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Petsmart Talks Business Strategies, Raises EPS Guidance
Posted: Thursday, Oct. 15, 2009, 6:02 p.m., EDT

Petsmart Talks Business StrategiesPetsmart’s top executives discussed strategic priorities, long-term opportunities and key financial strengths for the Phoenix-based company during its 2009 Analyst Day held Oct. 15.

Prior to the event, the pet specialty retailer announced that it has raised its guidance for third quarter and full year earnings. For the third quarter, Petsmart is raising its earnings per share guidance to $0.25 to $0.29. The company is raising its full year earnings per share guidance from $1.43 to $1.51.

In his opening speech, Petsmart President and CEO Bob Moran provided a brief update of the company’s finances.

For 2009, he said Petsmart’s sales are expected to exceed $5.3 billion. In terms of the number of stores, the company expects to be operating in more than 1,150 locations in the U.S. and Canada by the end of 2009, along with 156 in-store PetsHotel boarding and daycare facilities.

Moran made note of the economic recession and said Petsmart is not immune to its effects.

“While we continue to attract new customers, we have been challenged with reduced transactions and items in the customer’s basket,” he said. “Yet our customers continue to be loyal to us and shop us at level only slightly down from a pre-recession economy.”

Despite the economy and indications of slowing growth in the pet market, Moran said Petsmart’s ability to drive new pet acquisitions through its in-store adoption events and vendor partnerships will allow the company to remain strong.

At present, he said the company is focused on becoming a merchandising company and driving discretionary sales.

To that end, Petsmart has identified three strategic priorities: leveraging customer insights, improving merchandise capabilities and engaging customers.

In terms of leveraging customer insights, Mary Miller, chief marketing officer and senior V.P. of marketing, said the company has compiled a comprehensive database of its customers that is used to drive business and marketing programs.

This database shows that 10 percent of Petsmart customers account for 50 percent of the company’s sales, while 50 percent of Petsmart customers account for 45 percent of its sales and 40 percent of customers account for only 5 percent of sales.

Miller said the company has developed strategies for increasing and maintaining loyalty at each customer level. For the top 10 percent, the company is focusing on ticketing strategies; for the middle group, Petsmart is focusing on traffic and loyalty strategies; and for the 45 percent of customers who contribute 5 percent of sales, Petsmart is focusing on repeat strategies.

Miller said the company’s biggest opportunity for increasing loyalty and sales is with the middle group.

“They provide significant potential for increasing visits and annual spend,” Miller said. “These customers are somewhat loyal and our ability to get them into sticky behaviors, such as purchasing channel-exclusive foods or services, provides significant sales and customer potential.”

With regard to merchandising, Petsmart plans to leverage its core strengths, which according to Joe O’Leary, senior V.P. of merchandising and supply chain, are its differentiated product assortment, adoption events, strengthened vendor partnerships and food selection.  The company is also working on developing strong merchandising capabilities and improving its merchandise assortment and margin.

As part of its efforts to improve merchandise assortment and margin, the company is looking to increase penetration of proprietary brands. That includes relaunching its Authority and Dentley’s brands.

O’Leary said proprietary brands currently account for about 17 percent of sales. The company’s goal is to increase that number to 25 percent.

Lastly, to engage customers, the company has implemented a number of initiatives. For example, Petsmart has developed in-store execution capabilities, such as standardized operational processes, and has reduced the scope of district management to provide them additional time to focus on their stores.

“As a result, we now have a more focused, disciplined and standard approach in our stores that give our associates, at the end of the day, more time to spend with our customers,” said David Lenhardt, senior vice president of store operations and human resources.

Petsmart also views its multiple services offering as playing part in engaging customers. According to Lenhardt, annual services sales have grown from $376 million in 2006 to an estimated $579 million in 2009.

“The pet services market still provides significant untapped demand for pet parents who have yet to utilize these services,” he said. “We recognize the potential for significant sales from acquiring new service customers.” <HOME>

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