Pet store superstar PetSmart (NASDAQ:PETM) bounds onto Wall Street on Wednesday afternoon to deliver its Q3 earnings. Will this present resemble a tasty treat or something a bit less pleasant, which will need to be removed with the help of a pooper-scooper and scrub brush?

What analysts say:

  • Buy, sell, or waffle? Nineteen analysts follow PetSmart. A dozen rate it a buy, and the other seven give it a hold.
  • Revenues. On average, they expect that sales will rise 13% to $1.03 billion.
  • Earnings. Profits are predicted to rise 10% to $0.21 per share.

What management says:
When the top exec at one of your investments decides to depart, it's always a jarring experience. But hand it to PetSmart, and to CFO Tim Kullman, for making the latter's transition out of the PetSmart team as smooth as an investor could reasonably expect. Announcing Kullman's departure last week, PetSmart also reassured investors that the resignation is not immediate but will take place "sometime in fiscal 2007." Moreover, Kullman plans to help the company find his own replacement.

As for how the company has been doing so far this year, my fellow Fool Nathan Parmelee did an excellent job reviewing last quarter's earnings news -- so good, in fact that there's precious little new for me to add here. I'll just point out one aside that CEO Phil Francis made -- that PetSmart is investing in improving its infrastructure and increasing its market share. With its archrival, Petco, now burdened with debt from its recent going-private transaction, I'd say now is a great time for PetSmart to steal some market share from its competitor.

What management does:
Cost of goods sold (COGS) continues to hamstring PetSmart's ability to grow its profits faster than sales. Over the past six months, COGS has outpaced sales growth 14% to 13%, dampening the firm's gross margins somewhat. Selling, general, and administrative costs make up the bright spot here, however. Year to date, those are up only 11%, mitigating the damage to PetSmart's operating margins and bottom line.

Margins %

5/05

7/05

10/05

1/06

4/06

7/06

Gross

31.1

31.3

31.0

31.3

31.2

30.8

Op.

7.9

8.5

8.0

8.0

7.9

7.7

Net

4.9

5.0

4.8

4.9

4.6

4.5
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

One Fool says:
Rolling operating margins at PetSmart should expand in coming quarters, as the firm leaves behind the costs associated with its aborted "potential acquisition the company chose not to pursue" (a.k.a. Petco, we suspect), which masked part of the firm's operational improvements this year. All of the work PetSmart has been doing to "replace racking in the Phoenix distribution center, related distribution issues and out of stock, and incremental shrink expense" should result in some improvement in margin trends in Wednesday's news. Or so this Fool hopes.

For more Foolish mew-sings on PetSmart, try:

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Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy is cute as a button and spoiled rotten.