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High Gas Prices Hit Petco

The pet stuff retailer warns on the second half.
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Petco (PETC) posted a soft quarter and warned of a weak second half, blaming high gas prices and poor customer service and marketing performances.

The San Diego-based pet goods retailer made $18 million, or 31 cents a share for the second quarter ended July 30, down from the year-ago $19.3 million, or 33 cents a share. Sales rose to $483 million in the latest quarter from $438 million a year earlier, as same-store sales rose 2.5%.

"Weaker customer traffic led to second-quarter sales and results that did not meet our expectations," said CEO James M. Myers. "By focusing on improving the customer experience, implementing a series of actions to generate traffic and completing an important remerchandising initiative, we believe we are positioning the company to improve its performance progressively as we move through the second half of fiscal 2005."

Petco said its third quarter would be disappointing, with earnings of 25 to 28 cents a share and same-store sales growth of around 1%. The company expects to make about $1.40 a share for the year on a pro forma basis, excluding certain costs. Analysts were looking for earnings of 39 cents a share for the quarter and $1.65 for the year.

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"Petco is making investments in the third quarter to further improve customer service, more clearly communicate its marketing messages and complete its remerchandising initiative," the company said. "Although these investments are expected to weigh on its financial results for the third quarter, the company expects to realize the benefits of these strategic initiatives on an increasing basis as it moves through the second half of the fiscal year. In addition, the overall economy, particularly the effect of higher gasoline prices that became pronounced late in the second quarter, has continued to impact Petco's performance in the current quarter."

After falling 70 cents to $25.55 in regular action Thursday, Petco shares were halted in after-hours trading.