PetsMart Barks, but Investors Don't Bite

Bigger profit and improved outlook at pet store chain fail to lift shares.
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PetsMart

(PETM)

reported in-line third-quarter earnings and boosted its full-year earnings outlook Thursday. Nevertheless, the company's shares were falling $1.72, or 6.4%, at $25.38 lately.

The company earned $29.6 million, or 20 cents a share, compared with $20.6 million, or 14 cents a share, in the prior-year quarter. Analysts were also expecting 20 cents a share.

Same-store sales rose 7.5% and total revenue grew to $733.7 million from $657.4 million a year ago. The company noted that its comps would have been stronger if not for the interruptions from Hurricane Isabel and the August blackout as well as unseasonably warm weather during the quarter.

Comp-store sales were slightly below plan, according to Baird Equity Research analyst J. David Cumberland, who said the stock would likely fall in trading due to the "lack of upside" to the quarter's results, despite being strong overall.

He also noted that the stock had been on an "extended rally" of late. It is currently up 47% year over year. Cumberland has an outperform rating on PetsMart.

The company does have an "attractive growth story," however, said Cumberland. He expects sales to increase 12% to 14% and earnings to rise 20% over the next three years via solid comps, unit growth and margin expansion.

In full-year 2003, the company expects to earn 92 cents to 93 cents a share, in line with analysts' consensus for 93 cents. Previously, the company had expected to earn 91 cents to 93 cents a share.

Comparable-store sales are seen at 7%, at the least for the year, the company said.

Elsewhere, shares of

Petco Animal Supplies

(PETC)

were rising a day after it announced that third-quarter earnings rose, beating analysts' estimates. The company also raised its full-year profit forecast and provided full-year 2004 guidance.

Net earnings were $19.2 million, or 33 cents a share, in the three months ended Nov. 1, compared with $12 million, or 21 cents a share. On a pro forma basis, which excludes certain items, earnings rose 32% to $15.8 million, or 27 cents a share, compared with $12 million, or 21 cents a share, in the prior-year quarter. Analysts were expecting 26 cents a share.

Comparable-store sales rose 6%, while total sales were up 13% at $415.3 million.

Looking ahead, the San Diego-based company said it expects to earn 43 cents to 44 cents a share in the fourth quarter, which is in line with analysts' consensus of 43 cents a share. Comparable store sales are seen up 6% to 7%.

In full-year 2003, the company upped its expected pro forma earnings to $1.14 to $1.15 a share, from an initial projection of $1.11 a share to $1.13 a share. Analysts are calling for $1.13 a share.

In 2004, the company said it expects to be in line with its goal for 20% earnings-per-share growth, which would translate to earnings of $1.42 to $1.44 a share. Wall Street currently expects a profit of $1.42 a share.