EX-99.1 2 p75074exv99w1.htm EX-99.1 exv99w1
 

Exhibit 99.1
FOR IMMEDIATE RELEASE
     CONTACT:
     
 
  Tawni Adams
 
  (623) 587-2686
 
   
 
  PetSmart Media Line
 
  623-587-2177
PETSMART REPORTS RESULTS FOR THE FOURTH QUARTER AND FISCAL 2007
Earnings Per Share of $0.59 for the Fourth Quarter (14 weeks) and $1.95 for the Fiscal Year (53 weeks)
Comparable Store Sales of 0.8 percent for the Fourth Quarter and 2.4 percent for the Fiscal Year
PHOENIX – March 5, 2008 – PetSmart, Inc. (NASDAQ: PETM), today reported net income of $75.4 million, or $0.59 per diluted share, for the fourth fiscal quarter of 2007. That compares with net income of $76.9 million, or $0.56 per diluted share, for the fourth quarter of fiscal 2006. Net income for the fourth quarter of 2007 excluding the 14th week and the costs to exit the State Line Tack business was $0.52 per share.
Net sales for the 14-week fourth quarter of 2007 increased 13.8 percent to $1.33 billion, compared to the 13-week fourth quarter of 2006. The impact of the 14th week on net sales was approximately $90 million. Comparable store sales – or sales in stores open at least a year – grew 0.8 percent in the fourth quarter, on top of 4.6 percent in the same period in 2006. During the 14-week fourth quarter, pet services sales were $123.4 million, up 26.9 percent from the 13-week fourth quarter of last year.
For the quarter, operating income as a percent of sales decreased 120 basis points to 9.8 percent driven by relatively slower top-line growth combined with increased costs associated with expansion and infrastructure investments. Gross margins declined 120 basis points to 31.7 percent of sales which reflected a challenge with leveraging fixed expenses in occupancy and supply chain with a weaker top line. Operating, general and administrative expenses improved 10 basis points to 21.8 percent.
“Like many retailers, we experienced relatively weak traffic and sales trends in the fourth quarter. Our fixed expense structure made it difficult to leverage expenses with the weaker top line,” said Phil Francis, chairman and CEO. “We recognize that if we want to deliver ongoing earnings growth we have to deliver a more balanced approach between the near term economic realities and investing for the future. That means that we will slow our capital spending, focus on consistency and execution in our stores and continue to look for ways to maximize the performance of our current asset base.”
2007 Fiscal Year Results
For all of fiscal 2007, the company reported net income of $258.7 million, or $1.95 per diluted share. That compares with fiscal 2006 net income of $185.1 million, or $1.33 per diluted share. Fiscal 2007 earnings excluding the 53rd week, the benefit for the first quarter MMI transaction and costs associated with the exit of the SLT business were $1.47 per share.
PetSmart generated $4.67 billion in net sales in the 53-week fiscal 2007, up from $4.23 billion in net sales for the 52-week fiscal 2006. Comparable store sales grew 2.4 percent in 2007, on top of 5 percent growth in 2006. For the 53-week fiscal 2007, pet services generated $458.7 million in revenue, or 22 percent growth over the 52-week fiscal 2006.

 


 

Cash Flow and Financial Condition
The company maintained its strong financial position and its flexibility to continue to support long-term growth initiatives. For the year, cash flows from operating activities increased 15 percent to $333 million. Capital expenditures totaled $294 million, higher than last year primarily due to accelerated new store and PetsHotel growth. As of February 3, 2008, the company had cash and cash equivalents of $58 million and long-term debt of $30 million. Merchandise inventories totaled $501 million. Average inventory per store was $497,000, down 7.4 percent when compared to the end of fiscal 2006.
2007 Highlights
  Opened 97, acquired 18 and closed 15 stores
  Opened 35 new PetsHotels
  Opened a replacement distribution center in Newnan, Georgia
  Exited the State Line Tack business
  Sold a portion of shares in MMI Holdings, Inc.
  Purchased 9.8 million shares including 7.0 million shares under an accelerated share repurchase program
  Paid quarterly dividends of $0.03 per share
2008 Guidance
  Total sales growth: High single digits for the first quarter and for the year
  Comparable store sales growth: Flat to low single digits for the first quarter and low single digits for the year
  Operating income percentage: Relatively flat as a percentage of sales for the full year
  Net interest expense: Approximately $15 million per quarter
  Income tax rate: 38 to 39% for both the first quarter and full year
  Earnings per share: In the range of $0.29 to $0.33 for the first quarter and in the range of $1.51 to $1.59 per share for the full year
  Capital expenditures: $285 million or lower
  Net new stores: 100 to 104 for the full year
  PetsHotels: 45 for the full year
Conference call information
     PetSmart management has scheduled a teleconference for 4:30 p.m. (EST) today to discuss results for the fourth quarter and all of 2007 as well as the current outlook. This teleconference will be Web-cast live for all investors at www.petm.com or www.streetevents.com. The Web-cast will be available until the company announces results for the first quarter of 2008. In addition, you can listen to the call live by dialing 866-837-9781 (within the United States and Canada) or 703-639-1419 (for international callers), code 1199006. A phone replay will be available through March 21, 2008, at 888-266-2081 in the United States and Canada, or at 703-925-2533 for international callers, code 1199006.
About PetSmart
     PetSmart, Inc. is the largest specialty pet retailer of services and solutions for the lifetime needs of pets. The company operates more than 1,008 pet stores in the United States and Canada, a growing number of in-store PetsHotel cat and dog boarding facilities, and is a leading online provider of pet supplies and pet care information (www.petsmart.com). PetSmart provides a broad range of competitively priced pet food and pet products; and offers complete pet training, pet grooming, pet boarding, doggie day camp and pet adoption services. Since 1994, PetSmart Charities, Inc., an independent 501(c)(3) non-profit animal welfare organization, has donated more than $52 million to animal welfare programs and, through its in-store pet adoption programs, has saved the lives of more than 3 million pets.

 


 

Forward-looking statements
     This news release contains forward-looking statements including statements relating to future revenue growth and goals, and future business opportunities that involve substantial risks and uncertainties. Such risks and uncertainties include, but are not limited to, general economic conditions, competitive forces and our ability to manage our operations and growth. Actual results and developments may therefore differ materially from those described in this release. For more information about PetSmart, Inc., and risks arising when investing in PetSmart, Inc., you are directed to the company’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Statement of utility
     PetSmart continues to provide all information required in accordance with Generally Accepted Accounting Principles (GAAP), but it believes evaluating its ongoing operating results may be difficult if an investor is limited to reviewing only GAAP financial measures. Accordingly, PetSmart uses non-GAAP financial measures of its performance internally to evaluate its ongoing operations and to allocate resources within the organization.
     PetSmart’s management does not itself, nor does it suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The non-GAAP financial measures used by PetSmart may not be consistent with the presentation of similar companies in PetSmart’s industry. However, PetSmart presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate PetSmart’s operating results in a manner that focuses on what it believes to be its ongoing business operations.
     PetSmart’s management believes it is useful for itself and investors to review both GAAP information and non-GAAP measures of income before income tax expense and equity in income from investee and earnings per share. For the fourth quarter of 2007, the non-GAAP measures exclude the effect of net expense from the exit of the State Line Tack product line and the 53rd week. For the full fiscal year of 2007, the non-GAAP measures exclude the effects of net expenses from the exit of the State Line Tack product line, the 53rd week and the sale of a portion of our shares in MMI Holdings, Inc. in the first quarter of fiscal 2007. PetSmart’s management believes these measures allow investors to have a better understanding of the overall performance of PetSmart’s business and its ability to perform in subsequent periods.
     Management believes the inclusion of these non-GAAP financial measures provides consistency and comparability of financial results and better enables investors to evaluate the ongoing operations and prospects of PetSmart by providing better comparisons. Whenever PetSmart uses such a non-GAAP financial measure, it strives where possible to provide a reconciliation of non-GAAP financial measures to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure.
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PetSmart, Inc. and Subsidiaries
Consolidated Balance Sheets

(in thousands)
Unaudited
                 
    February 3,     January 28,  
    2008     2007  
Assets
               
Cash and cash equivalents
  $ 58,322     $ 148,799  
Short-term investments
          19,200  
Restricted cash and short-term investments
          60,700  
Receivables, net
    49,341       36,541  
Merchandise inventories
    501,212       487,400  
Deferred income taxes
    46,765       39,580  
Prepaid expenses and other current assets
    73,231       51,049  
 
           
Total current assets
    728,871       843,269  
Property and equipment, net
    1,230,770       1,032,421  
Equity investment in affiliate
    23,346       38,065  
Deferred income taxes
    108,544       97,648  
Goodwill
    44,333       14,422  
Intangible assets, net
    1,457       1,156  
Other noncurrent assets
    29,936       26,496  
 
           
Total assets
  $ 2,167,257     $ 2,053,477  
 
           
Liabilities and Stockholders’ Equity
               
Accounts payable and bank overdraft
  $ 172,352     $ 179,638  
Accrued payroll bonus and employee benefits
    132,768       120,801  
Accrued occupancy expenses
    46,955       44,972  
Current maturities of capital lease obligations
    24,982       17,667  
Other current liabilities
    148,832       155,304  
 
           
Total current liabilities
    525,889       518,382  
Long-term debt
    30,000        
Capital lease obligations
    508,765       431,334  
Deferred rents and other noncurrent liabilities
    116,006       102,867  
 
           
Total liabilities
    1,180,660       1,052,583  
 
           
Stockholders’ Equity:
               
Preferred stock; $.0001 par value
           
Common stock; $.0001 par value
    16       16  
Additional paid-in capital
    1,079,190       1,024,630  
Retained earnings
    758,674       516,961  
Accumulated other comprehensive income
    5,585       1,128  
Treasury stock
    (856,868 )     (541,841 )
 
           
Stockholders’ equity
    986,597       1,000,894  
 
           
Total liabilities and stockholders’ equity
  $ 2,167,257     $ 2,053,477  
 
           

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PetSmart, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations

(in thousands, except per share and store data)
(Unaudited)
                                                                 
    Fourteen Weeks Ended     Thirteen Weeks Ended     Fifty-three Weeks Ended     Fifty-two Weeks Ended  
    February 3, 2008     % of Sales     January 28, 2007     % of Sales     February 3, 2008     % of Sales     January 28, 2007     % of Sales  
Net sales
  $ 1,328,434       100.0 %   $ 1,166,909       100.0 %   $ 4,672,656       100.0 %   $ 4,233,857       100.0 %
Cost of sales
    907,943       68.3 %     782,675       67.1 %     3,235,835       69.3 %     2,926,087       69.1 %
 
                                               
Gross profit
    420,491       31.7 %     384,234       32.9 %     1,436,821       30.7 %     1,307,770       30.9 %
Operating, general and administrative expenses
    289,907       21.8 %     255,521       21.9 %     1,085,308       23.2 %     985,936       23.3 %
 
                                               
Operating income
    130,584       9.8 %     128,713       11.0 %     351,513       7.5 %     321,834       7.6 %
Gain on sale of investments
          0.0 %           0.0 %     95,363       2.0 %           0.0 %
Interest expense, net
    (14,381 )     -1.1 %     (8,745 )     -0.7 %     (44,683 )     -1.0 %     (31,717 )     -0.7 %
 
                                               
Income before income tax expense and equity in income from investee
    116,203       8.7 %     119,968       10.3 %     402,193       8.6 %     290,117       6.9 %
Income tax expense
    (40,881 )     -3.1 %     (43,021 )     -3.7 %     (145,180 )     -3.1 %     (105,048 )     -2.5 %
Equity in income from investee, net of tax
    78       0.0 %           0.0 %     1,671       0.0 %           0.0 %
 
                                               
Net income
  $ 75,400       5.7 %   $ 76,947       6.6 %   $ 258,684       5.5 %   $ 185,069       4.4 %
 
                                               
Basic earnings per share
  $ 0.60             $ 0.58             $ 1.99             $ 1.36          
 
                                                       
Diluted earnings per share
  $ 0.59             $ 0.56             $ 1.95             $ 1.33          
 
                                                       
Weighted average shares outstanding — basic
    126,134               133,188               129,851               135,836          
Weighted average shares outstanding — diluted
    128,867               136,928               132,954               139,537          
Stores open at beginning of each period
    992               887               908               826          
Stores opened during each period
    21               22               115               92          
Stores closed during each period
    (5 )             (1 )             (15 )             (10 )        
Stores open at end of each period
    1,008               908               1,008               908          
 
                                                       

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PetSmart, Inc. and Subsidiaries
Reconciliation of non-GAAP to GAAP Measures
                 
    Quarter ended     Fiscal Year ended  
    February 3, 2008     February 3, 2008  
    (in millions)  
GAAP Income before income tax expense and equity in income from investee
  $ 116.2     $ 402.2  
Equine product line exit
    1.4       16.0  
Gain on sale of MMIH stock
          (95.4 )
53rd week
    (16.0 )     (16.0 )
 
           
Adjusted income before income tax expense and equity in income from investee
  $ 101.6     $ 306.8  
 
           
                 
    Quarter ended     Fiscal Year ended  
    February 3, 2008     February 3, 2008  
GAAP Diluted earnings per share
  $ 0.59     $ 1.95  
Equine product line exit
    0.01       0.07  
Gain on sale of MMIH stock
          (0.48 )
53rd week
    (0.08 )     (0.07 )
 
           
Adjusted Diluted earnings per share
  $ 0.52     $ 1.47  
 
           

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