(By Mani) Any investor would prefer a company to have stable fundamentals and consistent return of excess free cash flow. PetSmart, Inc.
) is one such company that fits these requirements to the core.
PetSmart is the largest specialty pet retailer of services and solutions for the lifetime needs of pets. The company operates more than 1,241 pet stores in the US and Canada, a growing number of in-store PetsHotel cat and dog boarding facilities, and is a leading online provider of pet supplies and pet care information.
Shares of the $7.2 billion company have increased more than 30 percent so far in 2012 as the company's profit rose about 50 percent from fiscal 2010 to fiscal 2012.
The company recently raised its quarterly dividend by 18 percent to 16.5 cents a share from 14 cents a share, beginning in the second quarter of fiscal 2012. The increased dividend, which equates to an annual dividend of 66 cents a share, will be paid on August 10, 2012 to stockholders of record at the close of business on July 27, 2012. The dividend represents a yield of 1 percent.
PetSmart also authorized a new $525 million share purchase authorization that expires in January 2014. This new share purchase authorization will commence on July 30, 2012, and is additional to any unused amount remaining under the June 2011 authorization as of that date. The new authorization equates to roughly 7 percent of the company's current market capitalization.
"If the company were to complete the full amount (assuming $200 million) over the next three quarters, it would add $0.09 to CY'12 EPS and $0.21 to CY'13 EPS," UBS analyst Michael Lasser wrote in a note to clients.
The return of excess cash to shareholders suggests company's commitment to create shareholder value while effectively managing the capital. The recent increase in dividend and buyback is a proof of stability and predictability in the company's cash flow.
Meanwhile, the fact that the owners willing to spend more on their pets to ensure also bodes well for companies such as PetSmart. Sixty-two percent of U.S. households owns a pet, which equates to 72.9 million homes, which spent an estimated $52.87 billion on their pets, according to the latest data from American Pet Products Association (APPA). Out of the spending, $20.46 billion is spent on food – a strong area for PetSmart.
PetSmart generates a major chunk of its sales from consumables, and the recurring sales should continue to bolster continuous topline growth in the coming quarters.