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Investing in stocks: PetSmart profits from exclusive brands and rising pet ownership

Lower consumer confidence and higher gas prices are cutting U.S. store traffic. So, successful retailers will need to have a well-established niche and quality name-brand merchandise to attract customers.

We also think it’s important, when investing in stocks in the retail industry, to focus on chains that can adapt quickly and prosper in the ever-changing economic landscape.

In the latest issue of Wall Street Stock Forecaster, we updated our advice on one consumer stock that has a dominant position in its market. PetSmart Inc. (Nasdaq symbol PETM) is the biggest pet-supply chain in the U.S. In all, it operates 1,197 pet stores in the U.S. and Canada. It also has 185 in-store PetsHotels, which look after pets while their owners are away.

How Successful Investors Get RICH

Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' for FREE from The Successful Investor.

How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.

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PetSmart focuses on selling premium pet foods and other products that most supermarkets don’t carry, including its own line of private-label products. Even with the slow economy, premium pet food sales remain strong. That should make it easier for the company to pass along higher ingredient costs to its customers.

As well, PetSmart separates itself from other retailers with exclusive brands.

Recently, the company announced that it has a new deal to sell dog toys under the Toys R Us brand starting next year. It already carries Martha Stewart pet-care products.

Investing in stocks: Rising pet ownership helps growth at PetSmart

The company continues to benefit from rising pet ownership: 39% of U.S. households now own at least one dog, while 33% own a cat.

In the second quarter of fiscal 2012, which ended July 31, 2011, PetSmart’s earning rose 26.4% from a year earlier. The company spent $63 million buying back its shares during the quarter. Due to fewer shares outstanding, earnings per share rose 31.7%.

Sales rose 7.0%, with same-store sales increasing by 5.0%. Sales of pet services, such as grooming and PetsHotel, rose 7.6%.

PetSmart has slowed its expansion plans in response to the uncertain economy. Even so, it will still probably open 40 to 50 more stores in the second half of fiscal 2012. It also plans to spend more on advertising as it aims to sell more services, such as grooming, which earn higher profit margins than merchandise sales.

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In the latest edition of Wall Street Stock Forecaster, we look to see if PetSmart’s strengths, including its strong brand and leading market position, are enough to help it weather the current market volatility and prosper in a slow economy.

We conclude our analysis with our clear buy/sell/hold advice on PetSmart shares. PetSmart is just one of 20 stocks we analyze in the latest issue of our Wall Street Stock Forecaster.

You can get the latest issue, along with 5 in-depth Special Reports, access to our weekly Email/Telephone Hotlines (which keep you up to date on our U.S. stock market investments between issues) and much more absolutely FREE when you subscribe now. Click here to get started right away.

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