Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Is PetSmart Headed Higher Yet?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Over the past five years, pet retailing giant PetSmart (NASDAQ: PETM  ) has stayed firmly in the good graces of the market, rising steadily for a cumulative gain of more than 250%. The reasons are hardly difficult, as the pet care industry is one of the fastest growing in retail and PetSmart is one of its biggest players. Lately, the company has expanded its product lineup to include premium goods, such as raw foods, to boost sales. With a recent beat on sales estimates and a 20% surge in earnings, the moves appear to be working well. For the full-year 2013, this marks the fourth consecutive annual period that PetSmart has grown its earnings in the double digits. Can investors expect this momentum to continue?

Numbers growl
Hitting earnings of $1.28 per share in its fiscal fourth quarter, PetSmart posted yet another strong quarter of double-digit gains. Interestingly, the retailer's sales climbed just 2.9%, while same-store sales crept up 1.2%. The quarter led to a full-year earnings jump of nearly 19%, with sales up 4.3% to $6.9 billion and same-store sales higher by 2.7%.

Factors driving the results are organic sales growth, gross margin enhancement, and EBIT margin.

Like nearly all retailers, PetSmart struggled to get customers in the door during the fourth quarter due to extreme weather and macroeconomic uncertainty, as evidenced by the relatively weak same-store sales. Still, the company managed to achieve pockets of success, including a record-breaking Black Friday and its largest e-commerce sales day ever on Cyber Monday.

PetSmart has been using private-label goods to help boost margins and now sees more than 26% of merchandise sales sourced from private and exclusive brands.

Looking ahead to the full year, the company expects continued slow but steady growth at the sales level, with 4%-6% revenue gains and 2%-4% same-store sales growth. Even in the current quarter, where many retailers have guided for continued tepidity, PetSmart management is confident that it will achieve positive comps.

Fundamentally strong
Aside from the operating level performance, PetSmart is a fundamentals-loving investor dream stock. It has more than $350 million in cash on the balance sheet with absolutely zero monies borrowed on its credit facility.

Demand-wise, things look great for the nation's largest pet retailer. Though it is a relatively mature market here in the United States, the pet retailing landscape remains highly fractured with independent retailers competing against the corporate ones.

People are spending more on vet services, grooming services, premium foods, and toys as an overwhelming majority of North American pet owners consider their pets as part of the family. Beyond its bread-and-butter retailing, PetSmart offers pet hotels, groomers, and in-house vets -- all quickly growing segments of the business.

For the foreseeable future, this is a great company. The stock isn't particularly cheap at 13.2 times expected forward earnings, but if management is able to hit its recurring goal of double-digit earnings growth, then investors are still getting a good deal. With great cash flow and the added bonus of a moderate 1.2% dividend, PetSmart is one retail stock that's looking like a sure bet.

More from The Motley Fool 
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.


Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 08, 2014, at 4:19 AM, Interventizio wrote:

    This is a great company in a great business, which reflects my circle of competence. But for me, the deal breaker is that 99% of stock is owned by institutions. Most institutions don't adopt long-term investing strategies. What happens when they decide it's time to sell?

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2866611, ~/Articles/ArticleHandler.aspx, 9/3/2015 11:51:17 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Michael Lewis

Michael is a value-oriented investment analyst with a specific interest in retail and media businesses. Before coming to the Fool, Michael worked with private investment funds focusing on deep value and special situations. Currently living in the media capital of the world--Los Angeles, California.

Today's Market

updated 2 hours ago Sponsored by:
DOW 16,374.76 23.38 0.14%
S&P 500 1,951.13 2.27 0.12%
NASD 4,733.50 -16.48 -0.35%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

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