilitated the company to boost its top and bottom lines.

Further, PetSmart’s innovative and differentiated products along with its sustained effort to expand its portfolio of brands and assortments and its collaboration with Martha Stewart Living Omnimedia Inc. (MSO) facilitated the company to launch different lines of pet products for delivering healthy results.

The company’s top line increased 8% year over year to $1,637.8 million, ahead of the Zacks Consensus Estimate of $1,621 million.  Merchandise sales grew 7.4% to $1,460.1 million, whereas service sales climbed 10.9% to $168.5 million. Other revenue in the quarter came in at $9.3 million, up 8.5% year over year.

Phoenix-based pet retailer, PetSmart’s comparable-store sales climbed 5.5% in the quarter, driven by a 2.9% growth in comparable transactions.

Benefiting from its top-line growth, gross profit marked an increase of 7.1% to $497.9 million. However, gross margin shrinked 20 basis points to 30.4%, reflecting an increase in cost of sales as a percentage of total revenue.

The company’s operating income was robust, showing a growth of 13.4% to $170 million. Moreover, operating margin expanded 50 basis points to 10.4%, reflecting a decrease of 70 basis points in operating, general and administrative expenses as a percentage of total revenue.

During the quarter, PetSmart opened 25 stores and closed 3 stores bringing the total store count to 1,232 stores. The company also opened 3 PetsHotels during the quarter bringing the total count to 192 PetsHotels.

The company repurchased shares worth $101 million and distributed dividends worth $16 million during the quarter. During the year, PetSmart repurchased shares worth $337 million, incurred $121 million in capital expenditures and distributed dividends valued at $60 million. It ended the quarter with cash and cash equivalents of $342.9 million, capital lease obligations of $505.3 million and shareholders’ equity of $1,153.8 million.

Forecast

Based on its healthy results, the company expects earnings in the range of $3.02 to $3.16 for fiscal 2012. Moreover, comparable store sales are projected to increase in the range of 3% to 4%, with total sales growth of 7.5% to 8.5%.  Gross margin is expected to increase by 30 to 40 basis points.

The company expects to generate free cash flow of $400 million to $420 million, while capital expenditures are projected in the range of $130 million and $140 million in fiscal 2012.

For the first quarter of 2012, the company expects comparable store sales to increase in low to mid single digits, while earnings per share are expected to be in the range of 70 cents to 74 cents.

PetSmart holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating. Our rank supports the consistent strong performance of the company as well as its positive outlook.

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