NEW YORK (TheStreet) -- PetSmart (PETM) reported its earnings and while things are looking up, the guidance wasn't enough to make investors happy. Earnings came in at 88 cents a share, up 17% and beating estimates by two cents. Total sales increased 4% to $1.7 billion. Unfortunately the guidance for the fourth quarter is 2.5-3.5% which is down from 3-4%. CEO David Lenhardt said, "Given the challenged consumer environment during the quarter, we are pleased with our results and level of execution."

PETM Net Income (Quarterly) data by YCharts

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Net income totaled $92 million, which compares to $82 million for last year. However, a review of the profits shows that it is fairly stagnant.

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Margins, which have bedeviled many retailers this earnings season were up by 20bp, albeit driven by services. Grooming and animal hotels has turned into a good business. To capitalize on this success, the hotel business will have events like a special dinner for the holidays with a stay. Aquatics, which is PetSmart's highest margin business, seems to be declining across the industry. Apparently people aren't too interested in having a fish tank anymore.

Written by Debra Borchardt

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