"Whooz my widdow puppy schnookums? Whooz a good boy? Yesh you are!"
That's what it sounds like around my house these days. Zucca, a four-month-old golden retriever puppy with a habit of fetching the kitchen rug, needs a lot of kooky talk to keep him occupied. He also needs plenty of training aids, teething targets, doody bags, and bushels of high-quality kibble to augment his preferred diet of twigs, toilet paper, and teddy-bear stuffing. It's a good thing that we have a Petco (NASDAQ:PETC) only a few miles away.
To judge by its recent numbers, we're not the only ones frequenting the nation's No. 2 companion-animal retailer. Fourth-quarter net sales rose 12.4% over the same period last year, while earnings per share popped up a smaller 7.7% to $0.36. The gain would have looked more impressive had the firm not spent $0.11 per share for debt retirement, but I doubt shareholders will begrudge management the early payoff.
For the full year, sales were up 12% to $1.65 billion, on comps increases of 5.6%. Earnings came in at $1.11 per stub, which looks like an enormous leap over 2002's $0.20 per share. But hang on to your leash. Last year's results are so packed with special charges that, for once, we can be thankful for the management's pro forma reconciliation between the two years, which shows a still-impressive 32% increase in earnings.
When we last checked in with Petco, and double-sized competitor PETsMART (NASDAQ:PETM), it looked a little pricey. The stock has stagnated since then. For the coming year, Petco predicts earnings growth to near $1.45 per share, around 20% over the pre-charge, pro forma results for 2003. At $30 per ticket, it trades at a forward P/E around 20, if you believe the guidance. That makes it a dog-hair's breadth cheaper than PETsMART, which, at $25, trades around 22 times forward guidance.
For what it's worth, I think both chains are well insulated from purported competitor Wal-Mart (NYSE:WMT). I never buy pet supplies at Sam's big blue box. The selection is thin and the merchandise is decidedly lower-quality.
But returning to the pet pair, neither stock offers the discount I would look for in a tough retail climate. However, both deserve a spot on the watch list. Any selling pressure could turn these businesses into bargains worthy of further sniffing.
Share stories of your favorite critter on the Fool's Pet Lovers discussion board.
Fool contributor Seth Jayson will be cleaning up the backyard today. Yuck. He owns no stake in any company mentioned above. View his Fool profile here.
