What You Need to Know About PetSmart’s Recent Earnings

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PetSmart (UNKNOWN: PETM.DL  ) unleashed second-quarter earnings earlier this week. Here's what investors need to know about the company's results.

Growing by leaps and bounds
For yet another quarter, PetSmart hit its revenue and earnings estimates out of the dog park. The company posted second-quarter revenue of $1.70 billion, nearly 6% more than the $1.62 billion year-earlier figure. The pet-centric retailer boasted second-quarter earnings per share of $0.89, while analysts had pegged quarterly profits for PetSmart at $0.86 per share. The retailer raised its EPS guidance to $3.88-$3.98, up from a previous range of $3.82-$3.94. Yet PetSmart's boost in guidance wasn't enough to receive praise from investors. Shares were trading down more than 5% after Wednesday's close.

However, PetSmart's historical growth rate has been like a scratch behind investors' ears. During the past five years, PetSmart's net sales have increased 9% on average annually , outpacing the industry. In the second quarter, same-store sales grew 3.4%, slightly down from the prior quarter. Meanwhile, sales for PetSmart's important services segment, which includes grooming, boarding, training, and veterinary services (through PetSmart's Banfield), were up 7.3%.  

Growth in PetSmart's services is particularly critical because this segment significantly drives margins. Importantly, services also furnish customers with an in-store experience with which big-box merchants and online rivals can't compete. As North America's largest provider of pet services, PetSmart's services sales have grown roughly 60% during the past five years. And the company plans to ferociously ramp up these offerings in even more of its stores.

Dog-tired or more room to run?
Returning a whopping 200% to stockholders in the past five years, PetSmart has been the undeniable alpha male of pet retailing. But many shareholders wonder how long the company can continue its positive same-store sales growth trajectory. Some investors are looking for new-fangled opportunities in the lucrative pet market.

More than ever, we pet owners (two out of three American households) are willing to fork over whatever costs necessary to ensure the health of our four-legged friends. And because pet parents often forgo pet insurance (or buy just enough to cover catastrophic events), almost all of the cost of pet medicines and vaccinations comes directly out of pet owners' wallets.

As a result, Zoetis (NYSE: ZTS  ) , which big pharma company Pfizer spun off in one of the biggest IPOs of the year, is uniquely positioned to profit from this mammoth and growing animal health market. With more than $4 billion in annual revenue, Zoetis is the biggest stand-alone company totally devoted to pet medicines and vaccines.

Foolish bottom line
Will PetSmart's success continue? That's anyone's guess. Without a doubt, the pet-centric retailer has warmed investors' hearts for years. And it still boasts a strong brand, differentiation through services, and mouthwatering opportunities for international expansion. But if you're looking for another way to play the lucrative pet market, consider Zoetis. While it focuses on more of a niche market, this pet meds company offers another exciting way to play a roaring industry.

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12/31/1969 7:00 PM
PETM.DL $0.00 Down +0.00 +0.00%
PetSmart CAPS Rating: *****