Source: PetSmart.
For more than 20 years, PetSmart (PETM) has reaped the financial rewards of serving avid pet enthusiasts. Long-time shareholders have shared in those rewards, with strong returns that have brought a respectable $8 billion market capitalization to the pet-retail specialist. Coming into Wednesday morning's fiscal fourth quarter earnings report, though, shareholders had to have bittersweet expectations, as PetSmart agreed in December to have private equity company BC Partners buy out the company for $8.3 billion, or $83 per share. Nevertheless, PetSmart delivered respectable financial results for investors during the quarter, even if public shareholders will no longer benefit from them. Let's look more closely at PetSmart's last hurrah as a public company.
PetSmart: Not just bark without bite
PetSmart's fourth-quarter results compared favorably with what most investors were expecting to see. Revenue climbed 6% to $1.91 billion, with comparable-store sales rising by 2.6% from the year-ago quarter. After adjusting for expenses related to one-time items, including the BC Partners sale and PetSmart's profit-improvement program, earnings of $1.43 per share topped consensus estimates by a nickel.
The details of PetSmart's quarterly results reveal a bit more color on the company's performance. Traffic growth was relatively slow at just 0.6%, but the average amount those customers spent per transaction climbed at a more respectable 2% rate. Moreover, PetSmart continued its positive trend of emphasizing growth in its services business, with revenue related to services climbing 6.8% to $198.2 million. The segment now makes up more than 10% of total sales for PetSmart, helping to encourage stickier client interactions that lead to greater sales.
Source: PetSmart.
PetSmart's full-year results showed similar trends. Revenue climbed 2.8% on just 0.4% growth in comps, with traffic falling even as average ticket amounts rose. Adjusted earnings climbed 11% to $4.47 per share.
PetSmart has also moved forward with efforts to try to make itself more profitable in the future. The company's profit improvement program includes an ultimate goal of $200 million in cost savings by the end of fiscal year 2016, with the focus so far centering on cutting overhead. PetSmart made only minimal progress toward that goal during the most recent quarter, cutting costs by about $6 million. But with the program just having gotten under way in the third quarter of 2014, the pet retailer should see its efforts bear more fruit in the near future.
PetSmart shareholders get ready to call it a day
Despite the solid results, PetSmart is clearly looking forward to the completion of the BC Partners acquisition. The company didn't issue any guidance for 2015, and it isn't going to hold a conference call to discuss the results. Moreover, CEO David Lenhardt didn't make any comments in the press release containing the financial report.
Source: PetSmart.
Shareholders will have their opportunity to weigh in on the transaction later this week, with the shareholder meeting to approve the deal set for Friday. PetSmart believes that if shareholders approve the deal, it will be able to close on the transaction by the end of the first quarter, completing the process of taking the company private.
For long-term investors in the company, the BC Partners acquisition marks the end of what has been a profitable partnership with PetSmart. Over the past decade, the company's stock nearly tripled, providing annualized returns of more than 11% including dividends. That performance dramatically topped what the broader stock market's return of less than 8%, and the all-cash buyout forces those who own PetSmart stock to find a replacement for what has been a highly successful investment.
