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PetSmart Inc. posted better-than-expected second-quarter fiscal 2013 earnings. The quarterly earnings of 89 cents a share comfortably surpassed the Zacks Consensus Estimate of 86 cents and came above the company’s earlier guidance range of 82 cents – 86 cents. Moreover, earnings jumped 25% year over year.

This Zacks Rank #3 (Hold) company’s innovative and differentiated products and its sustained efforts to expand its portfolio of brands and assortments facilitated it to deliver healthy results.

Strong bottom-line performance enabled the company to raise its earnings guidance. PetSmart now projects earnings in the range of $3.88 – $3.98 per share for fiscal 2013, up from its earlier guidance range of $3.82 – $3.94.  Moreover, the company expects third-quarter fiscal 2013 earnings between 83 cents – 87 cents. The Zacks Consensus Estimate currently stands at $3.95 for fiscal 2013, while it is 87 cents for the third quarter.

During the quarter, top line improved 5.3% to $1,706 million. However, the company’s quarterly revenue fell marginally short of the Zacks Consensus Estimate of $1,712 million. Going forward, PetSmart expects sales to increase by 3%–4% in fiscal 2013.

By categories, Merchandise sales grew 5.1% to $1,492.5 million, whereas Services sales increased 7.3% to $204.7 million. Other revenues in the quarter came in at $8.8 million, down 6.2% year over year.

PetSmart registered 3.4% growth in comparable-store sales, with a 1% rise in comparable transactions. The company expects comparable-store sales to increase by 3%–4% in the third quarter and fiscal 2013.

Benefiting from its top-line growth, gross profit increased 5.4% year over year to $515.2 million. However, gross margin remained flat at 30.2%. PetSmart’s operating income remains strong, portraying growth of 15.1% to $156.6 million. Alongside, operating margin expanded approximately 80 basis points to 9.2%, reflecting improvement in operating, general and administrative expenses.

Going forward, PetSmart expects gross margins to expand in fiscal 2013, resulting in 20 – 40 basis points improvement in EBT margin. Moreover, EBT margin is expected to increase by 30 – 40 basis points during the third quarter.

During the quarter, PetSmart opened 12 stores, bringing the total store count to 1,301. Moreover, it currently operates 196 PetsHotel.

The company ended the quarter with cash and cash equivalents of $281.6 million, capital lease obligations of $454.7 million and shareholders’ equity of $1,147.3 million.

During the quarter, PetSmart generated operating cash flow of $87 million and incurred capital expenditures of $26 million. Furthermore, the company repurchased shares worth $24 million and had no borrowings under its credit facility.

Other Stocks to Consider

Until any further upgrade in the Zacks Rank of PetSmart, other stocks in the retail-wholesale industry worth considering include Five Below, Inc. , Tractor Supply Company and Steiner Leisure Ltd. , all of which hold a Zacks Rank #2 (Buy).

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