EX-99.1 2 p72794exv99w1.htm EX-99.1 exv99w1
 

FOR IMMEDIATE RELEASE
CONTACT:
Tawni Doyle
(623) 587-2686
 
PetSmart Media Line
623-587-2177
 
PETSMART REPORTS SECOND QUARTER 2006 RESULTS AND
STOCK PURCHASE PROGRAM
  •   Comp Sales Growth of 4.9 Percent   •   Total Revenues Up 13.5 Percent
 
  •   Services Sales Grow 28 Percent   •   Board Authorizes $250 Million Stock Purchase Plan
PHOENIX – August 15, 2006 – PetSmart, Inc. today reported net income of $34.6 million, or $0.25 per diluted share, for the second fiscal quarter of 2006. That compares with net income of $35.7 million, or $0.24 per diluted share, for the second quarter of fiscal 2005.
     Included in the company’s second quarter 2006 results was approximately $2.9 million, or $0.01 per share, in expenses related to the review of a potential acquisition the company ultimately chose not to pursue. In addition, the company recorded approximately $1.8 million, or $0.01 per share, of distribution expense related to a project to replace racking in our Phoenix distribution center. The re-racking project also created out of stocks in the company’s higher margin hard goods products, resulting in a decrease in gross margins for the quarter.
     During the second quarter of 2006, the company also recorded a pre-tax charge of approximately $3.9 million, or $0.02 per share, for a change in accounting treatment for early pay discounts and recorded an unrelated, one-time tax benefit of approximately $2.5 million or $0.02 per share.
     “The second quarter was a challenging period, but I’m pleased to report that throughout the period, we saw continued evidence of the strength and differentiation of our business model and its ability to continue to draw the pet parent customer,” said Phil Francis, chairman and CEO. “We continue to feel very good about our ongoing ability to gain share and generate long-term value for our shareholders.”
Sales
     Net sales for the second quarter of 2006 were $1.0 billion, compared to $899.1 million for the same period in 2005, and comparable store sales – or sales in stores open at least a year – grew 4.9 percent in the second quarter, on top of 4.2 percent in the second quarter of 2005.
     Pet services sales were $98.1 million, up 28 percent from the same period last year.
     PetSmart opened 22 new stores and closed one location during the second quarter of 2006, which compares with 20 new stores and three closures during the second quarter of 2005.

 

 

Gross margins and expense
     Gross margins were 29.9 percent in the second quarter of 2006, compared with 31.3 percent in the same period in 2005. Included in second quarter gross margins was the $3.9 million charge related to the change in accounting for early pay discounts. The remainder of the decrease was the result of increased occupancy costs, the $1.8 million in additional expenses related to the project to replace racking in the Phoenix distribution center, related distribution issues and out of stock, and incremental shrink expense.
     Operating, general and administrative expenses were 23.8 percent of net sales in the second quarter of 2006, compared with 24.5 percent of net sales in the same period last year. Excluding the expenses related to the review of a potential acquisition the company chose not to pursue, operating, general and administrative expenses were 23.5 percent of sales.
Pre-tax income
     PetSmart generated pre-tax income of 5.2 percent of sales in the second quarter. That compares with 6.3 percent in the second quarter of last year. Excluding the expenses related to the potential acquisition the company chose not to pursue, the expenses related to the rack replacement in the distribution center and the margin impact for the change in accounting treatment for early pay discounts, pre-tax income was 6.0 percent of sales in the second quarter of 2006.
Investments
     PetSmart also announced a plan to accelerate certain investments scheduled for 2007 and 2008 into fiscal 2006.
     “We think it makes sense to invest now in making our business even stronger and more capable of delivering long-term value to our shareholders,” said Francis. “The investments we’re making are focused on building a strong infrastructure and enhancing the company’s ability to grow and gain additional market share.”
     Francis said the investments will result in approximately $7 million, or $0.03 a share, of additional expense, over the second half of fiscal 2006.
Dividend payments
     As previously announced, the company paid a dividend of $0.03 per share on August 11, 2006, to shareholders of record at the close of business on July 7, 2006.
Stock Purchase Program
     The PetSmart board has authorized a $142 million increase to the current Stock Purchase Program to bring the remaining repurchase capacity up to $250 million. The term will be extended to August 9, 2007.
     “With our strong fundamental business and the investments we’re making, we remain confident in our business model, our future prospects, and our ability to generate long-term

 

 

shareholder value,” Francis said. “In addition, we believe in providing our shareholders with a tangible return in the form of dividends and share repurchases.”
Outlook
     PetSmart projects comparable store sales in the mid-single digits for the third quarter of 2006 and for the full year. It estimates earnings of $0.20 to $0.22 per share in the third quarter and projects earnings of $1.30 to $1.33 per share for the full year.
Conference call information
     PetSmart management has scheduled a teleconference for 5:00 p.m. (EST) today to discuss results for the second quarter of 2006 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 third quarter of 2006. In addition, you can listen to the call live by dialing 800-709-7416 (within the United States and Canada) or 706-679-5320 (for international callers), code 1227645. A phone replay will also be available through August 30, 2006, at 800-642-1687 in the United States and Canada, or at 706-645-9291 for international callers, code 1227645.
About PetSmart
     PetSmart, Inc. (NASDAQ: PETM) is the largest specialty pet retailer of services and solutions for the lifetime needs of pets. The company operates more than 850 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; offers complete pet training, pet grooming, pet boarding, doggie day camp and pet adoption services; and provides a full line of horse supplies, including equestrian apparel and tack, through State Line Tack. Since 1994, PetSmart Charities, an independent 501(c)(3) non-profit animal welfare organization, has donated more than $42 million to animal welfare programs and, through its in-store pet adoption programs, has saved the lives of more than 2.6 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 that 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 that 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 earnings per share, as adjusted to exclude the change in accounting treatment for early pay discounts, costs related to the rack replacement in the distribution center, expenses related to the review of a potential acquisition the company ultimately chose not to pursue and a one time tax benefit; operating, general and administrative expenses, as adjusted to exclude expenses related to the review of a potential acquisition the company ultimately chose not to pursue; and pretax income, as adjusted to exclude the change in accounting treatment for early pay discounts, costs related to the rack replacement in the distribution center and, expenses related to the review of a potential acquisition the company ultimately chose not to pursue, 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.
###

 

 

PetSmart, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share and store data)
(Unaudited)
                                                                     
      Thirteen Weeks Ended     Thirteen Weeks Ended     Twenty-Six Weeks Ended     Twenty-Six Weeks Ended    
      July 30, 2006     % of Sales     July 31, 2005     % of Sales     July 30, 2006     % of Sales     July 31, 2005     % of Sales    
                     
 
 
                                                                  
 
Net sales
   $ 1,020,609       100.00 %   $ 899,097       100.00 %   $ 2,032,138       100.00 %   $ 1,802,247       100.00 %  
 
Cost of sales
     715,761       70.13 %     617,360       68.66 %     1,417,211       69.74 %     1,241,131       68.87 %  
                     
 
Gross profit
     304,848       29.87 %     281,737       31.34 %     614,927       30.26 %     561,116       31.13 %  
 
 
                                                                  
 
Operating, general and administrative expenses
     242,868       23.80 %     220,604       24.54 %     478,268       23.54 %     422,184       23.43 %  
                     
 
Operating income
     61,980       6.07 %     61,133       6.80 %     136,659       6.72 %     138,932       7.71 %  
 
 
                                                                  
 
Interest expense, net
     9,320       0.91 %     4,596       0.51 %     16,053       0.79 %     10,095       0.56 %  
                     
 
Income before income tax expense
     52,660       5.16 %     56,537       6.29 %     120,606       5.93 %     128,837       7.15 %  
 
 
                                                                  
 
Income tax expense
     18,030       1.77 %     20,792       2.31 %     44,212       2.18 %     48,383       2.68 %  
                     
 
Net income
   $ 34,630       3.39 %   $ 35,745       3.98 %   $ 76,394       3.76 %   $ 80,454       4.46 %  
                     
 
 
                                                                  
 
Basic earnings per share
   $ 0.25             $ 0.25             $ 0.56             $ 0.57            
 
 
                                                          
 
Diluted earnings per share
   $ 0.25             $ 0.24             $ 0.54             $ 0.54            
 
 
                                                          
 
 
                                                                  
 
Weighted average shares outstanding — basic
     137,667               141,917               137,558               142,304            
 
Weighted average shares outstanding — diluted
     141,237               147,099               141,163               147,639            
 
 
                                                                  
     
 
Stores open at beginning of each period
     842               740               826               726            
 
Stores opened during each period
     22               20               42               36            
 
Stores closed during each period
     (1 )             (3 )             (5 )             (5 )          
 
Stores open at end of each period
     863               757               863               757            
     

 

 

PetSmart, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
                 
    July 30,     January 29,  
    2006     2006  
Assets
                
Cash and cash equivalents
   $ 144,316     $ 110,415  
Short term investments
     246,150       219,900  
Receivables, net
     24,172       36,902  
Merchandise inventories
     415,645       399,413  
Other current assets
     81,067       73,866  
 
            
Total current assets
     911,350       840,496  
 
                
Property and equipment, net
     936,316       857,658  
Deferred income taxes
     89,692       92,092  
Other noncurrent assets
     74,341       73,445  
 
            
Total assets
   $ 2,011,699     $ 1,863,691  
 
            
 
                
Liabilities and Stockholders’ Equity
                
Accounts payable
   $ 177,096     $ 155,424  
Other current liabilities
     283,986       294,747  
Current portion capital lease obligations
     15,356       12,559  
 
            
Total current liabilities
     476,438       462,730  
 
                
Capital lease obligations
     401,246       351,564  
Other noncurrent liabilities
     106,492       108,647  
 
            
 
                
Total liabilities
     984,176       922,941  
 
                
Stockholders’ equity
     1,027,523       940,750  
 
            
 
                
Total liabilities and stockholders’ equity
   $ 2,011,699     $ 1,863,691  
 
            

 

 

PetSmart, Inc. and Subsidiaries
Reconciliation of non-GAAP to GAAP Measures
(In thousands, except per share data)
(Unaudited)
                                                                 
    Thirteen Weeks Ended July 30, 2006  
                    Reconciling Items        
                                            Costs related to        
                    Early pay discount             Acquisition review     distribution center        
    As Reported (GAAP)     change     Tax benefit     expenses     re-racking     Non-GAAP  
Net sales
   $ 1,020,609       100.00 %   $ —     $ —     $ —     $ —     $ 1,020,609       100.00 %
Cost of sales
     715,761       70.13 %     (3,922 )     —       —       (1,792 )     710,047       69.57 %
                                               
 
                                                                
Gross profit
     304,848       29.87 %     3,922       —       —       1,792       310,562       30.43 %
 
                                                                
Operating, general and administrative expenses
     242,868       23.80 %     —       —       (2,939 )     —       239,929       23.51 %
                                               
 
                                                                
Operating income
     61,980       6.07 %     3,922       —       2,939       1,792       70,633       6.92 %
 
                                                                
Interest expense, net
     9,320       0.91 %     —       —       —       —       9,320       0.91 %
                                               
 
                                                                
Income before income tax expense
     52,660       5.16 %     3,922       —       2,939       1,792       61,313       6.01 %
 
                                                                
Income tax expense
     18,030       1.77 %     1,506       2,518       1,129       688       23,871       2.34 %
                                               
 
                                                                
Net income
   $ 34,630       3.39 %   $ 2,416     $ (2,518 )   $ 1,810     $ 1,104     $ 37,442       3.67 %
                                           
 
                                                                
Basic earnings per share
   $ 0.25                                             $ 0.27          
Diluted earnings per share
   $ 0.25                                             $ 0.27          
 
                                                                
Weighted average shares outstanding — basic
     137,667                                               137,667          
Weighted average shares outstanding — diluted
     141,237                                               141,237          

 

 

PetSmart, Inc. and Subsidiaries
Reconciliation of non-GAAP to GAAP Measures
(In thousands, except per share data)
(Unaudited)
                                                                 
    Twenty-Six Weeks Ended July 30, 2006  
                    Reconciling Items        
                                            Costs related to        
                    Early pay discount             Acquisition review     distribution center        
    As Reported (GAAP)     change     Tax benefit     expenses     re-racking     Non-GAAP  
Net sales
   $ 2,032,138       100.00 %   $ —     $ —     $ —     $ —     $ 2,032,138       100.00 %
Cost of sales
     1,417,211       69.74 %     (3,922 )     —       —       (1,792 )     1,411,497       69.46 %
                                           
 
                                                                
Gross profit
     614,927       30.26 %     3,922       —       —       1,792       620,641       30.54 %
 
                                                                
Operating, general and administrative expenses
     478,268       23.54 %     —       —       (2,939 )     —       475,329       23.39 %
                                           
 
                                                                
Operating income
     136,659       6.72 %     3,922       —       2,939       1,792       145,312       7.15 %
 
                                                                
Interest expense, net
     16,053       0.79 %     —       —       —       —       16,053       0.79 %
                                           
 
                                                                
Income before income tax expense
     120,606       5.93 %     3,922       —       2,939       1,792       129,259       6.36 %
 
                                                                
Income tax expense
     44,212       2.18 %     1,506       2,518       1,129       688       50,053       2.46 %
                                           
 
                                                                
Net income
   $ 76,394       3.76 %   $ 2,416     $ (2,518 )   $ 1,810     $ 1,104     $ 79,206       3.90 %
                                           
 
                                                                
Basic earnings per share
   $ 0.56                                             $ 0.58          
Diluted earnings per share
   $ 0.54                                             $ 0.56          
 
                                                                
Weighted average shares outstanding — basic
     137,558                                               137,558          
Weighted average shares outstanding — diluted
     141,163                                               141,163          

 

 

PetSmart, Inc. and Subsidiaries
Reconciliation of non-GAAP to GAAP Measures
(In thousands, except per share data)
(Unaudited)
                                         
    Twenty-Six Weeks Ended July 31, 2005  
                    Reconciling Items        
    As Reported (GAAP)     Legal settlement     Non-GAAP  
Net sales
   $ 1,802,247       100.00 %   $ —     $ 1,802,247       100.00 %
Cost of sales
     1,241,131       68.87 %     —       1,241,131       68.87 %
               
 
                                        
Gross profit
     561,116       31.13 %     —       561,116       31.13 %
 
                                        
Operating, general and administrative expenses
     422,184       23.43 %     8,500       430,684       23.90 %
               
 
                                        
Operating income
     138,932       7.71 %     (8,500 )     130,432       7.24 %
 
                                        
Interest expense, net
     10,095       0.56 %     —       10,095       0.56 %
               
 
                                        
Income before income tax expense
     128,837       7.15 %     (8,500 )     120,337       6.68 %
 
                                        
Income tax expense
     48,383       2.68 %     (3,273 )     45,110       2.50 %
               
 
                                        
Net income
   $ 80,454       4.46 %   $ (5,227 )   $ 75,227       4.17 %
               
 
                                        
Basic earnings per share
   $ 0.57                     $ 0.53          
Diluted earnings per share
   $ 0.54                     $ 0.51          
 
                                        
Weighted average shares outstanding — basic
     142,304                       142,304          
Weighted average shares outstanding — diluted
     147,639                       147,639