Petsmart raises 2007 earnings view, shares rise

LOS ANGELES (Reuters) - Petsmart Inc (PETM.O), the largest U.S. specialty pet retailer, reported lower third-quarter profit on Wednesday, but the company raised its full-year earnings outlook, and shares rose over 6 percent in after-hours trading.

Quarterly net income was $29.5 million, or 23 cents a share, compared with $31.7 million, or 23 cents a share, a year earlier, when there were more shares outstanding.

Petsmart's results included costs relating to its exiting of its State Line Tack business, and a gain related to the recognition of gift card breakage -- cards sold but not expected to be redeemed.

The results beat analysts' average expectation of 22 cents a share by a penny, according to Reuters Estimates.

Total sales rose 8 percent to $1.12 billion, but same-store sales, a key gauge of retail performance, rose only 1.4 percent in the quarter.

Wall Street had been expecting sales of $1.11 billion.

Although the company cited a "tough consumer environment," Chief Executive Phil Francis said Petsmart might see less of a negative effect from a slowdown in consumer spending than other retailers. He cited a 23 percent rise in services in the quarter, which he said demonstrated that consumers view Petsmart as a need and not a discretionary expense.

Petsmart offers boarding, grooming and training services.

"We're not seeing customers trade down in food or give up their pet, we're seeing continued growth in our ultra, premium, natural and organic foods and we've seen services continue to grow," Francis told analysts during a conference call.

Stifel Nicolaus analyst David Schick said Petsmart has done a good job of tapping into the connection between families and their pets, in which more and more Americans consider pets an integral party of the family.

"However, at the same time it's important to note a large portion of their business is pet food consumables, which is inflationary," Schick told Reuters.

Petsmart increased its full-year earnings outlook to a range of between $2.05 to $2.09 per share. An earlier forecast called for earnings of $2.02 to $2.07 a share. The forecast includes a gain from the sale of its shares of MMI Holdings Inc, which operates Petsmart's in-store veterinary hospitals.

Analysts, on average, were expecting net earnings of $2.03, according to Reuters Estimates.

For the fourth quarter, Petsmart said it expects earnings to range between 70 cents and 74 cents, while analysts, on average, have been expecting 72 cents per share.

Same-store sales are expected to grow in the low-single digits during the fourth quarter.

Shares of Petsmart rose more than 6 percent, or $1.59, to $26.50 in after-hours trade after closing at $24.91 on the Nasdaq, down 2 percent.

(Editing by Gary Hill and Andre Grenon)