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Non-Tech : PETM - Petsmart -- Ignore unavailable to you. Want to Upgrade?

To: JCS who wrote (1362)	2/24/1999 11:39:00 AM
From: Anthony Wong	Respond to of 1508

JCS, the stock price dropped after the last earnings report as well. No surprise or excitement in earnings and revenues...if that is what they are able to achieve after more than a year of turnaround efforts, there's not a great deal of expectations for the future. I would hope that the company put more efforts into controlling costs. If they are going into e-commerce, they should brush up their website. They are saying that they'll sell their UK business. That should lower their debt. Anthony

To: JCS who wrote (1362)	2/24/1999 5:14:00 PM
From: Anthony Wong	Read Replies (1) \| Respond to of 1508

SELL SIGNALS UPDATE: Petsmart Goes to the Dogs Analyst: Chris Bulkey (2/24/99) Petsmart (NASDAQ: PETM) reported fourth quarter and full year earnings yesterday that prompted BT Alex Brown to downgrade the shares to buy from strong buy. On January 28th we issued a sell signal on Petsmart suggesting that the proposed turnaround would take longer than analysts were forecasting. It seems that we were right. BT Alex Brown admitted that the profit growth they had expected to begin this year will be delayed until at least fiscal 2000. When we wrote our original Petsmart story, the stock was at $9.06. It was recently quoted at $8.13. Click here to read our initial pan of Petsmart. Net sales for the quarter rose 13.9% to $510.6 million with comparable store sales up an anemic 5.1%. These weak sales figures came during the strongest season of the year -- a troubling sign. Bow Wow, Mate The U.K. business continues to be a drag with same store sales up 0.8% for the quarter. Dain Rauscher and BT Alex Brown both indicated that the company is considering strategic alternative for the U.K. business. This does not surprise us, as we suggested that this business had been sucking wind for some time now, and a sale would likely be imminent. Earnings came in at $0.15 per share, matching consensus estimates, up from $0.05 per share (excluding one-time charges) in the prior year's period. Gross margin improved 120 basis points to 27.2%, but did not improve to the degree analysts had expected. Operating leverage continues to be non-existent in Petsmart's business model. A BT Alex Brown report indicated that management aggressively cut operating expenses during the quarter, which added 'a few cents' to the bottom line. Sales were weak, and management had to cut costs aggressively to meet earnings estimates during the strongest quarter of the year. That certainly does not sound like a company whose business is gaining momentum and is poised for a turnaround. The most gratifying news (from our bearish standpoint) during the quarter was the weak performance of the direct marketing subsidiary, Petsmart Direct, where sales fell 18%. Some of the bullishness behind analysts' recommendations, over the past month, was predicated upon positive catalysts coming from news surrounding e-commerce sales. We told investors that the strategy was not progressing well, and that it made very little sense to us from a strategic standpoint. One of the reasons behind BT Alex Brown's downgrade was 'sluggish' e-commerce sales -- again no surprise to us. Consensus estimates are still forecasting $0.39 per share for fiscal 1999, which will likely be trimmed down as analysts sit down with management and reevaluate the state of business, especially the struggling U.K. and Internet businesses. Dain Rauscher Wessels has kept Petsmart at strong buy after the earnings citing it as an aggressive play. In this week's Earnings Watch column, IIOnline's Tom Byrne offered a 'No Thumbs' opinion on Petsmart's earnings. He predicted the company would meet estimates, which it did, however he expected that the stock might go up a little. Bottom Line: The shares are currently down $0.88, or 9.7%, to $8.13. Perhaps Dain Rauscher is bidding for the business of advising Petsmart on strategic alternatives, as we simply do not see these shares as anything close to a buy. We reiterate our sell recommendation on Petsmart. iionline.com