3 Things to Watch For in PetSmart's Earnings

PetSmart (NASDAQ: PETM  ) will unleash earnings before Monday's opening bell. Here's what you need to watch for in the company's results.

Great expectations
The first issue that needs to be addressed after earnings are released is whether the pet products retailer met Wall Street's expectations. Analysts peg profits for PetSmart at roughly $1.20 per share this quarter. In the third quarter 2012, earnings per share were up 50% compared to the same period last year. PetSmart projects its full-year 2012 outlook for earnings per share to range from $3.47 to $3.51, up from the $2.55 it earned in 2011.

I'll be looking to see if PetSmart hit its fourth-quarter and full-year earnings-per-share estimates out of the dog park.

Organic sales growth
PetSmart's sales growth has been outpacing that of the $52 billion pet care industry. Last quarter, same-store sales grew 6.5%, attributed to strength across all merchandising categories. And sales for PetSmart services -- like grooming, training, and boarding -- rose 8%. Over the past four years, net sales have increased nearly 8% annually. 

Will praise for PetSmart continue? I'll be looking to see what type of organic growth took place in the fourth quarter and where it was achieved in-store (merchandise sales, services, or both).

Category growth
PetSmart leverages its strong brand through its product diversity and differentiation across its profitable services. PetSmart is the largest provider of pet services in North America, and its services sales have doubled in the past six years. Grooming and training are available in all roughly 1,300 stores, with an increasing number of those stores offering veterinary clinic services, boarding, and pet day care. Since services drive PetSmart's margins substantially, I'll be watching to see how service sales did.

As pet owners become more mindful of their pets' health, they are demanding higher-quality food options. PetSmart carries prescription, super premium, and premium pet foods to meet this demand. These foods also carry much higher margins than lower-tier offerings. I'll be looking to see how sales in these premium pet food segments grew in the fourth quarter and full-year 2012.

I'll also be watching for PetSmart's growth in its online sales. In 2011, Amazon.com (NASDAQ: AMZN  ) unleashed Wag.com, a pet-centric website offering 25,000 products, free shipping for orders over $49, and 5% back on pet food. And last year Wal-Mart (NYSE: WMT  ) launched Pure Balance, its first ultra-premium private-label dry dog food. Consumers buying the new dog food online can receive either site-to-store delivery with no shipping costs, or free shipping directly to the consumer on orders above $45. In response, PetSmart has substantially increased its online presence by adding roughly 3,500 SKUs to its site just last year.

Foolish bottom line
Undoubtedly, longtime PetSmart investors have been handsomely rewarded. Over the past five years, PetSmart stock has returned nearly 200%, more than four times that of the Nasdaq during the same period. But will PetSmart continue to play nice for investors in coming quarters? Monday's earnings release will give us some indication. Watch to see.

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