Pet pamperer PetSmart (NASDAQ:PETM) prances onto Wall Street on Wednesday afternoon to present a passel of Q4 and full-year earnings. Will this delivery more resemble a tasty, fresh-killed mouse, or the sort of thing best removed with a pooper-scooper and a scrub brush?

What analysts say:

  • Buy, sell, or waffle? Nineteen analysts follow PetSmart -- the same number as last quarter. But sentiment has soured sufficiently that just 10 rate it a buy, with the rest saying "hold."
  • Revenues. On average, they expect quarterly sales to grow 11% to $1.17 billion.
  • Earnings. Profits are predicted to rise 19% to $0.56 per share.

What management says:
If actions speak louder than words, consider what PetSmart was telling investors when it spent $122 million to repurchase 4.9 million of its own shares last quarter. (Hint: "We're cheap.") Investors seemed to agree with that assessment, and they've since bid up the remaining shares a good 27% from the less than $25 per share that management laid out.

The flip side of the coin: Those remaining shares now command prices as high as 25 times trailing earnings. To retain that valuation multiple, Wall Street will demand that PetSmart max out (or better) the earnings guidance the company provided last November. If it falls anywhere below its top number of $0.56 per share, the Street may well give PetSmart a whack on the nose.

What management does:
How big a risk is that? Smaller than a Great Dane, but bigger than a Chihuahua. Scanning the margin trends over the last several quarters, I see that PetSmart has done a fine job maintaining its gross margins (and even grew them year over year last quarter). The rolling operating and net numbers, however, appear to be on confirmed down trends; both have slid steadily for at least three quarters running.

Margins

7/05

10/05

1/06

4/06

7/06

10/06

Gross

31.3%

31.0%

31.3%

31.2%

30.8%

31.0%

Operating

8.5%

8.1%

8.0%

7.9%

7.7%

7.6%

Net

5.0%

4.8%

4.9%

4.6%

4.5%

4.3%
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:
I take no joy in saying PetSmart shares have disappointed us since Fool co-founder David Gardner first put them in the Motley Fool Stock Advisor portfolio in February 2005. Over the last two years, the shares have gained a measly 2% in value, even as the S&P 500 marched up a good 24%. Perhaps perversely, that gives shareholders at least two reasons to want out of PetSmart: First, it's underperformed since being recommended. Second, its surge in price over the last three months appears to offer an opportunity to get out while still "breaking even." Should you take that chance?

In his December semiannual roundup of all recommendations on his side of the Stock Advisor portfolio, David unambiguously answered "no." Stock price aside, David calls this retailer's expansion of its services offerings (such as its PetsHotel concept) a "smart business plan." While recognizing that some of PetSmart's moves to improve its operations this year have depressed operating and net margins a bit, David believes they will put the company "in a better position for future growth."

What other stocks does David think are poised to grow? Take your pick! He's recommended dozens of stocks for Stock Advisor over the last five years, and on average, they're beating the S&P 500 by a good 40 percentage points. Claim a 30-day trial to the newsletter -- for free -- to read the whole list for yourself.

For more Foolish mew-sings on PetSmart, try:

Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy loves to play catch with the Frisbee.