PetSmart Inc. (PETM), in its attempt to optimize its shareholders’ return, decided to employ its available free cash in raising its quarterly dividend while also approving a share buyback program.
The specialty retailer of products, services, and solutions for pets raised its quarterly dividend by approximately 12% to 14 cents from 12.5 cents. The increased dividend will be paid on August 12, 2011 to shareholders of record as of July 29, 2011.
Additionally, the company also announced a share repurchase program, which is scheduled to commence on August 01, 2011.
The recently announced program, which is set to expire on January 2013, authorizes the company to buy back up to $450 million shares of its common stock. The new program will be replacing the excess amount under the previous program as of the beginning date.
Increase in dividend reflects the company’s sound financial position and well-defined future prospects. The signs of recovery in the economy have made share buybacks and dividend increases a common factor among companies sitting on extra cash. These strategies will enhance shareholders’ return and boost the market value of the stock.
A month before, PetSmart posted strong first-quarter 2011 results on the heels of favorable currency fluctuations, increased consumer transactions coupled with healthy sales. The quarterly earnings of 61 cents a share outpaced the Zacks Consensus Estimate of 55 cents and surged 32.6% from 46 cents in the year-ago quarter.
PetSmart delivered top-line growth of 6.8% in the quarter to $1,490.4 million, which was ahead of the Zacks Revenue Estimate of $1,485.0 million.
Buoyed by the first-quarter results, the company raised its earnings per share guidance in the range of $2.32 to $2.42 from its previous range of $2.23 to $2.35. The company also projected second-quarter 2011 earnings between 47 cents and 51 cents. Further, the company expects revenue to increase in mid-single digits for fiscal 2011.
The company’s innovative and differentiated products as well its sustained effort to expand its portfolio of brands and assortments facilitates it to deliver healthy results. PetSmart’s collaboration with Martha Stewart Living Omnimedia Inc. (MSO) has aided the company to launch different lines of pet products.
Currently, we prefer to maintain a long-term ‘Neutral’ recommendation on the stock. Moreover, PetSmart holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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