October 10, 2007 / 12:33 PM / 12 years ago

Petsmart cuts profit forecasts

NEW YORK (Reuters) - Retailer Petsmart Inc <PETM.O, still recovering from a major pet food recall, cut its third-quarter and 2007 profit forecasts on Wednesday, citing weak consumer spending, sending its shares down 5 percent.

Many U.S. retailers have pointed to signs of cautious spending by consumers burdened by higher food and gasoline costs plus a slack housing market. Until now, Petsmart has brushed off such concerns.

But on Wednesday, Chief Executive Philip Francis said weak consumer spending, along with unusually warm weather that hurt sales in key cold-weather categories, will cut into business.

“At the same time, we’re working hard to mitigate the impact of the weakness on our bottom line,” Francis said in a statement.

For the current quarter, Petsmart expects earnings of 17 cents to 20 cents a share. Previously, it forecast 21 cents to 23 cents.

The forecast includes a previously announced charge of 4 cents a share to exit the State Line Tack horse business, Petsmart said.

“Risks to this quarter had been evident from management’s discussion of ongoing pressure from the recent pet food recall, and a gap in assortments as the company restocks floor space vacated by the equine business,” Goldman Sachs analyst Matthew Fassler wrote in a note.

The U.S. pet food recall, that began in March due to tainted ingredients from China, was blamed for the deaths of some pets and resulted in the recall of over 100 brands.

Francis said the recalls would cut Petsmart sales by “some tens of millions of dollars” by the end of the year. He expects to have all brands back on shelves by the second quarter of next year.

Petsmart, which already cut third-quarter same-store sales outlook in August citing the recall, said sales would come in below its original forecast of a rise in the low- to mid-single digits.

For the full year, the Phoenix, Arizona-based company forecast earnings of $2.02 to $2.07 a share, including a gain from the sale of shares of MMI Holdings Inc, which operates Petsmart’s in-store veterinary hospitals. It previously forecast $2.08 to $2.10 a share.

One analyst questioned the impact of weather on Petsmart’s revenues. “The (estimates) miss may partly reflect Petsmart’s

comments that warm weather hurt seasonal sales, although Petsmart is not what comes to mind when one thinks about weather impacts,” Credit Suisse analyst Gary Balter wrote.

Petsmart could not be reached immediately for further details on sales in weather-related categories.

Company officials were to meet with analysts in Phoenix on Wednesday.

Petsmart shares were down 5 percent to $30.77 in early afternoon trading, after slipping as low as $29.15 earlier on Nasdaq.

Reporting by Aarthi Sivaraman; additional reporting by Shamik Paul in Bangalore

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