PetSmart's Earnings Rebound, But Sales Still So-So


If the U.S. health care system were run likePetSmart ( PETM ), people probably wouldn't be arguing about it.

The company touts Total Lifetime Care for pets. PetSmart has full-service veterinary hospitals in roughly two of every three stores.

PetSmart offers a wide variety of additional services and products: supplies, styling salons, training, PetsHotels with temperature controlled rooms, day camp for dogs, and in-store adoption centers for homeless pets.

While folks nowadays are willing to pay up for pet care, a recession can force consumers to scrimp. PetSmart saw annual earnings slip 2% in fiscal 2009 ended in January and grow only 5% in fiscal 2010.

In fiscal 2011 and '12, earnings jumped 26% and 27%. The Street expects 29% EPS growth this year.

Fundamentals are generally good. The Composite Rating is 98, just shy of a best possible 99. The three-year EPS Stability Factor is 4 and the five-year rating is 8. The scale runs from 0 (calm) to 99 (erratic).

Operating cash flow per share is excellent -- 88% above EPS last fiscal year. Return on equity is 25%, at least a nine-year high. Pretax margin is 7.3%, tying for the company's highest in at least nine years.

The Relative Strength line is just off a 52-week high, and the up-down volume ratio is a mildly bullish 1.1.

PetSmart's Retail-Specialty Group was No. 17 of 197 industry groups, as of Wednesday's IBD. Within the group, PetSmart's ratings trail onlyGNC Holdings ( GNC ) andUlta Beauty ( ULTA ).

The stock's annualized dividend yield is 1%.

Drawbacks have to begin with the market itself, which is struggling. Also, sales growth has been in single digits for the past four fiscal years. Previously, sales growth was 10% to 13% for five years.

Funds have lightened stakes over the past two quarters -- from 817 funds with 59.9 million shares to 787 funds with 55.5 million shares.

PetSmart cleared a 59.18 buy point in a flat base in late April and early May, but volume was weak.

The stock corrected 7% and then gapped up in strong volume off the 50-day line. PetSmart is extended, even from the 5% chase zone set up from the buy point.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Personal Finance , Investing Ideas

Referenced Stocks: GNC , PETM , ULTA

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