PetSmart Vs. PetMed Express: Which Pet Product Retailer Had the Better Quarter?


PetSmart (NASDAQ: PETM  ) and PetMed Express (NASDAQ: PETS  ) are two of the largest pet-product retailers in the United States; PetSmart operates retail stores and it also has an online presence, and PetMed Express operates entirely online and over-the-phone. Both companies have recently reported their earnings, so let's break down the results to determine which had the better quarter and which offers the best investment option going forward.

The quarterly results

Source: Fool Flickr

PetSmart released its fourth-quarter report for fiscal 2013 on March 5; here's a breakdown and a year-over-year comparison of the results:

Metric Reported Expected
Earnings Per Share $1.28 $1.21
Revenue $1.80 billion $1.83 billion

Source: Benzinga

On a 13-week comparative basis from the fourth-quarter of fiscal 2012, PetSmart's earnings per share increased 19.6% and revenue increased 2.9%; a comparable-store sales increase of 1.2% drove this growth, led by a rise of 3% in merchandise sales and a 2.6% rise in services sales. PetSmart opened 19 new stores during the quarter and this brought its total store count to 1,333; it has stores in the United States, Canada, and Puerto Rico. Also, the company maintained its quarterly dividend of $0.195, which results in an annual yield of about 1.1%. 

Source: PetMedExpress.com

PetMed Express, the company behind 1-800-PetMeds, released its third-quarter report for fiscal 2014 on Jan. 21; here's a breakdown and a year-over-year comparison of the results:

Metric Reported Expected
Earnings Per Share $0.23 $0.23
Revenue $50.09 million $52.06 million

Source: Benzinga

PetMed's earnings per share were flat and revenue increased 1% from the same period a year ago. Online sales remained the largest source of income for the company as they grew 2.1% to $39.5 million and represented 78.8% of total sales; the company added that the average order size increased by $1 from the prior year to $72. Gross profit fell 1.9% to $16.89 million and the company's gross margin took a big hit, declining 100 basis points to 33.7%. Also, PetMed Express maintained its quarterly dividend of $0.17, which gives it an annual yield of roughly 5.2%. 

What will the future hold?

Source: PetSmart.com

In its report, PetSmart also provided its guidance for fiscal 2014 and here's what the company expects to accomplish:

Metric Fiscal 2014 Expected Fiscal 2013 Actual
Earnings Per Share $4.42-$4.54 $4.02
Revenue $7.20 billion-$7.33 billion $6.92 billion

Source: PetSmart

These expectations would result in earnings per share growing 10%-12.9% and revenue growing 4%-6% from fiscal 2013. In addition, PetSmart noted that it expects comparable-store sales growth of 2%-4% over the course of the year. If this outlook became a reality, it would mark the fifth consecutive year of double-digit earnings growth for the company, but the results would be below the 18.9% earnings growth and 4.3% revenue growth the company saw from fiscal 2012 to fiscal 2013.

Source: PetMedExpress.com

PetMed Express does not participate in the art of providing earnings guidance, so we will use the consensus analyst estimates for the fourth quarter for comparison's sake; here's what analysts currently expect:

Metric Q4 Expected Q4 Year Ago
Earnings Per Share $0.21 $0.23
Revenue $52.76 million $51.12 million

Source: Earnings Whisper

These expectations call for PetMed Express' earnings per share to decrease 8.7% and revenue to increase 3.2% year-over-year; this would not result in high growth by any means, but the company has been on this trend for the last several quarters. Also, in the third-quarter report, CEO Menderes Akdag said, "Going forward we are focusing on improving our gross profit margins and new order sales;" the company reported a gross margin of 35.7% in the year-ago period, so the company likely expects it to expand above 36%.

Source: Fool Flickr

And the winner is...
After reviewing the quarterly results and outlooks on fiscal 2014, the winner of this matchup is PetSmart. PetSmart showed much better growth in its quarter and its outlook calls for a much brighter future than the outlook from PetMed Express.

PetSmart's stock currently sits more than 11% below its 52-week high and this represents a great entry point for investors. In addition to the potential price appreciation, the company will provide additional returns via its healthy 1.1% dividend and share repurchases. Foolish investors should strongly consider initiating positions in PetSmart right now and holding onto them for several years.

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