After delivering fiscal first-quarter earnings that purred past expectations, Petco Animal Supplies (NASDAQ:PETC) is looking to learn some new tricks, although investors may want to keep it on a short leash to make sure it's not going astray.
The pet goods and services retailer's net earnings came in at $0.27 per share, a jump of 42% from the same period last year, while net sales rose 13.7% to $425.9 million. In addition, comparable-store sales for the quarter were up 6.3%.
To keep its revenue trotting along, Petco is considering increasing its focus on services. Services, which now constitute about 4.5% of sales, are the fastest-growing aspect of its business, achieving 20% growth in the first quarter. Among the initiatives under way or in the pipeline are obedience training and "doggy day care."
The numbers and strategy seem fetching, but Petco's behavior bears watching as its priorities seem to have shifted somewhat. After the fourth quarter, the firm said it planned to "maintain its commitment" to give a makeover to up to 75 stores this year. This quarter, though, the company said it will now remodel just 50 stores because it is opening more new sites than anticipated. Of course, new locations are not in themselves bad, but neglecting existing stores in favor of new ones could, over the long run, lead to problems.
In addition, after the fourth quarter, Petco provided first-quarter earnings guidance of $0.24 to $0.25 per share, lower than the then-consensus estimate of $0.26. A week and a half later, it maintained its guidance after buying 20 retail sites from Office Depot (NYSE:ODP). In the end, though, earnings came in above the initial consensus expectations. Petco is within its rights to be conservative, but this sort of thing seems to exemplify the weird and confusing dance that companies sometimes do with Wall Street analysts.
So, Petco deserves positive reinforcement for its solid showing. But sometimes even good pets need close attention.
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Fool contributor Brian Gorman is a freelance writer living in Chicago, Ill. He does not own shares of any companies mentioned here.
