As a writer, I find it a pain to type company names like PETsMART (NASDAQ:PETM) -- a Motley Fool Stock Advisor recommendation. But if you've owned this stock over the past five years, you have a six-bagger. I'd gladly put up with typing problems for results like that.
Today's pleasing announcement was that the company is changing its name to, you guessed it, PetSmart. My spell checker doesn't like it in this form either, but that naming style is more common. Just ask DreamWorks Animation (NYSE:DWA).
PetSmart is using its amusing name-change press release to stress that it is the smart destination for pet products, services, and advice. Second-quarter results released Wednesday night confirm that customers are getting the message at the 757-store chain. Compared with the year-ago quarter, sales were up 11.6% and net income rose 22.8%. More importantly, same-store sales were up a solid 4.2%.
While big-box retailers like Wal-Mart (NYSE:WMT), Target (NYSE:TGT), and fellow Stock Advisor recommendation Costco (NASDAQ:COST) offer a limited selection of pet products, PetSmart offers a broad selection and a slew of services like dog training and pet grooming. Services (including just plain old advice) drive the business and allowed the company to produce strong 31.6% gross margins (up 1.4% from the year-ago quarter).
Competitor Petco (NASDAQ:PETC) will report earnings after today's market close. Unlike PetSmart, it has more debt than cash and lower average per-store sales.
PetSmart projects that same-store sales will be up 4% in 2005 and that earnings will be $1.215 to $1.225 a share (excluding a one-time legal settlement gain of $0.035 per diluted share). At the high end of guidance, the stock sells for 20.5 times forward earnings. That's a very reasonable price for a company that analysts expect to grow earnings by 18% annually for the next five years.
Are you looking for great companies? Let Motley Fool co-founders David and Tom Gardner find the next big winner for you with a free trial to the Stock Advisor newsletter. Find more opportunities like PetSmart and Costco and, with the trial, check out our investors kit.
Fool contributor W.D. Crotty does not own shares in any of the companies mentioned. Click here to see T he Motley Fool's disclosure policy.
