Activist investor Jana Partners has reiterated its call for PetSmart to consider a sale, saying it was “stunned” by recent reports that suggest the retailer’s board was instead considering moves to return capital to shareholders.
Jana, which earlier this month disclosed a 9.8% stake in the pet supplies retailer, has called on the company’s board to consider strategic alternatives including a possible sale. The investor has claimed PetSmart’s returns to shareholders have badly lagged its peers, and thus believes a sale would offer a better return to shareholders rather than allow current management to run the business.
But PetSmart (PETM) has signaled it doesn’t agree with Jana’s view. PetSmart earlier this month said it was “reviewing” ways of changing its capital structure with a focus on returning capital to shareholders. On Tuesday, a PetSmart representative said its board and management team “welcomes the views of its shareholders.”
“PetSmart’s board and management are committed to acting in the best interests of the company and all PetSmart shareholders and will continue to take actions to achieve this important objective,” the representative said in a prepared statement.
The pet industry is a large and sprawling market worth an estimated $55.5 billion, according to the American Pet Products Association. And PetSmart can court many U.S. Consumers with its products as a significant majority of U.S. Households own a pet. PetSmart has reported higher sales and net income in recent years, though net sales and same-store sales growth for the latest fiscal year ended February 2 were at the slowest pace in the past four years. Results also weakened in the fiscal first quarter of this year, with same-store sales falling 0.6% as the number of transactions decreased. The company faces many challenges as e-commerce competitors pop up and discount and warehouse clubs are among the retailers that sell pet supplies.
Jana believes PetSmart’s board “bears ultimate responsibility” for a failure to develop a strong e-commerce presence and moved slowly to build more smaller format stores. Other areas of concern involving pricing and a failure to work with vendors to develop new products, Jana has said. Meanwhile, other investors seem to agree with Jana’s thesis. Shortly after the activist investor disclosed a stake in PetSmart, Longview Asset Management — whose clients own about 9% of PetSmart’s shares — recommended the company’s board consider a sale.