For those who are still long the stock and believe in its eventual turnaround, here's an "old" Bloombgerg article which hasn't been posted on this thread:
Petsmart Set to Bounce Back From 1997's Slump: Bloomberg Forum
Bloomberg News
August 27, 1998, 9:00 a.m. PT
Petsmart Set to Bounce Back From 1997's Slump: Bloomberg Forum
Phoenix, Aug. 27 (Bloomberg) -- Petsmart Inc., the largest
U.S. pet-supply retailer, is on the road to recovery from a
disappointing 1997 and is prepared to deliver more consistent
earnings growth, its chief executive said.
Petsmart's profits plunged last year, largely because of
problems managing inventory. As the retailer aggressively
expanded throughout the 1990s, its daily operations suffered,
culminating in a fiscal 1997 loss of $34.4 million. Investors
have yet to declare a turnaround. Petsmart's shares have barely
budged from December's record low of 6 3/32.
However, Chief Executive Philip Francis, who joined the
company in March, is working to improve inventory turnover and
taking other steps to boost sales and earnings.
''A recovery has assuredly begun,'' Francis told the
Bloomberg Forum. ''As our earnings improve, the stock price will
reflect that.''
Phoenix-based Petsmart sells pet food, toys and supplies
through 437 superstores in North America and 90 in the U.K. Many
of the stores also provide in-store obedience training, grooming
and veterinary services. In addition, the company sponsors pet-
adoption programs with local humane organizations.
Investors snatched up shares of Petsmart after the company's
public offering in 1993. Many expected it to follow stores such
as Home Depot Inc. and Staples Inc. and become the next retail
''category killer,'' replacing hundreds of mom-and-pop stores
with larger, warehouse-style superstores.
The shares reached a record high of 29 1/2 in October 1996.
Expansion
After it went public, though, Petsmart started aggressively
opening stores and buying companies, all of which put a strain on
its business. An example was its purchase in 1996 of the U.K.'s
Pet City Holdings Plc, which marked its entry into Europe.
''There were a lot of things undertaken at once, which
individually or in a smaller number probably all had merit, but
coming at once probably overcame the ability of the business to
handle them all well,'' Francis said.
As costs mounted, Petsmart set out to reduce inventory
levels. It hit a snag, though, when it started running out of
popular items. Customers where disappointed too many times, and
soon stopped coming to the stores.
Today, Francis is tightening inventory, though with a focus
on keeping fast-moving products such as pet food in plentiful
supply. He's cutting back on items such as aquariums and dog
collars -- non-edible products that don't move off the shelves as
quickly as food.
His goal is to end this year with the same level of
inventory as last year, while at the same time operating about 60
additional stores.
Meanwhile, Francis is also taking a critical look at
Petsmart's U.K. business, which has been a drag on sales and
earnings. Though he didn't rule out a possible sale of the unit
if results don't improve, he said he plans to assess it in a
year.
''I am very certain that a year from now the U.K. will be
better,'' he said. ''If U.S.-style returns aren't in the offing,
we'll then have a chance to do something else with the business,
but we'll do so from a position of strength.''
Earnings Warnings
Francis joined Petsmart in March after serving as CEO of
Shaw's Supermarkets Inc. His appointment followed the 1997
departure of Mark Hansen, who left to head up the Sam's Club
division at Wal-Mart Stores Inc.
One thing that's made Francis's job easier is Petsmart's
lack of fierce competition. Its closest competitor, Petco Animal
Supplies Inc. of San Diego, has less than half of Petsmart's
annual revenue, and it's also struggled with disappointing
earnings.
Petco's shares fell 43 percent on July 10 after it warned
that fiscal second-quarter earnings would miss estimates because
of weak sales the past two months. Petsmart warned it might just
break even, or post a loss of as much as 2 cents a share.
After the close of U.S. trading Tuesday, Petsmart reported a
net loss for the quarter ended Aug. 2 of $1.68 million, or 1
cent, compared with a loss of $35.7 million, or 31 cents, a year
earlier. That was in line with the average revised estimates of
eight analysts polled by First Call Corp. after the July warning.
Some of Petsmart's problems in the quarter were temporary.
The loss included severance costs for some departed executives.
In addition, the retailer's effort to tighten inventory
actually hurt second-quarter profit margins because it cut down
on purchasing discounts.
That's only a passing downside related to the inventory
initiatives being ahead of schedule, Francis said.
''It's a short-term dark side of that success,'' he said.
--Anne Pollak in the Princeton newsroom (609) 279-4043/jcn |
