Thursday, March 03, 2005

PETsMART conference call

Listening to the 4th Quarter and Full Year 2004 conference call of PETsMART, Inc. on March 2, it seemed at first blush that nothing new was reported; key initiatives discussed for 2005 had all been previously announced or rolled out in 2004, management was predictably upbeat, and the analysts' questions focused primarily on how to make the numbers add up (or not) to their expectations.

What I took away, however, was a sense of complete confidence in the next two years of growth for the industry and the company, as well as hints at a longer term strategy targeting the leading edge of the baby boomer retirement in 2008.

2005 and 2006 are all about services, primarily boarding, but also grooming, training, and salon-type treatments. Phil Francis, chairman and chief executive officer, sees services growing at a rate of 20% for the next two years. Key initiatives in 2005 are to grow the services segment, starting with PETsHOTEL. With sixteen hotels already open, the company plans to open 12 more in 2005 and an additional 20 in 2006 (a 67% increase over 2005).

Doggie Daycamp, a standalone day camp within a store, will expand from its single test location to 4-5 new daycamps this year.

In 2005, the company plans to open 100 new stores, 35 in the Northeast and California, the nations two largest markets, in which PETsMART is "significantly understored," according to Bob Moran, president and chief operating officer. Almost half of new stores will open in the 3rd Quarter of 2005.

So confident are they in the success of the new stores that refreshing old stores has been delayed to 2006, which is also when they expect the "fruition" of the data mining program, started last year, that uses customer loyalty cards and pricing optimization software.

So 2007 will see a convergence of geographic positioning, new store remodels, high earnings, pricing controls and most importantly maturation of data collection, coupled with a strong understanding of today's emerging demographic and tomorrow's. Services like grooming, boarding and training are making money today due in part to current lifestyle trends, but are also a perfect match for an aging population that will begin to retire in 2008, providing a nice strategic position for the company.

PETsMART reported $3.36 billion in net sales in 2004, up 12.4% from $2.99 billion in 2003. Not bad for being significantly understored in the nations largest markets.


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