Foolish Forecast: PetSmart Heels

Tic-tac-toe, investors want to know: After beating consensus estimates in each of the last two quarters, will superstore PetSmart (Nasdaq: PETM  ) make it three in a row when it reports its third-quarter 2007 earnings Wednesday afternoon?

What analysts say:

• Buy, sell, or waffle? Nineteen analysts follow PetSmart; eight rate it a buy, and 11 say hold.
• Revenue. On average, they expect quarterly sales to grow 8% to $1.12 billion.
• Earnings. Profits are predicted to drop a penny to $0.22 per share.

What management says:
PetSmart left investors a present last month -- and when I say "present," I'm referring to the kind you find after coming home from a long day at the office. There it sits, in a steaming pile, in the middle of the living room rug. Sigh.

For the Fool story, read our rundown in "In the Dumps at PetSmart." But the short version goes like this: The "uncertain economic environment, and ... recent consumer weakness" have hurt business. As a result, we should expect results on Wednesday that resemble the anemic October sales of Wal-Mart (NYSE: WMT  ) more than the surprisingly respectable results at Target (NYSE: TGT  ) . Same-store sales will grow less than the "low-to-mid single-digits" previously forecast. And profits for the third quarter will be between $0.17 and $0.20 per share.

What management does:
More's the pity, because PetSmart had just finished putting together back-to-back quarters of rising net margins, and had begun pulling its gross and operating margins back up as well. Doggone it.

Margins	4/06	7/06	10/06	1/07	4/07	7/07
Gross	31.1%	30.7%	31.0%	30.9%	30.8%	31.1%
Operating	8.0%	7.7%	7.6%	7.7%	7.5%	7.8%
Net	4.6%	4.5%	4.3%	4.4%	5.8%	5.9%

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:
Perhaps you're wondering why analysts are still looking for $0.22 per share in profits, when PetSmart so clearly said it will earn no more than $0.20? The answer is that the analysts are doing a "pro forma" estimate, backing out the $0.04 expense related to PetSmart's exiting its equine line of business. In GAAP terms, Wall Street expects to see $0.18 per share on Wednesday.

Related Foolishness:

• Last year, the company performed new tricks in Q3.
• This fool thought PetSmart was fetching a great future.
• Recent recalls didn't cause panic last quarter.

And what do we expect out of PetSmart, seeing as we've recommended it to our subscribers at Motley Fool Stock Advisor? Read our summer update on PetSmart (and all the other Stock Advisor recommendations) to find out. A free trial is the price of admission.