PetSmart Earnings Call Insights: Traffic & Ticket, Flea & Tick

On Tuesday, PetSmart Inc. (NASDAQ:PETM) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Traffic & Ticket

Matthew Fassler – Goldman Sachs & Co.: First of all, as I do the math on traffic and ticket to the extent that I think that comp traffic was up in the low 3s, that would suggest a ticket that was up in excess of 4%, which would be a real turnabout from where we were in Q4 and the strongest ticket growth you would have had in over three years. So if I got those numbers right, if you could please talk to what’s producing that strength?

A Closer Look: PetSmart Earnings Cheat Sheet>>

Chip Molloy – EVP and CFO: Couple of things. One you are right, traffic is just north of 3%. We are getting more units in the basket so, from a units per ticket we are getting slightly more units in the basket that’s been steadily improving. And then there’s a little bit of AUR in there, primarily on the inflation front but that’s where we predicted it would be call it 200 basis points but net-net that drives the ticket.

Matthew Fassler – Goldman Sachs & Co.: My second question relates to the online business. I noted in your proxy that some members of the senior management are actually not getting compensated in part on growth in the internet business. I know historically this was not a major focus for you presumably I hear the Board sees some importance to it, it’s kind of a controversial category. So is there is a new line of thinking about what the online channel can do for you and how you’re going to come out of that segment?

David K. Lenhardt – President and COO: I actually think it’s an extension of the thinking that we have had. We very much view what we would call the omni-channel opportunity. It’s something that we need to focus on. We think that increasingly customers are looking to interact with us wherever, whenever and however they want, and we think we’ve got an opportunity given that to really work on extending our in-store customer experience online and really creating an seamless integration between our online and offline channels. A piece of that is clearly our e-commerce business, which we continue to be happy with but the other piece of that is all around again how do we offer that seamless experience for the customer and as we talk to our Board about that. I think we collectively felt like a piece of our bonus being tied to e-commerce made sense. I would point out, though, that it’s 10% of our bonus and that the other 90% is on sales and profits. So, I think we have it appropriately scoped out given that.

Matthew Fassler – Goldman Sachs & Co.: Do you have any evolution of the kind of fulfillment options that you’re making available to consumers who choose to order online?

David K. Lenhardt – President and COO: That’s something we’re continuing to evaluate. I don’t have anything to report on that now, but absolutely when you think about fulfillment that’s the single biggest cost item from an e-commerce perspective. So I think we’re continuing to look at ways to reduce that cost and different ways to serve the customer.

Flea & Tick

Alan Rifkin – Barclays Capital: With the unseasonably warm weather in Q1. Can you maybe quantify, Chip, the impact if any from flea and tick on both comps as well as gross margins? Then I have a follow-up.

Chip Molloy – EVP and CFO: Yes, Alan. Weather is not a big driver of our business. The two categories that it can impact are flea and tick, which is a better business in warmer weather and apparel, which is a better business in colder weather. Just like in Q4, we did have in Q1, a very, very robust flea and tick business, relative to last year. Apparel was not as good as we would have liked coming into the quarter, but it was okay. It really did impact overall, both on the sale side – there was probably some margin impact in there, but we overcame that through other things that happened within the business that actually made the margin, the merch margin better than we expected coming into the quarter.

Alan Rifkin – Barclays Capital: One follow-up if I may. I think maybe you could shed some color on what you’re seeing with respect to adoptions? I know that that’s been a very good leading indicator in the past. What are you seeing at the store level with respect to any increases in that category, if at all, and what that may mean for the remainder of this year?

Robert F. Moran – Chairman and CEO: Let’s talk about adoptions from a point of view that we started really to see increase in Q4 of ’11 and we’ve continued to see that type of increase going into Q1. So, it’s encouraging, but I don’t think we have enough data points to say if it’s a trend at this point in time. Obviously, what we stay focused on is our relationship and partnership with PetSmart Charities, so that we can build a national program, especially with our vendor partners, to continue to save lives in that way. So, I think there is more to talk about in subsequent quarters at this point in time, so that we can talk about a trend line, but the same types of trends that we saw in Q4 have continued into Q1.