PetSmart Slips On Downgrade, Lowered Forecast

NEW YORK (AP) — Shares of PetSmart Inc. sagged in midday trading Thursday, squeezed by an analyst's downgrade and its lowered full-year earnings forecast.

On Wednesday the pet food and products retailer cut its profit guidance for the year to $1.37 to $1.45 per share from a prior range of $1.42 to $1.52 per share, even though its second-quarter profit climbed nearly 5 percent to beat Wall Street's expectations.

Analysts surveyed by Thomson Reuters, whose estimates typically exclude one-time items, expect full-year net income of $1.52 per share.

The Phoenix-based chain was also hindered by a Credit Suisse analyst's ratings downgrade. Gary Balter reduced PetSmart to "Neutral" from "Outperform," citing declining margins and weakening sales. He also lowered the company's price target to $21 from $23.

David Schick of Stifel Nicolaus & Co. points out that the retailer has not had two quarters of back-to-back gross margin expansion since early 2005.

"Without sustained traction in gross margin it would appear the business is essentially being lost to large discounters," he wrote in a client note.

Schick reaffirmed a "Hold" rating.

WedBush Morgan Securities' Joan Storms was a bit more optimistic, maintaining an "Outperform" rating. The analyst suggested the stock's softness presents a buying opportunity.

"PetSmart is best positioned specialty pet retailer when more discretionary pet spending resumes with a recovering economy," she said.

PetSmart's stock fell $2.57, or 11.4 percent, to $20 in afternoon trading. The shares have traded in a 52-week range of $13.27 to $28.86.