Motley Fool Stock Advisor pick PETsMART (NASDAQ:PETM) continues to unleash excellent results and increasingly looks like the top dog in this field. Last quarter, competitor Petco (NASDAQ:PETCE) was barking too, but now, a second-place finish, lawsuits, and a potential delisting from the Nasdaq have some investors wondering whether the company is tucking its tail.
Still, Petco isn't going down without a bite. In its fiscal 2005 first quarter, net sales leaped 12.6% to $479.6 million. Double-digit revenue growth is deserving of a doggie treat, but it wasn't able to surpass PETsMART's 13.4% growth from sales. Gross margins for PETsMART were 31% in the latest quarter; Petco edged out the competition with gross profit margins of 33.8% -- a 40-basis-point improvement from a year ago. It also outsniffed PETsMART in services sales. While PETsMART's services sales were 20.8% higher from the same period a year ago, Petco's howled to the tune of 24.1%.
However, at 5.2% growth in same-store sales, Petco lagged behind PETsMART's 5.7% uptick. It also finished second in earnings growth for the quarter -- net income increased 8.9% to $17.2 million, compared with PETsMART's 40%. Petco also took a hit from debt-retirement costs of $1.5 million; excluding these charges, its net earnings were higher by 18.8%, but still in second place.
Overall, Petco's results weren't too shabby, but they weren't stellar, either. And for an enterprise that is valued at 17 times current-year earnings, there is no room for second-place results. Adding further pressure to its shares is that accounting errors are causing a delay in filing its 10-K (annual report). Combined with the aforementioned lawsuits and Nasdaq woes, investors are understandably feeling uneasy.
Given these concerns, it appears that Petco's bark has been muzzled and muffled. It may still be a two-dog race, but if I'm placing a bet at the investing track, it's hard not to go with lead dog PETsMART.
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Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.
