Petsmart: Top Dog in Pet Care

Petsmart (PETM) is the “top dog” in its industry – outdoing its competitors in every phase of the pet game. Naturally, the primary business operates pet stores (1,008 stores per Yahoo! Finance) in North America. What separates Petsmart from its competitors? Veterinary services, grooming, doggie day camps and boarding.

Instead of going to a discount store to buy food and supplies, many consumers still splurge on their pets – perhaps taking advantage of the loyalty the company shows to both animals and their owners. The diversity of the stores are unrivaled- down to the simplest form: Petsmart offers both specialty and national chain brand pet food!

With a plurality of sales coming from essentials like food, Petsmart seems to be in a decent position to handle the penny pinching becoming prominent in the face of $135 oil. Business Week points out that food sales account for 40% of total revenue and the newly implemented PetHotel grooming rose 22% last quarter. April same-store sales also rose 2.9% despite headwinds blowing in the direction of most retailers.

In the most recent conference call, PETM also reaffirmed full year guidance of $1.51-$1.59/share. Only time will tell if a dismal macroeconomic picture factors into pet spending.

Additionally, I found the following quotes interesting [from the Business Week article]:

a) “Based on the 2007-08 APPMA National Pet Owners Survey, more than 71 million U.S. households, or 63%, own a pet.”

b) “Increasingly, pets are being treated like family members, according to the APPMA. While discretionary spending by consumers is likely to slow in 2008, precipitated by rising gasoline prices, a decline in home equity loans and refinancing, and burgeoning debt levels, we believe that pet retailers are somewhat insulated from these pressures. If pets are considered part of the family—and are treated as such—we think this subindustry should be able to weather the negative economic issues that are currently hurting most retailers.”

And I personally don’t disagree. People will certainly give up some luxury items to keep their best friends happy. I know I will. Sure, we all know Walmart (WMT) wants to penetrate the pet food and supplies market. But, remember, Walmart sells clothes and that does not stop people from shopping at Nordstrom (JWN) and Abercrombie & Fitch (ANF). This same theory, in my opinion, will hold true for this specialty retailer.

Finally, from a trading/technical standpoint, take a look at the 6 month chart with 50 day SMA:

It has bounced off the 50 day SMA twice since breaking through in late April. After just breaking under the 50 day this week, a bounce back off it will further affirm my conviction from a technical standpoint as a great time to enter a position.

Disclosure: I have no position in PETM as of 6/11/08.

Comments

[Puppy Website:]

I completely agree that Petsmart is in a unique position to succeed in a down market because their consumers will refuse to budge on necessities for their actual family members - their pets. We have no problem giving up long car rides to save on gas, we'll eat out less, and we'll take our dogs to the park for fun instead of going to the movie theatre on a Saturday afternoon. If I can do one stop shopping at Petsmart instead of going to 4 different service providers, I'm headed to Petsmart.

2008 Jun 11 08:43 AM

[rustythepoodle:]

i go to petsmart

2008 Jun 24 10:22 PM