Though spending on pets has proved surprisingly resilient (+$20B in sales) through good economic...


Though spending on pets has proved surprisingly resilient (+$20B in sales) through good economic times and bad, PetSmart (PETM) is going to try to take it to another level. The company is introducing several new lines of pet clothing and has former Poison frontman Bret Michaels pitching the pet apparel. A more grounded reason to like PetSmart is its fundamentals and decent dividend yield, according to SA contributor The Tenacious Trader.

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Comments (4)
  • youngman442002
    , contributor
    Comments (5123) | Send Message
     
    I Knew Rock N Roll went to the dogs with MTV....but this takes the cake...
    7 May 2013, 08:58 AM Reply Like
  • TwistTie
    , contributor
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    Dewy keeps bugging me about this stock.

     

    I'm working on making her sit and be quite while I explain that the dividend is not even high enough to cover her Milkbone budget.

     

    She said "Kruf, Kruf, Ruff".

     

    I'll sit down and shutup now.

     

    7 May 2013, 11:39 AM Reply Like
  • bryanjaf
    , contributor
    Comments (7) | Send Message
     
    This is a reasonably dated perspective to justify a long position in PETM. While the company has performed admirably post recession as one of the leading specialty retailers across all categories and in fact pet spending has remained resilient and is expected to grow, the company faces a number of near term headwinds.

     

    Most notably, PETM's growth has been fueled by an inflationary trend in pet food and products and consumer rotation among dog owners into super premium food, which makes up the largest component of PETM's sales (food that is with super premium being the top performing aisle for the past three years). With pet population growth trending slowly up, this rotation has reached its apex and will provide limited near term growth impetus absent stronger sales trends in feline super premium category.

     

    Additionally, online channels are taking share and with the addition of pet prescriptions at wag.com, and eventually Amazon.com, they can now match the product basket offered by major pet retailers with in house pharmacies. Given the poor service paradigm inside these larger pet retailers, we are seeing channel loyalty within pet specialty erode as consumers emphasize convenience and value.

     

    The proprietary product lines expansions mentioned above have been active in growing PETM revenues for the past three years but are reaching the company's anticipated saturation point at 25% of sales. There simply are not additional large categories for PETM to grow revenue through proprietary lines having tackled hardgoods and supplements.

     

    The net of the above is PETM's same-store-sales comps are slowing from mid single digits to low single digits. While the recent pullback is the stock has provided those interested in playing the pet trend a near term buying opportunity, I expect to see the stock performance gap between PETM and other industry players and PETM and other leading specialty retailers narrow in the near to medium term.
    7 May 2013, 12:21 PM Reply Like
  • jhollieb
    , contributor
    Comments (44) | Send Message
     
    I have been a Petsmart stockholder since before the recession and was quite surprised at how resilient the stock was during that time. Now as the owner of two Spaniels I understand. I purchase premium food for my dogs because they get sick on the cheap stuff. I don't purchase frivolous things, like clothing (other than raincoats and sweaters) and yet there's lots of money to be spent on food, meds, treats, grooming supplies and toys. I will buy from Amazon now and then when I can't get an item from Petsmart at a decent price but most of their pet products are from third-party sellers. In my experience, Amazon's pet product suppliers are much harder to deal with when there is a problem with an order than other Amazon third party sellers. Petsmart also has sales people who are knowledgeable and helpful, unlike Petco.

     

    Whiles same- store sales may not be increasing at the same rate as in the past, with less than 1,300 stores in total, there is plenty of room for earnings growth through reasonable expansion plans. Where I live in Manhattan they could easily triple the number of stores (no only two) without cannibalization.
    8 May 2013, 02:11 AM Reply Like
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