Petsmart (PETM) Reports Better-Than Expected Earnings

My Persian kitten loves Petsmart (PETM), and apparently, she isn’t the only one who has her owner trained to buy goodies at the pet products retailer. After the closing bell on Wednesday, Petsmart reported it had fetched a 6% rise in third-quarter profits versus the same quarter one year ago. 

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Petsmart earned $38.1 million, or 31 cents per share, in Q3. That’s up nicely from the $35.8 million, or 28 cents per share it earned in Q3, 2008, and much better than the Street’s forecast for a profit of 27 cents per share.  More importantly, in my view, was the company’s top-line.  Revenues rose 3% to $1.29 billion from $1.25 billion, and that number also bested expectations for sales of $1.28 billion.

When you stop and think about it, that’s a whole lot of dollars spent on pets in just three months, especially considering we’re still in the midst of a serious economic downturn that includes 10.2% unemployment.

Another encouraging sign for Petsmart was the all-import same stores sales.  Unlike so many retailers, sales at stores open at least a year rose 0.3% during the quarter. And finally, the company raised its full fiscal year guidance, saying it would earn $1.50 to $1.54 per share for the year, a nice increase from the $1.43 to $1.51 per share it predicted just last month.

Interestingly, shares of PETM actually traded lower in Wednesday’s after-hours trade, and this could be a case of selling the news.  It also could be a case of a stock running up nearly 70% over the past 12 months, and now traders are starting to lock in some profits.

I say if you are looking to get out of PETM shares now, you are barking up the wrong tree. Although the stock has had a really nice run, I think it can keep climbing.  But if you do decide to go shopping for PETM shares, then make sure you set a trailing stop loss somewhere between 7% and 10% below your entry price.  You don’t want to be caught in on the wrong side of the action without some downside protection if traders decide to cough up PETM shares the way a cat coughs up a fur ball.

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