PETS reported Q3 EPS of .19/share vs. estimates of .16/share and .20/share last year. Revenues were $50.5M vs estimates of $44.7M and 12% higher than last year’s Q3 sales of $45.1M.. They acquired 150,000 new customers in the latest quarter, and saw reorders increase by 8% for the quarter YoY.

The company repurchased 118,000 shares during the quarter for approximately $1M.

If there is one complaint – and there shouldn’t be – it is that margins were squeezed due to aggressive pricing and higher ad spending. As I pointed out in my original write up http://www.chasingbrucegreenwald.com/2011/11/30/the-stock-has-fleas-but-the-business-doesnt-pets/, the company can still generate impressive returns on equity with tightened margins.

The stock traded up as much as 20% this morning as the 24% short interest scrambled to cover. While part of me was tempted to sell above $13 and lock in some profit, I have decided not to.

PETS is still a short term hold for me, and I am under invested as it is. I don’t see a need to generate a tax event only to sit in cash when PETS is yielding almost 5% for me.

My original thesis was that the market had over reacted to increased competition from online upstarts and big box retailers, and that the vets (with 67% of the market) would be the real losers of market share, not PETS.

That thesis remains intact, and while margins have contracted, the business remains able to generate high returns.