What You Need to Know About PetSmart, Inc.'s Recent Earnings

Is this pet-centric retailer tiring out or does it still have legs to run?

Mar 5, 2014 at 3:06PM

PetSmart (NASDAQ:PETM) unleashed earnings on Wednesday. Here's what you need to know about the company's results.


Results recap
The pet-centric retailer boasted fourth-quarter earnings per share of $1.28, ahead of analysts' expected $1.22 per share, and up nearly 20% compared to the year-ago quarter. However, the company posted fourth-quarter revenue of $1.8 billion, slightly worse than the roughly $1.7 billion year-earlier figure. PetSmart fared better in its full-year results. The company delivered EPS of $4.02, up nearly 19% compared to last year, and above the expected $3.88 to $3.98 range. Net sales for the year were $6.9 billion, up just more than 4%. But results weren't enough to receive praise from investors. Shares were trading down nearly 2% after Wednesday's announcement.

PetSmart remains top dog in one key area
E-tailing giant Amazon.com has aggressively entered the pet supply market with countless pet products, free shipping, and two-day delivery guarantees. Since 89% of PetSmart's sales are derived from merchandise as opposed to services, Amazon could potentially bite into PetSmart's revenues. Yet PetSmart's strengths lie in differentiation through its service offerings. Services substantially drive PetSmart's margins, and also provide an in-store customer experience that online competitors can't match. As a result, PetSmart is quickly growing the services side of its business. PetSmart's services sales have grown 68%, from $455 million in 2007 to $766 million in 2013, while costs associated with its services have moderated.

Sales growth has slowed
PetSmart's historical growth rate had been like a scratch behind investors' ears for years, with net sales  outpacing the industry. For the fourth quarter, PetSmart expected same-store sales growth between 2.5% and 3.5%. Yet Q4 same-store sales came in at 1.2%, down from the year-ago quarter's 4.6%. Meanwhile, sales for PetSmart's important services sales, which includes grooming, training, boarding, and veterinary services, grew 2.6% in the fourth quarter. By comparison, services sales were up 5.2% in Q3, and 7.3% in Q2. Clearly, PetSmart's sales growth has tempered.

Foolish takeaway
PetSmart has been a shareholder's best friend for years. The company still boasts a strong brand, differentiation through services, and opportunities for international expansion. But these recent results put to question how long the company can continue its growth trajectory. Stay tuned for PetSmart's future earnings releases, which will indicate whether the pet-centric retailer is tiring out, or still has legs to run.

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Nicole Seghetti has no position in any stocks mentioned. Follow her on Twitter @NicoleSeghetti. The Motley Fool recommends Amazon.com and PetSmart. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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