Not to be outdone by pet retailing rival PETsMART (NASDAQ:PETM), top dog Petco (NASDAQ:PETC) was able to complete a few of tricks of its own.
Of course, PETsMART's recent decent earnings announcement presumably had nothing to do with Petco's outperforming third quarter, but you have to feel like neither one of these companies gives the other even an inch.
But maybe there's room for both. Petco's third-quarter earnings of $0.36 per share beat the analysts' consensus estimate of $0.34 and last year's earnings of $0.33 per share. The company's net sales increased 13%, and same-store sales grew 7%, which was fairly impressive considering that this important retailing figure was up 6% last year.
The company's longtime chairman, Brian Devine, said that Petco's same-store sales growth reflected "the strength of our business and the industry in which we operate." Management will continue to drive top-line growth while working diligently to manage costs. This was especially evident in the gross margin, which improved by 140 basis points, and the 70-basis-points increase in operating profit as a percentage of sales.
Petco opened 24 stores in the third quarter, giving it a total of 705 stores in 47 states. Plans are to open an additional 15 stores in the fourth quarter and to open 80 to 90 stores (60 to 70 stores, net of closings) in 2005. Management forecasts a same-store sales increase of 6% for the fourth quarter (on top of a similar increase last year) and raised its outlook for 2004 earnings to $1.50 to $1.51 per share, up from the $1.48 to $1.49 previously expected.
Petco and PETsMART have both been 20%-plus growers for more than five years now. The companies have felt the impact of discount retailers such as Wal-Mart (NYSE:WMT), warehouse retailers such as BJ's Wholesale Club (NYSE:BJ), and supermarkets such as Kroger (NYSE:KR) and Albertsons (NYSE:ABS) stealing market share.
However, Petco is one of the rare stocks that I could recommend to both value and growth investors. The stock trades at 26 times the 2004 projected earnings of $1.50 per share and 21 times the 2005 estimate of $1.81 per share. Those P/Es about match the earnings growth estimates for those periods, meaning this puppy is showing no signs of overvalue.
Not many stocks can sport 20%-plus earnings growth and still look attractive on a valuation basis, but Petco's seems to have that trick down pat.
You won't need a pooper-scooper for any of these Takes:
Fool contributor Phil Wohl spent more than 12 years on Wall Street, has a loving golden retriever named Abby, and does not own shares in any of the companies mentioned above.
