Petsmart, Inc (NASDAQ: PETM) Receives Interest From Jana Partners

On Thursday activist investor Jana Partners LLC announced that it had acquired about a 10% stake in Petsmart, Inc (NASDAQ: PETM). The activist investor said that it plans to discuss with the pet supply retailer about strategic options, such as improving its operating performance to get a significant return of funds back to its shareholders. It also mention about possibly selling the company.

Jana Partners has much experience under its belt with similar partnerships with retailers. It has taken Safeway Inc., a grocery retailer chain, and Outerwall Inc., a movie rental service, under its wing.

The news of Jana Partner’s involvement with the retailer pushed PetSmart shares up 13% to $67.28 on Thursday. Before the news was released, PetSmart shares were sliding, having dropped 18% this past year due to less sales.

However, the years prior to that PetSmart experience growth and rise in stock prices. In 2011 prices of shares rose by 29% and in 2012 they rose 33%, while only rising 6.5% in 2013.

It seems that PetSmarts troubles come from underperforming sales and too much competition from rivals on the web. However, analysts say that the company’s issues problems are greater than just little traffic.

Innovation is key for any business to prosper in today’s market. PetSmart has failed to catch on, and is now at a disadvantage to online retailers such as Wag.com, Amazon.com, and Petco. Less than 1% of PetSmart’s sales come from e-commerce accounts, which shows just how behind and slow the company is compared to more efficient competition.

This year Petsmart increased marketing and promotional efforts to draw customers into its stores. However, it seems the struggle has not paid off. The company reported that its first quarter sales missed their expectations. By the end of the first quarter, the stock price was at $1.04, which was a jump from the $0.98 the previous year. However, its net sales increased by only 1.1% to $1.7 billion. If you don’t count recently opened or closed retail locations, net sales tumbled 0.6%.

After these first quarter stats were announced, PetSmart share prices dropped sharply.

PetSmart is now focusing on expanding into the online retail market. Chief executive officer David Lenhardt stated that he plans to focus on driving traffic to the stores and achieve top line sales growth, while increasing value for company shareholders by managing costs.