Pets Are Recession-Proof! (PETM, PETS, WOOF)

Whether or not the U.S. is truly going into another recession is still up for grabs.  What is not up for grabs is that earnings are coming in less robust and companies are generally far less optimistic than they were at the beginning of this year.  That is, except for the market around the household pets like cats, dogs, and other beasts of affection.  PetSmart, Inc. (NASDAQ: PETM) has raised guidance and this has the sector tied to pets under the magnifying glass today.

PetSmart runs about 1,200 retail locations throughout North America and its market valuation is over $5.1 billion.  Its shares recently traded above $46.00 today after it raised guidance and the 52-week trading range is $35.27 to $46.60.  It is not normal for retail companies to be trading within 1% or 2% of year highs in the current environment.

PetMed Express Inc. (NASDAQ: PETS) is surprisingly not in the gaining crowd today, yet it aims to help pet owners to save money by buying animal drugs online or over the phone rather than via the pharmacy, pet store, or vet’s office.  Shares are down almost 1% at $9.30 and its 52-week trading range is $8.51 to $18.87.  This company trades close to the market at about 13-times expected earnings.

Then there is the king of veterinarian centers at 11:50AM EDT: 16.94   0.03 (0.18%)  VCA Antech Inc. (NASDAQ: WOOF).  This one is down 0.2% so far at $16.94 and its 52-week range is $14.73 to $26.29.

What got things going was that PetSmart lifted its sales targets for the third quarter to 5.5% to 6% growth in same-store sales.  It also raised guidance to $0.46 to $0.48 EPS from a prior target of $0.41 to $0.45 EPS.  For the year, that range was raised to $2.46 to $2.52 EPS from a prior range of $2.40 to $2.48 EPS.

All of this only highlights the private equity acquisition of PetSmart’s main rival, which is Petco Animal Supplies.  Petco agreed to be acquired in a $1.7 billion private equity buyout in 2006 by Leonard Green & Partners and affiliates of Texas Pacific Group.

JON C. OGG