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Strong sales and operating efficiencies facilitated PetSmart Inc. (PETM - Snapshot Report), the specialty retailer of products, services and solutions for pets, to post robust third-quarter 2012 earnings. The quarterly earnings of 75 cents a share jumped 50% from 50 cents delivered in the year-ago period. Moreover, the reported earnings surpassed the Zacks Consensus Estimate of 63 cents.

The company’s top line increased 9% year over year to $1,629.5 million, ahead of the Zacks Consensus Estimate of $1,619 million. The company witnessed strong sales across all categories. Merchandise sales grew 8.9% to $1,444.7 million, whereas service sales increased 8% to $175 million. Other revenue in the quarter came in at $9.8 million, up 4.4% year over year.

Phoenix-based pet retailer, PetSmart’s comparable-store sales advanced 6.5% in the quarter, driven by 2.3% 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 12.7% to $482.5 million. Moreover, gross margin expanded 100 basis points to 29.6%, reflecting operating efficiencies.

The company’s operating income remains strong, portraying growth of 37.9% to $139.6 million. Besides, operating margin expanded 180 basis points to 8.6%, indicating a decrease in operating, general and administrative expenses as a percentage of total revenue.

During the quarter, PetSmart opened 24 stores and closed 4, bringing the total store count to 1,269. Moreover, the company opened 1 PetsHotel, ending the quarter with 195 hotels.

The company ended the quarter with cash and cash equivalents of $298.1 million, capital lease obligations of $475.6 million and shareholders’ equity of $1,157 million. During the reported quarter, PetSmart generated operating cash flow of $133 million, and incurred capital expenditures of $40 million. The company repurchased shares worth $60 million and distributed $18 million in dividends.

Guidance Raised

Based on the healthy results, the company raised its fiscal year guidance. Currently, the company expects earnings in the range of $3.47 to $3.51 per share, while comparable store sales are projected to increase in 6% to 7% range, with total sales growth of 10% to 11%.  Gross margin is expected to expand by 95 to 105 basis points.

Earlier, the company forecasted earnings to be in the range of $3.30 to $3.40 for fiscal 2012, while, gross margin was expected to increase by 90 to 100 basis points.

For the fourth quarter of 2012, the company expects comparable store sales to augment in the mid-single-digit range, while earnings per share are expected to be in the range of $1.16 to $1.20. The Zacks Consensus Estimate stands at $1.19 for the fourth quarter.

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

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