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Pet supplies retailer PetSmart Inc. is acquiring Pet360 Inc. even as PetSmart looks at bigger strategic options including selling the company.
It was a busy second quarter all around for PetSmart Inc. with the company making what it calls a strategic e-commerce acquisition and possibly putting itself up for sale.
Wednesday PetSmart, No. 362 in the 2014 Internet Retailer Top 500 Guide, announced during the release of its earnings for the second quarter ended Aug. 3 that it is acquiring online retailer Pet360 for an undisclosed sum. Further, PetSmart acknowledged that in the wake of flat sales and other aspects of its ongoing financial performance, the company was exploring various strategic options including a possible sale.
“We have decided to explore options to maximize shareholder value, including a potential sale of the company,” said PetSmart chairman Gregory P. Josefowicz in a conference call with analysts. The company has yet to set a timetable for any sale and no terms of a sale have thus far been determined. PetSmart has retained JP Morgan Securities LLC and Wachtell, Lipton, Rosen & Katz to assist in the process, the retailer says.
Even as PetSmart is exploring a sale of the organization, the merchant is making acquisitions to grow and diversify its e-commerce channel, said CEO David Lenhardt. PetSmart isn’t releasing many financial details on its purchase of Pet360 such as the company’s annual web sales. But Pet360 operates a diverse number of pet supplies niche sites and has an advanced e-commerce technology platform and pet-related content, PetSmart says.
The Pet360 network is composed of more than nine pet supplies e-commerce sites and reaches more than 12 million pet owners each month, PetSmart says. Pet360, based in Philadelphia, also operates PetMD.com, an information site for pet health information and PetFoodDirect.com, which sells pet food, medications and supplies. Another content feature offered by Pet360 is BlogPaws, a platform for pet bloggers and social media enthusiasts. “This transaction is a smart and efficient way to make PetSmart a leader in the online retail space,” Lenhardt said. “Although online sales are still a relatively small part of the pet products industry, we expect them to become a more relevant source of revenue in the future.”
PetSmart will run Pet360 as a separate business for now but will begin to leverage aspects of the company’s e-commerce technology on PetSmart.com. “Pet360 is more than just pure e-commerce,” Lenhardt told analysts on the company’s year-end earnings call. “This brings us capability and talent from a personalization perspective and they bring an established prescription pharmacy operation to us and in-house digital media team as well as significant online and technology experience.”
For the second quarter ended Aug. 3, PetSmart reported:
- E-commerce sales grew by 25%. PetSmart didn’t release any specific metrics and didn’t include sales from the deal for Pet360, which is expected to close in September.
- Total net sales increased 1.2% to $1.73 billion from $1.71 billion.
- Comparable-store sales, which include e-commerce, declined 0.5%.
- Net income was $98.1 million compared with $93.4 million in the second quarter of 2013.
PetSmart continues to grow its e-commerce base in other ways, Lenhardt told analysts. “We just completed the rollout of mobile devices to all of our stores, which improves the customer experience by enabling our associates to order for us [items] online that are not available in the store,” Lenhardt said. “Buy online and pick up in-store is currently available in 322 stores, increasing customer convenience. Our system-wide rollout is on track to be completed before this coming holiday season.”
Wall Street analysts have conflicting views on the company’s future—and if PetSmart can successfully integrate its acquisition of Pet360. “We are mixed on the Pet360 acquisition as specialty e-commerce companies don’t integrate easily into mature physical retailers although perhaps it’s better than outsourcing digital to eBay,” Wells Fargo wrote in an Aug. 21 research brief about PetSmart. “It’s certainly unique to see an acquisition and strategic alternatives on the same day, in our view.”