PetsMart buys Petstuff; $100 million in stock used for purchase

Discount Store News, Feb 20, 1995

PHOENIX - Continuing to solidify its dominance in pet food superstores, PetsMart has agreed to buy out yet another competitor, Petstuff, paying with about $100 million worth of its stock.

Based in Atlanta, Petstuff was an unabashed knockoff in 1992 of the pet food and accessories concept that PetsMart pioneered in 1987. Petstuff will add 56 units to PetsMart's already large store count of 180.

In addition to the acquisition, PetsMart plans to open 40 more stores in 95, which indicates a year-end count of about 276.

Last year, PetsMart acquired the 29 units of Columbus, Ohio-based Petzazz, another pet food megastore chain, for 179.9 million in stock, giving it market dominance in the Midwest.

With the Petstuff acquisition, PetsMart will gain a major presence in the East, as well as a toehold in Canada, where Petstuff operates four stores in the Toronto area.

The acquisition eliminates head-to-head competition in three markets, Atlanta, Baltimore, and Charlotte, N.C., as well as giving PetsMart entry into four new markets. Besides Canada, the new markets include South Florida, upper New York state and Philadelphia.

The Philadelphia stores will complement the PetsMart units in Pittsburgh and other Pennsylvania markets.

Similarly, the Petzazz acquisition eliminated competition in Chicago, a market that PetsMart was just entering.

PetsMart's strength has been in the West, Midwest and South, particularly California where it operated 27 stores, followed by Texas, 21; Arizona, 12; Florida, eight; and Colorado, also eight.

On the East Coast, and in California, the only major competition PetsMart faces will come from Petco, which is shifting from stores of about 3,500 sq. ft. to its version of the megastore at about 10,000 sq. ft. San Diego-based Petco operates six stores in New Jersey and one or two each in Maryland, New York, Pennsylvania, Virginia and the District of Columbia, as well as on the West Coast.

In announcing the deal, PetsMart chairman and ceo Sam Parker said, The merger provides a great opportunity for two companies with compatible operating policies and philosophies to provide superior care, products and services for the pet owners in several major geographic areas of the country.

The deal hinges on approval by Petstuff shareholders, as well as a government nod under the Hart-Scott-Rodino Act. PetsMart expects to close the deal within 90 days. Actual price paid depends on the value of PetsMart stock, now at $38 per share, on the day of closing.

For'95, PetsMart reported a 63% increase in consolidated sales, including Petzazz revenues, to $601 million from $369.4 million in'93. Same store sales rose 19.1%. Earnings are not yet available.

For its fourth quarter ended Jan. 29, 1995, PetsMart reported a 54% gain in consolidated sales to $187.7 million from $121.7 million in the year-earlier period. Same store sales for the quarter rose 20%.

Petstuff opened its first store averaging 20,000 sq. ft. in September 1992 and went public in November 1993 with a $5 million tax loss carryover.

PetsMart opened its first store in '87 and went public in July '93. Its stores average 25,000 sq. ft. with 7,500 skus.

But recently PetsMart has been opening 18,000-sq.-ft stores with the same merchandise mix as its larger units, so the smaller size of the Petstuff stores will present no problem in converting them.

Along with food and accessories, PetsMart also offers services such as in-store grooming, obedience classes and veterinary clinics under a lease program, and pet adoption services through various Humane Societies.

Pet food is an $8.5 billion industry. Including accessories and small animal vet services, the total market approaches $13 billion.