PetSmart Inc. (PETM), the specialty retailer of products, services, and solutions for pets, recently posted better-than-expected second-quarter 2011 earnings of 54 cents a share, up 31.7% from 41 cents in the year-ago quarter, outpacing the Zacks Consensus Estimate of 51 cents.
Buoyed by the second-quarter results, the company raised its earnings per share guidance for the second time in current fiscal. It now expects earnings in the range of $2.40 to $2.48 from its previous range of $2.32 to $2.42. The company also projects third-quarter 2011 earnings between 41 cents and 45 cents.
PetSmart delivered top-line growth of 7% in the quarter to $1,487.6 million, ahead of the Zacks Revenue Estimate of $1,484 million. The company expects revenue to increase in mid-single digits for fiscal 2011.
Merchandise sales grew 6.9% to $1,300.5 million, whereas service sales climbed 7.6% to $177.9 million. Other revenue in the quarter came in at $9.1 million.
The Phoenix-based pet products retailer hinted that comparable-store sales increased 5% in the quarter, aided by a 2% growth in comparable transaction. PetSmart forecasted comparable store sales growth in the low- to mid-single digit range in fiscal 2011. For the third quarter of 2011, the company expects comparable store sales to grow in 3-4% range.
Favorable currency fluctuations, increased consumer transactions coupled with healthy sales during the quarter facilitated the company in boosting its top and bottom lines.
Further, PetSmart’s innovative and differentiated products as well its sustained effort to expand its portfolio of brands and assortments and its collaboration with Martha Stewart Living Omnimedia Inc. (MSO) have helped it to launch different lines of pet products for delivering healthy results.
Despite a 5.7% rise in the cost of goods sold, the company posted a substantial increase of 10.3% in gross profit to $437 million, benefiting from top-line growth. Consequently, gross margin expanded 90 basis points to 29.4%. Operating income surged 19.9% for the quarter to $110.3 million, whereas operating margin increased 80 basis points to 7.4%.
During the quarter, PetSmart opened 8 stores and closed 3 stores bringing the total count to 1,197 stores. The company also opened 1 PetsHotels during the quarter bringing the total count to 185 PetsHotels.
The company repurchased shares worth $63 million, incurred $20 million in capital expenditures and distributed dividends valued at $14 million during the reported quarter. It ended the quarter with cash and cash equivalents of $259.2 million, capital lease obligations of $514.7 million and shareholders’ equity of $1,155.9 million.
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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