Petco Animal Supplies (NASDAQ:PETC) reported third quarter results last night, and they were warm and fluffy. Revenue rang in at $415 million, 13% higher than the year-ago quarter, while earnings came in at $19 million, up 60%. "Same-store sales," which measure revenues at stores open at least a year, were up 6%.

Gross profit margins improved to 33% from 31% a year ago. The company explains that 80% of this increase is due to "the continuing change in mix from lower-margin pet food sales to higher-margin categories, such as pet accessories, supplies and services."

The company also waxed bullish about its future, and expects to end its fiscal year with operating earnings around $1.14 or $1.15 per share, a few pennies more than previously expected. It is also clinging to an annual earnings growth target of 20% for the long run. (Fools should note that while that figure may be exciting, companies can't keep growing at fast rates. As they get huge, growth tends to slow. Still, Petco isn't exactly huge yet.)

Petco, operating some 652 stores in 43 states, is the country's second-largest pet product retailer, behind PETsMART (NASDAQ:PETM). It opened 19 new stores in this past quarter, and 60 so far in 2003. Here's how it stacks up against PETsMART on several key measures, according to Hoovers.com data:







  
    
      
        
          
            Petco          PETsMart
          
          Annual revenues        $1.5 bil.      $2.7 bil.Market cap             $1.9 bil.      $3.8 bil.Gross margin           33%            30%Net profit margin      3.6%           3.5%Return on Assets       10.6%          7.9%Inventory turnover     7.6            8.9Asset turnover         3.1            2.5 Cash flow per share    $1.94          $1.29Working capital/share  $0.97          $2.22
      
    
  





  
    
      
        
          ROIC*                  17.2%          10.6%
      
    
    *Return on Invested Capital
  



Petco has a lot of debt on its balance sheet -- $139.7 million, to be precise. But that's down from $191 million nine months ago. Are shares a bargain now? With a price-to-earnings (P/E) ratio around 34, they've likely gotten ahead of themselves a bit. But they do seem cheaper than those of PETsMART, which has a P/E around 40, near the top of its 52-week range.









If you're interested in either of these firms, check out their competition, as well -- represented best by the likes of Wal-Mart (NYSE:WMT) and supermarket chains such as Kroger (NYSE:KR), Safeway (NYSE:SWY), and Albertson's (NYSE:ABS). And drop by our discussion boards for Petco and PETsMART to see what other folks are saying. (We're offering a free trial of our acclaimed boards.)



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