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Higher sales and cost containment efforts facilitated PetSmart Inc. (PETM - Snapshot Report), the specialty retailer of products, services and solutions for pets, to post robust second-quarter 2012 earnings. The quarterly earnings of 71 cents a share jumped 31% from 54 cents delivered in the year-ago period. Moreover, the reported earnings surpassed the Zacks Consensus Estimate of 65 cents.

The company’s top line increased 9% year over year to $1,619.7 million, ahead of the Zacks Consensus Estimate of $1,602 million. However, unfavorable foreign currency fluctuations negatively impacted the sales by $4 million. Merchandise sales grew 9.1% to $1,419.4 million, whereas service sales increased 7.3% to $190.9 million. Other revenue in the quarter came in at $9.4 million, up 3.1% year over year.

Phoenix-based pet retailer, PetSmart’s comparable-store sales increased 7% in the quarter, driven by a 2.9% growth in comparable transactions.

The company’s innovative and differentiated products and its sustained efforts to expand its portfolio of brands and assortments facilitate it to deliver healthy results. In a move to boost sales, PetSmart has collaborated with Martha Stewart Living Omnimedia Inc. (MSO - Snapshot Report) to launch assorted lines of pet products.

Benefiting from its top-line growth, gross profit marked an increase of 11.9% to $488.8 million. Moreover, gross margin expanded 80 basis points to 30.2%, reflecting a decline in cost of sales as a percentage of total revenue.

The company’s operating income was strong, portraying growth of 23.4% to $136.1 million. Besides, operating margin expanded 100 basis points to 8.4%, indicating a decrease in operating, general and administrative expenses as a percentage of total revenue.

During the quarter, PetSmart opened 11 stores and closed 3, bringing the total store count to 1,249.

The company ended the quarter with cash and cash equivalents of $282 million, capital lease obligations of $482.1 million and shareholders’ equity of $1,136.8 million. During the reported quarter, PetSmart generated operating cash flow of $104 million, and incurred capital expenditures of $35 million. The company repurchased shares worth $47 million and distributed $15 million in dividends.

In June 2012, PetSmart increased its quarterly dividend to 16.5 cents per share, bringing its annualized dividend payout to 66 cents per share. The new dividend rate manifests an 18% growth over the previous quarterly dividend.  

Further, the company announced a new $525 million share buyback plan, with its expiration date slated for January 2014. The new authorization will be supplementing the existing plan, under which there is $57 million remaining as of July 29, 2012.  

Guidance Raised

Based on the healthy results, the company raised its fiscal year guidance. Currently, the company expects earnings in the range of $3.30 to $3.40 per share, while comparable store sales are projected to increase in the mid-single-digit range, with total sales growth of 10% to 11%.  Gross margin is expected to expand by 90 to 100 basis points.

Earlier, the company forecasted earnings to be in the range of $3.19 to $3.31 for fiscal 2012, with total sales growth of 9% to 10%.  Gross margin was expected to increase by 65 to 75 basis points.

For the third quarter of 2012, the company expects comparable store sales to increase in the mid-single-digits range, while earnings per share are expected to be in the range of 59 cents to 63 cents.

PetSmart holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating and signifies the consistent strong performance of the company as well as its positive outlook.

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