PetSmart considers strategic alternatives to maximize shareholder value

PetSmart is exploring strategic alternatives to maximize shareholder value, including a possible sale of the company. The news comes on the heels of its second quarter results, and just a little less than two months after activist investor Jana Partners acquired a 9.9% stake in the company and began looking to make changes.

“Whatever the outcome of the process, we are as committed as ever to continuing to meet the needs of our customers and their pets, attracting and retaining world class talent, and driving sales and margins,” said Gregory P. Josefowicz, chairman. “We are not providing a timetable for our process, nor do we intend to comment further or update the market until it is complete.”

Josefowicz added that despite recent headwinds affecting PetSmart and other retailers, he firmly believes the company is very well positioned for superior future performance. The board has been working with JP Morgan Securities and Wachtell, Lipton, Rosen & Katz to assist in the process.

The company also announced a definitive agreement to acquire Pet360, an online pet specialty retailer, for $130 million with the possibility of additional performance-based payments totaling up to $30 million by the end of 2016.

President and CEO David K. Lenhardt said that acquiring Pet360 will allow PetSmart to enhance its omnichannel capabilities and provide customers a unique and leading 360-degree shopping experience. “This afternoon’s announcement about exploring alternatives will not distract the management team from continuing to pursue a broad range of performance improvement initiatives already underway,” he added.

Lenhardt said that he expects online sales to become a more relevant source of revenue in the future and the company’s looking to capitalize on that evolution. Combining Pet360’s family of e-commerce websites, digital media programs and content sites, with PetSmart’s existing web platform and store network will immediately allow PetSmart to provide customers a rich omnichannel information and shopping experience.

The transaction is expected to close in September, subject to customary closing conditions, including receipt of regulatory approvals.

The company’s earnings for the quarter were $0.98 per share, up 10.1% compared to $0.89 per share in the second quarter of 2013. Net income also increased 5.1% to $98.1 million, compared to $93.4 million in the prior year period. The company also saw an increase in net sales, up 1.4% to $1.7 billion. But comparable store sales, including online sales, decreased 0.5%, with comparable transactions decreasing 2.6%. Services sales, which are included in net sales, grew 4.7% to $214 million.

“While we face many of the same headwinds affecting other retailers, we continue to deliver extraordinary value to our customers and achieve strong earnings and cash flows,” added Lenhardt. “We are focused on leveraging our competitive strengths, including superior customer focus and loyalty, and capitalizing on the continued growth of the specialty channel. We have already begun implementing a broad range of performance improvement initiatives following the board’s detailed review of our business over the last several months.”


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