QUOTE AND NEWS
SeekingAlpha  Aug 18  Comment 
By David Trainer: Jana Partners filed a document with the SEC on Monday claiming to have received anonymous information that PetSmart (NASDAQ:PETM) has been attempting to hide poor results from investors. These allegations have not been confirmed,...
Financial Times  Aug 18  Comment 
SeekingAlpha  Aug 15  Comment 
By Bob Ciura: The pet health care industry in the United States is booming, and proved to be nearly-recession proof even during the darkest days of the financial crisis five years ago. Americans have proven an amazing willingness to spend enough...
SeekingAlpha  Aug 13  Comment 
By David Trainer: Our Most Attractive and Most Dangerous stocks for August were made available to the public at midnight on Monday. July saw some strong performances from our picks. Most Attractive Large Cap stock PetSmart (NASDAQ:PETM) gained...
DailyFinance  Aug 12  Comment 
A national program that helps temporarily homeless families keep all members of their family together – including their four-legged family members – celebrated its grand opening in Akron today. PetSmart Promise, a...
Benzinga  Aug 4  Comment 
PetSmart (NASDAQ: PETM) moved higher Monday after a filing disclosed further efforts by activist investor Barry Rosenstein to affect a sale of the company. Rosenstein alleged that PetSmart "has sought to create the patently false impression...
Benzinga  Aug 4  Comment 
August 4, 2014 Board of Directors PetSmart, Inc. 19601 North 27th Avenue Phoenix, Arizona 85027 Attention: David K. Lenhardt, President and Chief Executive Officer Ladies and Gentlemen, As you know, JANA Partners LLC (“we” or...
TheStreet.com  Aug 1  Comment 
NEW YORK (The Deal) -- Though activist investor Jana Partners said in a regulatory filing this week it believes the best option is for pet retailer PetSmart to sell itself -- preferably to a financial sponsor -- industry experts are trying to...
Benzinga  Jul 29  Comment 
“The PetSmart Board of Directors and management team welcomes the views of its shareholders. PetSmart's Board and management are committed to acting in the best interests of the Company and all PetSmart shareholders and will continue to take...
Benzinga  Jul 29  Comment 
July 29, 2014 Board of Directors PetSmart, Inc. 19601 North 27th Avenue Phoenix, Arizona 85027 Attention: David K. Lenhardt, President and Chief Executive Officer Ladies and Gentlemen, JANA Partners LLC (“we” or “us”)...
TheStreet.com  Jul 23  Comment 
NEW YORK (TheStreet) -- PetSmart Inc. hired JPMorgan Chase to assess the company's options, including a potential private equity deal, and a leveraged share buyback, Reuters reports. Recently, PetSmart investors have been advising the $7...




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PetSmart (PETM) is the largest pet supply store in North America, operating 1,149 retail stores in North America, with the average store size between 18,000 and 27,500 square feet.[1] PetSmart sells pet supplies and offers pet services (such as grooming), in addition to selling small pets. However, this lucrative retail niche has not gone unnoticed by supermarkets and big-box retailers such as Wal-Mart Stores (WMT) and Target (TGT), many of whom offer an increasing variety of pet food and supplies.


PetSmart's merchandising includes a breadth of products (about 10,500 distinct items) ranging from brand names as well as an its own private brands. PetSmart has been expanding its pet service offerings in the current decade, growing service revenues to over 10% of total revenues. These services not only earn a high margin, but also differentiate PetSmart from its competitors. Another method of differentiation is the inclusion of full-service veterinary hospitals in over 69% of PetSmart stores through a partnership with Medical Management International. Finally, despite the U.S. recession in 2009, PetSmart's net sales and same store sales grew during the year, as pet owners continued to spend on their pets in times of economic hardship.

Company Overview

PetSmart owns and operates a chain of over 1,149 pet supply stores throughout the United States and Canada. About 90% of PetSmart's revenue is derived from the sale of merchandise, including premium pet food, medicine, collars, small pets (fish, birds, reptiles, hamsters, etc) and other pet supply products. PetSmart sells products from branded manufacturers as well as its own private label merchandise. The remaining 10% of PetSmart's revenue come from pet services, such as pet grooming and training services provided on-site in PetSmart stores.

Business Financials

In 2009, PETM had total revenues of $5.3 billion, an increase from the previous year's total sales of $5.1 billion. Unsurprisingly, this increase in total revenues has increased PETM's net income. As a result of the increase in total revenues, PETM's net income increased from $192.7 million in 2009 to $198.3 million in 2009.

Business Segments

PetSmart stores carry a variety of pet foods and supplies in addition to pet services. The company divides its sales into the following segments:

Consumables (53% of 2009 total revenues)[2]

Consumables merchandise sales includes pet food, treats, and litter. PETM emphasizes premium dog and cat foods, many of which are not available in supermarkets, warehouse clubs or other mass and general retail merchandisers, as well as our private label foods. The company also offers quality national brands traditionally found in supermarkets and warehouse clubs or other mass merchandisers, and pet stores.

Hardgoods (34% of 2009 total revenues)[2]

Hardgoods merchandise sales includes pet supplies and other goods. PETM offers a broad assortment of pet supplies, including private label products, includes collars, leashes, health care supplies, grooming and beauty aids, toys and apparel, as well as pet beds and carriers. It also offer a complete line of supplies for fish, birds, reptiles and small pets. These products include aquariums and habitats, as well as accessories, décor and filters.

Pets (2% of 2009 total revenues)[2]

Our stores feature fresh-water tropical fish, birds, reptiles and small pets. PETM does not sell dogs or cats, but they do provide space in most stores for adoption and animal welfare organizations to use.

Pet Services (11% of 2009 total revenues)[2]

Pet services includes grooming, training, boarding and day camp. It also includes PetsHotels, which provides boarding for dogs and cats including 24-hour supervision by caregivers who are PetSmart trained to provide personalized pet care, an on-call veterinarian, temperature controlled rooms and suites, daily specialty treats and play time, as well as day camp for dogs.

Trends and Forces

Expansion of Pet Services

Since 2005 pet services have grown steadily. Much of this growth has stemmed from the rollout of PetsHotels at select PetSmart stores in 2005, which provide overnight boarding for pets. In addition to the growth of boarding services, PetSmart offers grooming and training services, allowing owners to drop their pets off for a day of classes with PetSmart professional trainers. These services not only earn a higher margin than most physical merchandise sales, but they also differentiate PetSmart from grocery stores and big-box retailers so that more pet owners come to PetSmart (and ideally end up purchasing their pet supplies at PetSmart while their pet is being groomed or trained).

Growth of In-Store Veterinary Hospitals

To complement its own pet services, PetSmart offers full-service veterinary hospitals in most of its stores through a partnership with Medical Management International. These hospitals provide routine examinations, vaccinations, dental care, pharmacies, and surgical capabilities. PetSmart does not receive the profits of these hospitals, but owns a portion of MMI through the partnership in the form of stock and also charges MMI license fees on an annual basis. In addition to financial benefits from its investment in MMI and license fees, these veterinary hospitals differentiate PetSmart from its competitors and draw pet owners to the firm's stores and can lead to add-on sales as owners walk around the stores.

Competition

The pet supply industry is highly fragmented and has attracted supermarkets, warehouse clubs and mass retailers in addition to the myriad specialty pet supply chains, independent pet stores, veterinarians, catalog retailers, and e-commerce players.

PetSmart's most direct competitor is privately held Petco, which operates over 1075 stores in the U.S. and carries over 10,000 distinct pet products.[3] However, as Petco is privately held, sales and financial data is unavailable for comparison. PetSmart also competes with discount retailers and big-box stores like Target (TGT) and Wal-Mart Stores (WMT). These companies can offer basic pet staples at lower prices than PetSmart by leveraging their size and economies of scale, but PetSmart attempts to compete on product breadth (10,500 distinct pet products) and services such as grooming and veterinarian visits.



Footnotes

  1. PETM 10-K 2009 Item 1 Pg. 1
  2. 2.0 2.1 2.2 2.3 PETM 10-K 2009 Item 1 Pg. 4
  3. Petco Corporate Website, About Petco
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