QUOTE AND NEWS
Forbes  4 hrs ago  Comment 
In afternoon trading on Monday, Services stocks are the best performing sector, losing just 0.1%. Within that group, PetSmart (NASD: PETM) and Staples (NASD: SPLS) are two of the day's stand-outs, showing a gain of 4.4% and 1.7%, respectively....
Canada.com  7 hrs ago  Comment 
'The strong support for PetSmart from long-term investors may provide another reason for the market to reconsider the outlook and the options to realize the potential value in these higher quality retail concepts'
Benzinga  9 hrs ago  Comment 
Following the market opening Monday, the Dow traded up 0.25 percent to 17,323.44 while the NASDAQ gained 0.32 percent to 4,668.47. The S&P also rose, gaining 0.47 percent to 2,011.69. Leading and Lagging Sectors Energy shares gained...
Forbes  9 hrs ago  Comment 
In early trading on Monday, shares of PetSmart (PETM) topped the list of the day's best performing components of the S&P 500 index, trading up 4.6%.  Year to date, PetSmart registers a 11.6% gain.
Benzinga  9 hrs ago  Comment 
Riverbed Technology (NASDAQ: RVBD) shares climbed 9.16% to $20.46. The volume of Riverbed Technology shares traded was 1305% higher than normal. Riverbed agreed to be acquired by Thoma Bravo for $21 per share in cash. Cirrus Logic (NASDAQ: CRUS)...
Benzinga  9 hrs ago  Comment 
PetSmart (NASDAQ: PETM) shares reached a new 52-week high of $81.27 after the company agreed to be acquired by BC Partners for $83.00 per share in cash. Cypress Semiconductor (NASDAQ: CY) shares touched a new 52-week high of $14.26. Cypress...
Yahoo  12 hrs ago  Comment 
Join Hot Stock Minute live now for the latest premarket headlines.
CNNMoney.com  Dec 15  Comment 
Woof woof! PetSmart has agreed to be acquired for $8.7 billion in the largest private equity deal so far this year.




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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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