“In the face of gasoline prices going up, it’s a fairly protected business,” said Stifel, Nicolaus & Co. analyst David Schick in an interview, adding that the company has done a good job managing its business. “People like to take care of their pets. It’s a family member.”
PetSmart said first-quarter comparable transactions rose 2.7%, a fourth straight quarterly increase. Sales of services — which includes dog training, pet grooming, pet hotels, day-care services and pet-adoption services — jumped 9%, above the company’s sales-growth rate of 6.8%.
Its PetsHotel business, for instance, saw its same-store sales rising a double-digit pace, continuing a trend from last year. Pet-adoption rate also turned positive after a decline in 2010.
Retailers including Wal-Mart Stores Inc., Target Corp. and Lowe’s Cos. recently have said they are seeing higher fuel costs and other inflationary pressures affecting consumers’ shopping behavior and making them more cautious in spending.
In contrast, PetSmart executives said late Wednesday they haven’t seen much negative impact from the higher fuel costs. “There’s somewhat of a bifurcated economy out there, and our core demographic is more in the space that may not be as challenged as those that gas prices are impacting today,” said Chief Financial Officer Lawrence Molloy.
Indeed, the company may be more insulated because shoppers buying at specialty retailers tend to have a higher than average income, according to analysts.
As food retailers struggle with how to pass on increased costs to their customers, PetSmart said it was able to pass on rising food costs to its consumers and expects to continue to do so, noting it hasn’t seen any resistance so far.
Within its different product categories, consumers also are buying the higher-priced items, instead of trading down. Its super-premium foods (the priciest products within the food segment) as well as the most expensive nonfood products, such as GNC supplements and Martha Stewart line of pet gear, have been among the fastest-growing, executives said on a conference call.
Grooming tools and supplies such as shampoo also were strong, the company said.
“Both internal and external trends appear to be heading in [PetSmart’s] favor,” Deutsche Bank analyst Mike Baker wrote in a report.
PetSmart said late Wednesday that its first-quarter profit rose to $71 million, or 61 cents a share, from $56 million or 46 cents a year earlier. Sales rose 6.8% to $1.5 billion, with comparable sales increasing 5%, the operator of more than 1,192 pet stores said. The most recent result topped the 55-cent average estimate of analysts surveyed by FactSet.
The company raised its full year outlook to profit of as much as $2.42 a share from a previous projection of as much as $2.35 a share. It sees second-quarter profit of 47 cents to 51 cents a share and expects profit to be driven primarily by consumers trading up and buying pricier items within product categories.
Gross margin widened by 0.6 percentage points to 29.6%.
Article By Andria Cheng , MarketWatch
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