PetSmart (NASDAQ:PETM) has managed to reverse some of the negativity it delivered recently, but is this a case of the tail wagging the dog?  

Net income at PetSmart dipped 7% to $29.5 million, although earnings per share were technically flat at $0.23. (Bear in mind that in October, the company lowered its quarterly guidance, and now, earnings actually came in at the high end of the level PetSmart had expected in August. Get caught up here.) Included in the quarterly results was $4.7 million in expenses related to exiting the equine business; also included was a pre-tax benefit of $5.5 million for the recognition of gift card breakage.

PetSmart's total sales increased 7.8% to $1.12 billion, and comps increased 1.4%, compared to 6.8% this time last year. The company's pet services segment continues to be a growth driver, with sales up 23% to $111 million in the quarter.

Things seem lumpy at PetSmart, with all those one-time losses and gains. Last quarter, PetSmart left a steaming pile of something bad for investors to contemplate, and said its full-year 2007 earnings would be $2.02 to $2.07 per share. This time around, PetSmart said 2007 earnings will be $2.05 to $2.09 per share (bear in mind that $0.48 per share will be a one-time gain from its sale of MMI Holdings).

PetSmart's been in the doghouse lately -- its shares are down 13.5% in 12 months. Although I don't think many people would argue with the thesis that Americans are more into their pets than ever (for many people, pets are family members now), PetSmart faces competition from some formidable sources: discounters like Wal-Mart (NYSE:WMT) and Target (NYSE:TGT), and mom and pop shops that many consumers probably feel give a more personal touch.

In some respects, PetSmart looks like a stock idea for value-oriented investors. For example, its PEG ratio is just 0.88, and it's trading at 14 times earnings; this is a stock that for several years has traded at an average price-to-earnings ratio of at least 20 times earnings.

However, I don't feel entirely confident about PetSmart, given the competitive landscape, as well as what seems like a confusing financial picture, given the back-and-forth guidance and the one-time events figuring into its results. Personally, this is a stock I would rather take a wait-and-see approach on, rather than contemplate buying at the moment.

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PetSmart is a Motley Fool Stock Advisor recommendation. Wal-Mart is a Motley Fool Inside Value pick. Give yourself an early holiday gift, and discover more of Wall Street's best bargains, with a free 30-day trial.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.