PetSmart's Future Is Services

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) ChartPETM Net Income (Quarterly) data by YCharts

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.

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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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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