As earnings season starts to look a bit long in the tooth, a few of our favorite companies still have some bite in 'em. Next up, pet pamperer PetSmart (NASDAQ:PETM), which will report its Q2 numbers after trading closes on Wednesday. Will it be a good boy?

What analysts say:

  • Buy, sell, or waffle? Nineteen analysts follow PetSmart, with nine rating it a buy, and 10 a hold.
  • Revenue. On average, they expect quarterly sales to grow 10% to $1.13 billion.
  • Earnings. Profits are predicted to rise an even 20% to $0.30 per share.

What management says:
CEO Phil Francis argued that PetSmart's "solid performance" in Q1, with a nationwide pet food recall on a scale "unlike anything we have ever experienced in the industry," proved the company's ability to turn in a "strong" performance despite adversity.

As recall-related issues subside, Francis sees PetSmart gaining even more strength. He predicted "low- to mid-single digits" same-store sales growth in Q2 (we'll see how close to right that was on Wednesday), and sees the full-year performance accelerating to just plain same-store sales growth in the "mid-single digits."

What management does:
That would be nice to see, as growth in sales could yield higher profits even in the face of falling margins at PetSmart. Gross and operating margins continue to trend down, even as the firm turned in a significant leap in its rolling net margins on the back of last quarter's announced $64 million benefit from selling part of its stake in MMI Holdings (the third-party operator of PetSmart's Banfield veterinary hospitals). For reference, PetSmart's gross margins lag those of more diversified retailers such as Target (NYSE:TGT), while outperforming Wal-Mart (NYSE:WMT).

Margins

1/06

4/06

7/06

10/06

1/07

4/07

Gross

31.2%

31.1%

30.8%

31.0%

30.9%

30.8%

Operating

8.6%

8.4%

8.2%

8.1%

8.1%

7.9%

Net

4.9%

4.6%

4.5%

4.3%

4.4%

5.8%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

One Fool says:
Checking in on PetSmart a few weeks ago, in the course of reviewing all of his picks for Motley Fool Stock Advisor, David Gardner gave the company a treat, and investors a stern warning. 

Treat: David found particularly attractive the fact that PetSmart's "pet services" sales grew 18% in last quarter, or nearly twice the rate of overall sales. Sound good? It gets even better. According to Francis, pet services aren't just outgrowing retail sales by twice -- they're "nearly two times as profitable as the core business." (To learn more about how this works, and a few of PetSmart's other neat tricks, read our interview with the CEO -- full access is available to Stock Advisor members, and to readers who take a free trial now.)

But lest you get so excited about PetSmart's growth, and its 16.8 P/E ratio, that you have an "accident" on the rug, heed David's warning: Shares may be "trading at about 15.8 times the mid-range of management's guidance for 2007, but you should keep in mind that the guidance includes a net one-time benefit of about $0.36 a share." Unless growth picks up the slack, that P/E would rise relative to 2008 earnings.

For more Foolish mew-sings on PetSmart, try:

Wal-Mart is a Motley Fool Inside Value recommendation.

Fool contributor Rich Smith does not own shares of any company named above.