PetSmart shares jump on better-than-expected 1Q

On Wednesday, PetSmart said first-quarter profit fell 61 percent as the gains from a stock sale came off the books, but its results were better than analysts expected. Revenue rose 9 percent to $1.2 billion, helped by price inflation and a 22 percent surge in pet services sales.

Banc of America Securities analyst David Strasser affirmed the company's "Buy" rating, saying that the company's 2.9 percent same-store sales growth was "surprisingly strong" in light of the difficult consumer spending environment.

Same-store sales, or sales at stores open at least a year, is a key indicator of retailer performance because it measures growth at existing stores rather than newly opened ones.

Analysts noted that price inflation helped drive results during the quarter.

"Significant price inflation should help PetSmart sustain positive same-store sales for the balance of the year. That said, margin could be at risk should consumers begin to push back at all as the spending slowdown progresses," said Wachovia Capital Markets analyst Peter Benedict.

Deutsche Bank analyst Mike Baker, who assigned a "Buy" rating to the stock, noted customers do not appear to be trading down to cheaper brands of pet food. "In fact, we believe that PetSmart's premium food is increasing as a percent of its total food," he said.

Baker also noted that strong growth in PetSmart's services division, the company's highest-margin business, indicates that consumers are still boarding and grooming their pets despite the slow economy.

However, Stifel Nicolaus & Co. David Schick, who rated the shares "Hold," said that slowing training spending may be an early sign of weakness. He expects discretionary spending to deteriorate further, which may put the company's guidance at risk.

Oppenheimer & Co. analyst Vivian Ma, who gave the stock a "Perform" rating, was also less optimistic than others, noting that store traffic was still down year-over-year. "We see more risks to traffic from rising gas prices as we enter peak driving season," she said.