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PetSmart Q4 Earnings Beat Estimates

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PetSmart Inc. posted better-than-expected fourth-quarter and fiscal 2013 earnings. Quarterly earnings of $1.28 per share easily surpassed the Zacks Consensus Estimate of $1.21 per share and rose 3.2% year over year. Further, on an equivalent basis (13 versus 13 weeks comparison) earnings grew 19.6% year over year.

However, the market seemed skeptical as stock fell nearly 2% following the results announcement.

For the full year, earnings came in at $4.02 per share, ahead of the Zacks Consensus Estimate of $3.96 per share and increased 13.2% year over year. Further, on an equivalent basis, full-year earnings grew 18.9% year over year.

This Zacks Rank #3 (Hold) company’s innovative and differentiated products, along with its sustained efforts to expand the portfolio of brands and assortments aided results.

Strong bottom-line performance prompted the company to raise its earnings guidance. PetSmart now projects earnings in the range of $4.42–$4.54 per share for fiscal 2014. Moreover, the company expects first-quarter fiscal 2014 earnings per share between 99 cents to $1.03. The Zacks Consensus Estimate currently stands at $1.07 for the first quarter and $4.47 for fiscal 2014.

During the quarter, the top line fell nearly 4.0% to $1,804.9 million and missed the Zacks Consensus Estimate of $1,829 million. On an equivalent basis, the top line improved 2.9% year over year.

For fiscal 2013, the top line rose 2.3% to $6,916.6 million but lagged the Zacks Consensus Estimate of $6,958 million. On an equivalent basis, revenues grew 4.3% year over year.  For fiscal 2014, PetSmart expects sales to increase by 4%–6%.

By categories, Merchandise sales fell nearly 4.0% to $1,609.4 million while Services sales decreased 4.2% to $185.5 million. Other revenues in the quarter came in at $9.9 million, up 3.0% year over year.

PetSmart registered 1.2% growth in comparable-store sales (comps), with a 1.8% fall in comparable transactions. The company expects comps to increase in low single digits in the first quarter and 2%–4% in fiscal 2014.

Lower revenues led the gross profit to decline 4.6% and amount to nearly $566.0 million. Moreover, gross margin decreased 20 basis points (bps) to 31.4%. PetSmart’s operating income declined 2.1% to $216.9 million. However, operating margin expanded approximately 20 bps to 12.0%.

Going forward, PetSmart expects earnings before tax (EBT) to grow in the low to mid-single digit range in the first quarter while it expects 7%–10% growth in EBT in fiscal 2014.

During the year, PetSmart opened 60 stores (19 stores in the fourth quarter) and shuttered 5 outlets, thereby bringing the total store count to 1,333. Moreover, it currently operates 199 PetsHotel.

The company ended the year with cash and cash equivalents of $285.6 million, capital lease obligations of $451.6 million and shareholders’ equity of $1,093.8 million.

During the year, PetSmart generated operating cash flow of $615 million and incurred capital expenditures of $147 million. Furthermore, the company repurchased shares worth $464 million in the year ($230 million worth of shares bought back in the fourth quarter) and had no borrowings under its credit facility.

For fiscal 2014, operating cash flow is anticipated to be between $625–$650 million while capital expenditure is expected to be around $150–$160 million.

Other Stocks to Consider

Other stocks in the retail-sector that warrant a look include Barnes & Noble, Inc. , ITOCHU Corp. (ITOCY - Free Report) and Kingfisher plc (KGFHY - Free Report) . While Barnes & Noble and ITOCHU Corporation sport a Zacks Rank #1 (Strong Buy), Kingfisher has a Zacks Rank #2 (Buy).

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