Tuesday, November 28, 2006

Calls of Note Part 2

- Piper Jaffray comments on PetSmart (NASDAQ:PETM) after Wal-Mart opened its first pet grooming facility in Brentwood, TN, with 12 additional facilities expected in the Southeast over the next 12 months.

While the firm anticipates that Wal-Mart will expand its grooming test concept, they do not believe that this service poses a significant near-term threat to retailer PetSmart. Rather, they believe increased interest in and awareness of pet services bodes well for the industry. Firm views PetSmart's facilities as having a competitive advantage through a strong brand name and association with professional grooming service. Checks indicated a $56 price point at Wal-Mart for a full-service grooming package (bathing, clipping, nail trim, and brushing), while a similar service at PetSmart costing customers $45.

Entrance of the nation's largest retailer reflects the attractive growth characteristics of the pet services industry.

Maintains MP rating and $30 tgt on PETM.

Notablecalls: I've heard the validation story before as large players enter the market of lesser competitors. Eventually things get tougher. WMT and TGT have increased their presence in the pet biz over the past couple of yrs and will continue to do so. The grooming (or services business in general) generates margins that are 3x higher than products AND drives traffic. It will hurt PETM in the L-T. I would not be surprised to see some weakness in PETM in the coming days.

No comments: