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PetSmart's Q3 Earnings Beat Estimates

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PetSmart Inc. (PETM) posted better-than-expected third-quarter fiscal 2013 earnings. Quarterly earnings of 88 cents per share surpassed the Zacks Consensus Estimate by a couple of cents and jumped 17.3% year over year.

This Zacks Rank #3 (Hold) company’s innovative and differentiated products and its sustained efforts to expand its portfolio of brands and assortments facilitated it to deliver healthy results.

Strong bottom-line performance enabled the company to raise its earnings guidance. PetSmart now projects earnings in the range of $3.94–$3.98 per share for fiscal 2013, up from its earlier guidance range of $3.88–$3.98. Moreover, the company expects fourth-quarter fiscal 2013 earnings between $1.19 and $1.23. The Zacks Consensus Estimate currently stands at $1.23 for the fourth quarter, while it is $3.96 for fiscal 2013.

During the quarter, top line improved 4.0% to $1,695.2 million. However, the company’s quarterly revenues fell marginally short of the Zacks Consensus Estimate of $1,704 million. For fourth-quarter 2013, PetSmart expects sales to decrease by 2%–3% in fiscal 2013. However, on a comparable basis, sales are expected to rise by 4%–5%.

Further, PetSmart expects sales to increase 3% in fiscal 2013. However, on a comparable basis, sales are expected to rise by 5%.

By categories, Merchandise sales grew 3.9% to $1,500.4 million, whereas Services sales increased 5.2% to $184.2 million. Other revenues in the quarter came in at $10.5 million, up 7.4% year over year.

PetSmart registered 2.7% growth in comparable-store sales, with a 0.2% rise in comparable transactions. The company expects comparable-store sales to increase by 2.5%–3.5% in the fourth quarter and 3%–3.5% in fiscal 2013.

Benefiting from its top-line growth, gross profit increased 4.7% year over year to nearly $505.0 million. Also, gross margin increased 20 basis points (bps) to 29.8%, driven by services leverage. PetSmart’s operating income remains strong, portraying 9.4% growth to $152.7 million. Alongside, operating margin expanded approximately 40 bps to 9.0%.

Going forward, PetSmart expects 20–40 bps improvement in earnings before tax (:EBT) margin in fiscal 2013 whereas on a comparable basis, EBT margin is expected to rise 50–70 bps. However, EBT margin is expected to decrease by 15–45 bps during the fourth quarter, whereas on a comparable basis, EBT margin is expected to rise 45–75 bps.

During the quarter, PetSmart opened 16 stores and shut down three stores thereby bringing the total store count to 1,314. Moreover, it currently operates 196 PetsHotel.

The company ended the quarter with cash and cash equivalents of $295.9 million, capital lease obligations of $453.6 million and shareholders’ equity of $1,205.1 million.

During the quarter, PetSmart generated operating cash flow of $107 million and incurred capital expenditures of $51 million. Furthermore, the company repurchased shares worth $30 million and had no borrowings under its credit facility.

In September, PetSmart’s board of directors approved a new $535 million share buyback program that commenced on Oct 1 and will expire in Jan 2015. Additionally, at the end of third-quarter 2013, the company has $113 million worth of shares remaining for repurchase under the existing share buyback plan (which expires in Jan 2014).

Thereby, bringing the total repurchases under both the plans to $648 million. The board also increased the quarterly dividend by 18%, bringing the total quarterly payment to 19.5 cents from 16.5 cents.

Other Stocks to Consider

Other stocks in the retail-sector worth considering include Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA), Five Below, Inc. (FIVE) and Marinemax Inc. (HZO), all of which hold a Zacks Rank #2 (Buy).

Read the Full Research Report on PETM
Read the Full Research Report on FIVE
Read the Full Research Report on ULTA
Read the Full Research Report on HZO

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