PetSmart's Earnings Beat

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Rise in sales and operating efficiencies facilitated PetSmart Inc. (PETM) to post robust fourth-quarter fiscal 2012 earnings. The quarterly earnings of $1.24 per share jumped 36% from 91 cents delivered in the comparable year-ago quarter. Moreover, the reported earnings surpassed the Zacks Consensus Estimate of $1.21.

Following strong results, the company now projects earnings in the range of 92 cents–98 cents for the first quarter and between $3.76 and $3.92 per share for fiscal 2013.

Sturdy sales across all categories spurred a 15% increase in its top line to $1,879.2 million. However, the company’s quarterly revenues fell short of the Zacks Consensus Estimate of $1,888 million. Going forward, PetSmart expects sales to increase by 2%–4% in fiscal 2013.

This Zacks Rank #3 (Hold) company’s innovative and differentiated products and its sustained efforts to expand its portfolio of brands and assortments facilitate it to deliver healthy results. In a move to boost sales, PetSmart collaborated with Martha Stewart Living Omnimedia Inc. (MSO) and General Nutrition Centers, Inc. ("GNC"), to launch assorted lines of pet products.

By categories, Merchandise sales grew 14.8% to $1,676 million, whereas Services sales increased 14.9% to $193.6 million. Other revenues in the quarter came in at $9.6 million, up 3.8% year over year.

PetSmart, which competes with Target Corporation (TGT) and Wal-Mart Stores Inc.(WMT), registered 4.6% growth in comparable-store sales, with a 1.2% rise in comparable transactions. The company now expects comparable-store sales to increase by 2%–4% in first quarter and fiscal 2013.

Benefiting from its top-line growth, gross profit jumped 19.2% year over year to $593.4 million. Moreover, gross margin expanded 120 basis points to 31.6%, reflecting lower cost of sales as a percentage of revenue.

PetSmart’s operating income remains strong, portraying growth of 30.2% to $221.3 million. Alongside, operating margin expanded 140 basis points to 11.8%, indicating operating efficiencies.

During the quarter, PetSmart opened 11 stores and closed 2, bringing the total store count to 1,278. Additionally, the company opened 1 PetsHotel, ending the quarter with 196 hotels.

The company ended the quarter with cash and cash equivalents of $335.2 million, capital lease obligations of $464.6 million and shareholders’ equity of $1,123.6 million.

In fiscal 2012, PetSmart generated operating cash flow of $696 million and incurred capital expenditures of $138 million. Furthermore, the company repurchased shares worth $457 million and distributed $84 million in dividends.

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