Lackluster retail results have inspired recent headlines such
as "Tepid U.S. RetailSales Raising Doubts AboutEconomy " and
"Consumer Caution Hits Sales at U.S. Retailers."
The latestwave of quarterly financial results has exposed the
challenges many retailers face. Profits dropped 13% at
for the quarter ended that Aug. 3, compared with the same period
same-store sales --revenues from storesopen for more than one
year -- slumped 0.3%. Same-store sales at
Abercrombie & Fitch (
Dick's Sporting Goods (
Amazon.com (Nasdaq: AMZN)
Staples (Nasdaq: SPLS)
all missedWall Street 's expectations in the most recent
financial reporting period.
A few retailers, however, bucked the trend.
PetSmart (Nasdaq: PETM)
was one of them. On Aug. 21, PetSmart reportedearnings of 89
cents a share for the quarter ended Aug. 4, up 25% compared with
the same quarter last year. This beatanalysts ' expectations by 3
cents a share. Same-store sales grew 3.4%, while totalrevenue
PetSmart raised its earningsguidance for 2013 to a range of
$3.88 to $3.98 per share, up from previous estimates of $3.82 to
$3.94 per share. The company also reaffirmed its commitment to
drive total shareholder returns of 13% to 18% annually.
||© PetSmart StoreSupport Group
||While many retailers have recently reported dismal
earnings, PetSmart was able to buck the trend.
On this stellar news, the share price of PETM dropped roughly
PetSmart'sprofit margin improved over the same quarter last
year. Itsgross margin remained essentially flat. But during the
conferencecall , oneanalyst harped on PETM's 55-basis-pointmargin
contraction on merchandise sales. The company explained that a
problem with its tropical fishinventory and a cat product
promotion negatively impacted its merchandise margins. The cat
product promotion has since ended, and the fish supplyissue has
Yet the analysts had trouble letting go of this one
The analyst that seemed most focused on the merchandizing
margin contraction was from a well-known advisory firm. The firm
downgraded PETM to a "hold" from a "buy" back in January 2009 and
hasn't upgraded it since.Shares of PETM have gained roughly 200%
since then. I have to wonder whether the analyst wasn't just
looking for something to dislike just to support his firm's
Action to Take -->
Sometimes analysts are too smart by half, focusing on a brush
stroke instead of the big picture. I think this could be the case
with PetSmart. The company proved once again that it is
resilient, even when consumers are cautious.
The overallmarket could continue to be pressured over the next
month or two. A potential change to U.S.monetary policy and a
possible budget fight in Congress could make for skittish
investors. But if you have been looking for an opportunity to
purchase PETM and have a longer time horizon, I view the recent
pullback as a buying opportunity.