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

Why PetSmart's stock plummeted this morning.

May 21, 2014 at 12:38PM

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

Petm

Source: Wikimedia Commons, Anthony92931.

Results recap
The pet-centric retailer posted first-quarter earnings per share of $1.04, ahead of analysts' expectations of $1.02 per share, and up 6.1% compared to the year-ago quarter. However, the company posted first-quarter revenue of $1.7 billion, which increased 1.1% from the year-earlier figure. The company expects full-year 2014 EPS to come in between $4.29 and $4.39. Results weren't enough to receive praise from investors. Shares were trading down more than 7% after Wednesday's announcement.

Sales growth slowed
PetSmart's historical growth rate had been like a belly scratch for investors for years, with net sales outpacing the industry. For the first quarter, PetSmart expected same-store sales growth in the low-single digits. Yet quarterly same-store sales fell 0.6%, down substantially from the year-ago quarter's 3.5% growth. Meanwhile, sales for PetSmart's important services sales, which includes grooming, training, boarding, and veterinary services, grew 4.5% in the first quarter, compared to 6% growth in the year-ago period. For full-year 2014, the retailer expects flat same-store sales. Clearly, PetSmart's sales growth has tempered.

PetSmart still top dog in one key area
E-retailing giant Amazon.com has aggressively entered the pet-supply market with countless pet products, free shipping, and two-day delivery guarantees. Since 88% 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.

Foolish takeaway
PetSmart has been a shareholder's best friend for years. The retailer still boasts a strong brand, differentiation through services, and opportunities for international expansion. But these recent results confirm the company's slowing growth. 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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