PetSmart, Inc. (PETM), a leading pet specialty retailer, seems to have been caught in a downward spiral. The company has posted lower-than-expected revenues for sometime now. Tough consumer environment and escalating competition has made the situation very difficult.
If we look at fiscal 2013, PetSmart’s revenues missed the Zacks Consensus Estimate in all the four quarters by 0.5%, 0.3% 0.5% and 1.2% respectively. In the first quarter of fiscal 2014, revenues of $1,729.1 million also missed the Zacks Consensus Estimate by 2.4%. Even comparable-store sales (comps) dipped 0.6%, with a 2.2% slip in comparable transactions. Comps were adversely affected by currency translations and inclement weather conditions.
Anticipating sales trends to remain under pressure, management provided a tepid outlook for the ongoing fiscal. The company anticipates a low-single digit rise in sales with relatively flat comps. This triggered a massive estimate revision as analysts’ became less constructive on the stock.
Over the last 60 days, the Zacks Consensus Estimate for fiscal 2014 and 2015 fell over 3.1% and 6.7% to $4.33 and $4.72 per share respectively.
However, to bail itself out, PetSmart has launched a powerful turnaround. The company is focused on driving up consumable sales, expanding omnichannel reach and vigorously promoting brand awareness to boost its top line. Though initiative looks promising, we believe it will take some time for the company to put itself back on the growth trajectory.
Currently, PetSmart carries a Zacks Rank #5 (Strong Sell). We will not be constructive on the stock, until we see signs of improvement. Other better ranked retail stocks worth consideration include Barnes & Noble, Inc. (BKS) Five Below, Inc. (FIVE) and Marinemax Inc. (HZO). All these have a Zacks Rank #2 (Buy).
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