Analysts: Buyout Chatter Overshadows PetSmart Inc. Q3

PetSmart Inc.'s

third-quarter results continued to be overshadowed Wednesday by prospects that the retailer could get bought out, analysts said. Phoenix-based PetSmart's shares gained nearly 5 percent Wednesday to $77.19 a share. Along beating third-quarter earnings expectations late Tuesday, the retailer raised its profit forecast and outlined recent progress on a $200 million cost-cutting plan. "Normally, these would be positives," Deutsche Bank's Michael Baker said in a research note. "But the market is more intrigued with the potential take-out," . In the latest of a string of similar reports, Reuters said late Tuesday that KKR & Co. LP and Clayton, Dubilier & Rice LLC have teamed up to take PetSmart private for more than $7.5 billion. http://www.reuters.com/article/2014/11/18/us-petsmart-m-a-exclusive-idUSKCN0J22M520141118 Jana Partners LLC, which has a 9.8 stake in PetSmart, pushed the company in August to review strategic alternatives. Reuters said Jana's Barry Rosenstein is now mulling whether to nominate a new slate of directors if the sales process falls through. PetSmart said Tuesday its review is continuing, and didn't comment on a stream of reports, all citing unnamed sources, suggesting that private equity firms are preparing bids. Bank of America's Denise Chai upgraded PetSmart Wednesday to Neutral, from Underperform, citing the company's unexpectedly fast progress on cost-cutting as well as prospects for its acquisition. But Chai still worries that PetSmart, the largest U.S. retailer of pet supplies, is losing market share to Tractor Supply Co.

and privately held PetCo. Credit Suisse's Seth Sigman said there's a potential that PetSmart's cost cutting could go too deep, potentially hurting sales, and said the company may have more work to do in boosting traffic. Third-quarter same-store sales were flat, and Sigman maintained a Neutral rating on the company. "We're not convinced that such a large cost-cutting plan can be completed without hurting the core business," said Wedbush's Seth Basham, who also maintained a Neutral rating. "But that may be less important near term in negotiating a sale of the company," Basham added.