Founded in 1986, PetSmart, Inc. is the largest retail chain operating in the U.S., Canada, and Puerto Rico. The company not only offers a broad range of pet products, it also offers in-store services including boarding, pet adoption, grooming and training.
While PetSmart is one of the leading online providers of pet supplies and pet care information, same-store sales for the $6.8 billion pet-care company fell last quarter for the first time in about a decade as competition with Amazon.com Inc. and other retailers increase.

A declining share price and the same-store sales fall can appear as early warning signs to activist investors who target undervalued companies to shake them up. Jana Partners LLC and Longview Asset Management LLC own almost 20% of PetSmart and are calling for a sale.

According to John Tomlinson, a New York-based analyst at ITG Investment Research, “PetSmart has gone from a retail darling to where it is now. This company is far from being in any sort of dire straits, but it’s just that the change happened relatively quickly and people are worried that if they don’t get more aggressive, the business could deteriorate further. There’s probably a lot of discussion going on about what the best alternatives for the company would be.”
Still, PetSmart has a lot going for them as they consider possibilities as a result of the company’s recent decline in sales. Their high free-cash flow yield and low debt relative to earnings open up several ways to boost returns, according to shareholder Olstein Funds.
Aside from the leverage buyout (LBO) option, PetSmart may also consider a merger with Petco. A merger with Petco, as either the buyer or seller, can boost the stock into the $80 range, while an LBO could take place in the mid to high $70s, said Daniel Johnson, of River Road Asset Management LLC. (River Road Asset Managment oversees about $10 billion and owns PetSmart shares.)
As of Tuesday, PetSmart has stated it would explore a potential sale of the company, caving to pressure from several shareholders.