PetSmart LLC’s second-quarter performance was buoyed by higher merchandise and services revenues, according to people with knowledge of the situation.
The BC Partners-owned pet supply retailer booked US$2.5 billion in sales for the quarter ended July 31, up 7.5 per cent from the same period a year ago, said the people, who asked not to be identified because the results were private.
Big box retailers have been battered by rising costs and weakening demand. While the pet sector is not immune to these pressures, it is holding up fairly well because consumers are continuing to spend on pet food and healthcare.
A big portion of PetSmart’s business comes from consumables, like pet food, which have lower margins but are stickier compared to higher-margin products like toys.
Looking ahead, PetSmart is betting big on private labels, which attract consumers with their lower price points, the people said. The company now has 10 proprietary brands that each generate more than US$100 million in annual revenues, and continues to see growth in those brands, they said.
Overall comparable store sales increased 8.4 per cent year-over-year, the people said.
Representatives at PetSmart didn’t respond to request for comment, while BC Partners declined to comment.
PetSmart’s quarterly gross margins were 36.8 per cent, down 187 basis points year-over-year due to the higher mix of consumable goods, the people said. That in turn drove its bottom-line down 3 per cent year-over-year to US$389 million, they said.
At quarter-end, the company had US$707 million of availability under its asset-based facility and US$553 million of cash on hand. Total debt is about 3.2 times its earnings, the people said.
Sponsor BC Partners paid itself a US$500 million dividend, as previously announced to private investors, the people said.
Inventory issues that have been plaguing most retailers were not as much of an issue for PetSmart, management told private investors on an earnings call on Sept. 13. That echoed competitor Petco Health and Wellness Co.’s remarks that demand for pet goods and services remain resilient even in economic downturns.
PetSmart’s 4.75 per cent notes due 2028 traded at roughly 89.7 cents on the dollar on Friday, down from 91.75 cents on Sept. 13, according to Trace. Its 7.75 per cent notes due 2029 changed hands at 92.7 cents, down from 94.68 cents over the same period.
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