PetSmart shares fall on weak forecast

PetSmart Inc.'s shares fell Thursday after the retailer issued a disappointing forecast for the year.

THE SPARK: The company reported after the market closed Wednesday that its fiscal fourth-quarter profit increased 31 percent, helped by an extra week of sales.

However, PetSmart said that it expects to earn $3.76 to $3.92 per share for this fiscal year. Analysts polled by FactSet, on average, were anticipating $3.97 per share for the year. The company predicts revenue growth of 2 to 4 percent this year. Analysts are anticipating revenue of $7.1 billion for the year, which would be a 4 percent increase.

PetSmart also expects slower growth in revenue from established stores this year: 2 to 4 percent versus 6.3 percent in the year that just ended.

THE BIG PICTURE: PetSmart runs about 1,280 stores across North America, where it sells pet products as well as services such as training, grooming and boarding.

THE ANALYSIS: PiperJaffray analysts Peter Keith and Jonathan Berg lowered their rating on PetSmart to "Neutral" from "Overweight" and reduced their price target to $68 from $82.

The analysts said they still like the strong-growth industry and PetSmart's execution and differentiation from its peers. But the fourth quarter appears to be an inflection point for the company and expect growth to slow in the coming years, after 3 years of spectacular growth.

They said the company's sales driving initiatives for the year appear less exciting compared to recent years, and the efforts to improve gross margin are not kicking in as quickly as they thought.

SHARE ACTION: Shares fell $4.45, or 6.7 percent, to $62.10 in afternoon trading. Its stock has traded between $54.20 and $72.75 in the past 52 weeks.