Paulson & Co. opens a new position in PetSmart

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New position

Paulson & Co. took a new position in PetSmart, Inc. (PETM) last quarter. The position accounts for 1.21% of Paulson’s third-quarter portfolio.

Barry Rosenstein’s JANA Partners also increased its stake in PetSmart during 3Q14. In July, Market Realist reported JANA’s activist interest in PetSmart.

PETM

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Overview of PetSmart

Based on 2013 net sales of $6.9 billion, PetSmart is North America’s leading specialty provider of products, services, and solutions for the lifetime needs of pets. The company is also a part of the Consumer Discretionary Select Sector SPDR ETF (XLY).

As of August 3, 2014, PetSmart operated 1,352 stores. The company expects to increase its store footprint during the remainder of 2014.

PetSmart stores carry an assortment of high-quality pet supplies at everyday low prices. The retailer sells proprietary and nationally recognized brands across a range of categories. The company offers approximately 12,000 distinct items in its stores and 8,000 additional items on its e-commerce website, PetSmart.com.

PetSmart sees interest from private equity firms

Under pressure from JANA, PetSmart said in August that it was exploring strategic alternatives, including a possible sale. According to “Private-Equity Firms Prepare Bids for PetSmart,” a recent article by Dana Mattioli, Gillian Tan, and Mike Spector that was published in The Wall Street Journal, these private equity firms have expressed interest in the retailer:

  • Apollo Global Management LLC
  • Hellman & Friedman LLC
  • KKR & Co. LP
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Initiates cost-reduction program

PetSmart announced a broad cost-reduction strategy that will target all areas of the business. Here are some of those areas, listed in order of importance:

  • cost of goods sold
  • logistics
  • sourcing
  • store operating costs
  • overhead

The company said it expects to realize savings before the end of fiscal 2015. PetSmart also plans to implement a “profit improvement program designed to fundamentally restructure the cost base” of the company.

PetSmart’s 3Q14 sales

The company’s net sales grew 2.6% to $1.7 billion during the third quarter. Comparable store sales were flat. Earnings of $0.92 were up 4.5% from $0.88 in the same quarter last year.

Paulson & Co.’s other positions in 3Q14

Paulson & Co. added new positions in AbbVie Inc. (ABBV), PetSmart, Inc. (PETM), Alibaba Group Holding Ltd. (BABA), and Taminco Corporation (TAM). The fund also raised positions in Shire plc (SHPG), Covidien plc (COV), and Time Warner Cable Inc. (TWC). Notable exits during the quarter were from Thermo Fisher Scientific Inc. (TMO), Freeport-McMoRan Inc. (FCX), and CBS Corporation (CBS).

The next part of this series will discuss Paulson’s stake addition in Alibaba Group Holding.

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