PetSmart Inc. (PETM), the specialty retailer of products, services, and solutions for pets, recently posted fourth-quarter 2010 earnings of 77 cents a share, up 26.2% from 61 cents in the year-ago quarter, outpacing the Zacks Consensus Estimate of 74 cents.
Management now expects fiscal 2011 earnings between $2.23 and $2.35 per share. The company also projects first-quarter 2011 earnings between 52 cents and 56 cents.
PetSmart delivered a top-line growth of 8.1% in the quarter to $1,520.0 million, which came ahead of the Zacks Revenue Estimate of $1,511.0 million. The company expects revenue to increase in the mid-single digits range for fiscal 2011.
Merchandise sales grew 7.6% to $1,359.6 million, whereas service sales climbed 7.2% to $151.9 million. Other revenue in the quarter came in at $8.5 million.
Favorable currency fluctuations, increased consumer transactions coupled with robust sales during the festival season facilitated the company in escalating its top and bottom lines.
Phoenix-based pet products retailer hinted that comparable-store sales elevated 6.3% in the quarter, aided by a 4.4% growth in comparable transaction. PetSmart forecasted comparable-store sales growth between low to mid-single digits for the first quarter and 3% to 4% for fiscal 2011.
The company’s innovative and differentiated products as well its sustained effort to expand its portfolio of brands and assortments have helped 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.
Despite a 6.6% rise in the cost of goods sold, the company posted a substantial increase of 11.7% in gross profit to $465.0 million, benefiting from the top-line growth. Consequently, gross margin expanded 100 basis points to 30.6%. Operating income surged 11.7% for the quarter to $149.8 million, whereas operating margin increased 40 basis points to 9.9%.
During the quarter, PetSmart opened 17 stores and 8 PetsHotels while it closed 2 stores bringing the total count to 1,187 stores and 180 hotels. The company now plans to open 45 to 50 new stores and 8 to 10 PetsHotels during fiscal 2011.
During fiscal 2010, the company repurchased shares worth $263.0 million and incurred $125.0 million in capital expenditures. It now forecasts a capital expenditure in the range of $130.0 million to $140.0 million during fiscal 2011.
The company ended the quarter with cash and cash equivalents of $291.9 million, capital lease obligations of $521.6 million and shareholders’ equity of $1,170.6 million.
Currently, we prefer to maintain a long-term ‘Neutral’ recommendation on the stock. Moreover, PetSmart holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.
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