Why 1 Retailer Hit It Out of the Dog Park


PetSmart's (NAS: PETM) most recent quarterly results further secure the pet retailer's position as the dominant top dog. Tuesday's results, which were announced after market close, have investors licking their chops. Let's take a look at how PetSmart hit it out of the dog park.

Praise for PetSmart
First-quarter earnings per share were $0.85, up 39% compared with $0.61 for the same period last year. Comparable-store sales grew 7.4% attributed to strength across all three merchandising categories, including consumables, hard goods, and live goods. Sales grew for PetSmart services, which include pet grooming, training, and boarding. Gross margins also improved.

The stock closed at $55.62 per share on Tuesday and jumped 10% at market open.

This recent news continues PetSmart's string of success. Net sales increased 7.7% annually for the past four years, and same-store sales were up 5.4% in 2011. The company is expected to grow at a 16% annual clip over the next five years.

Pampering our pets is big business
Pet-industry sales are expected to top $74 billion by 2015. Consumer researcher Packaged Facts sees "the ensconcement of pets as members of the family not just as a trend, but as a long-term societal shift favoring even greater spending on the pet market in the years to come." This news is like a scratch behind PetSmart's ears.

Pet owners fork over these billions of dollars at specialty chain stores like PetSmart and privately held Petco, as well as at big-box merchandisers and online. While pet products encompass the central focus of PetSmart and Petco, more mainstream retailers like Costco (NAS: COST) and Wal-Mart (NYS: WMT) offer ever-widening varieties of squeak toys, pet food, and treats. However, PetSmart has an edge with its services division. While still a minority of sales, it's growing at an impressive 8.3% and could be a key differentiator in the future.

Currently, only 5% of overall pet supplies sales are online, but that figure is expected to increase. E-retailer Amazon.com (NAS: AMN) is positioning itself to take advantage; it recently launched Wag.com, a pet-related products site featuring more than 10,000 products. Since 88% of PetSmart's sales are derived from merchandise as opposed to services, this move has potential to bite into PetSmart's sales and reiterates the importance of service growth in the future.

A fierce breed
PetSmart's wide moat, strong brand, and consistent same-store sales growth position the company for continued success. Watch to see whether PetSmart continues to improve these metrics in the coming quarters.

Even though I think PetSmart is the smartest play in the pet retailing market, Amazon.com and Costco are two retailers strongly worth considering for other very enticing reasons. Read more about the exciting prospects for these two retailers in a free report.

At the time thisarticle was published Fool contributorNicole Seghettiowns shares of Costco. She's been known to spoil her beloved pooch. The Motley Fool owns shares of Costco Wholesale and Amazon.com.Motley Fool newsletter serviceshave recommended buying shares of PetSmart, Costco Wholesale, and Amazon.com. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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