PetSmart Reports Results for the Third Quarter 2012

Q3 Earnings up 50% to $0.75 per Share; Comp Sales of 6.5%; Total Sales up 9%; Comp Transactions up 2.3%; Chip Molloy, Executive Vice President and Chief Financial Officer, Will Be Resigning in Early 2014

PHOENIX--()--PetSmart, Inc. (NASDAQ: PETM) today reported earnings of $0.75 per share, up 50% compared to $0.50 per share in the third quarter of 2011. Net income totaled $82 million in the third quarter of 2012, compared to $56 million in the third quarter of 2011.

Total sales for the third quarter of 2012 increased 9% to $1.6 billion. The increase in net sales was partially impacted by $1 million in favorable foreign currency fluctuations. Comparable store sales, or sales in stores open at least a year, grew 6.5%, benefitting from comparable transactions growth of 2.3%. Services sales, which are included in total sales, grew 8% to $175 million.

During the third quarter, the company generated $133 million in operating cash flow, spent $40 million in capital expenditures, distributed $18 million in dividends, and repurchased $60 million of PetSmart stock. The company ended the quarter with $370 million in cash, cash equivalents and restricted cash and zero borrowings on its credit facility.

“Our performance in the third quarter was due to strength across all three merchandising categories, as well as across services,” said Bob Moran, Chairman and Chief Executive Officer. “We are executing well, and continue to define the pet specialty customer experience.”

“As a reminder, 2012 contains a 53rd week. For all of 2012, we anticipate comparable store sales growth of 6% to 7%, and total sales growth in the 10% to 11% range. We are raising our earnings per share guidance from a previous range of $3.30 to $3.40, to our current expectations of $3.47 to $3.51. The impact of the extra week is estimated to be $120 million in sales and $0.16 in EPS,” said Chip Molloy, Executive Vice President and Chief Financial Officer. “For the fourth quarter of 2012, we are expecting comparable store sales growth in the mid-single digit range, and earnings per share between $1.16 and $1.20, including the impact of the extra week.”

The company also announced that Chip Molloy, Executive Vice President and Chief Financial Officer, will be resigning in early 2014, to allow him to spend more time with his family, who now live in the southeast. Mr. Molloy will continue as Executive Vice President and Chief Financial Officer until June 2013, and will remain with the company as a special advisor until March 2014. “Chip has been an invaluable member of our management team over the past five years, and has been instrumental in designing a framework and creating a culture within the company that consistently pushes us to always consider our shareholders,” said Mr. Moran. “It is this foundation of focus and discipline that has contributed to our success over the past four years, and will remain a key pillar of our strategy well into the future.”

Conference call information

PetSmart management has scheduled a teleconference for 4:30 p.m. EST on November 14, 2012 to discuss results for the third quarter 2012. This teleconference will be webcast live for all investors at www.petm.com. The webcast will be available until the company announces results for the fourth quarter of 2012. In addition, you can listen to the call live by dialing 866-814-1933 (within the United States and Canada) or 703-639-1365 (for international callers), code 1596112.

A phone replay will be available through December 14, 2012, 11:59 p.m. EST, at 888-266-2081 in the United States and Canada, or at 703-925-2533 for international callers, code 1596112.

About PetSmart

PetSmart, Inc. (NASDAQ: PETM) is the largest specialty pet retailer of services and solutions for the lifetime needs of pets. The company employs approximately 50,000 associates and operates more than 1,269 pet stores in the United States, Canada and Puerto Rico, over 195 in-store PetSmart® PetsHotel® dog and cat boarding facilities and is a leading online provider of pet supplies and pet care information (http://www.petsmart.com). PetSmart provides a broad range of competitively priced pet food and pet products; and offers dog training, pet grooming, pet boarding, PetSmart Doggie Day CampSM day care services and pet adoption services. Since 1994, PetSmart Charities, Inc., an independent 501(c)(3) non-profit animal welfare organization and the largest funder of animal welfare efforts in North America, has provided more than $165 million in grants and programs benefiting animal welfare organizations. Through its in-store pet adoption partnership with PetSmart Charities®, PetSmart has helped save the lives of more than 5 million pets.

Forward-looking statements

This news release contains forward-looking statements concerning our expectations for future performance, including the statements comprising our 2012 guidance. These "forward-looking statements" are based on currently available information, operating plans and projections about future events and trends. They inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements. Such risks and uncertainties include, but are not limited to: changes in general economic conditions; conditions affecting customer transactions and average ticket including, but not limited to, weather conditions or other seasonal events; our ability to compete effectively; disruption of our supply chain; our ability to effectively manage our growth and operations; changes in our cost structure; and changes in the legal or regulatory environment. Undue reliance should not be placed on such forward-looking statements as they speak only as of the date hereof, and we undertake no obligation to update these statements to reflect subsequent events or circumstances except as may be required by law. For additional information on these and other factors that arise when investing in PetSmart, please see our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K.

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PetSmart, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share and store data)
(Unaudited)
                                       
Thirteen Weeks Ended Thirteen Weeks Ended Thirty-Nine Weeks Ended Thirty-Nine Weeks Ended
October 28, 2012     % of Sales October 30, 2011     % of Sales October 28, 2012     % of Sales October 30, 2011     % of Sales
 
Merchandise sales $ 1,444,683 88.7 % $ 1,326,819 88.6 % $ 4,303,625 88.2 % $ 3,941,641 88.1 %
Services sales 175,018 10.7 % 161,339 10.8 % 546,899 11.2 % 506,380 11.3 %
Other revenue   9,810       0.6 %   9,399       0.6 %   28,547       0.6 %   27,455       0.6 %
 
Net sales   1,629,511       100.0 %   1,497,557       100.0 %   4,879,071       100.0 %   4,475,476       100.0 %
 
Cost of merchandise sales 1,008,278 61.9 % 940,960 62.8 % 2,989,671 61.3 % 2,777,172 62.1 %
Cost of services sales 128,911 7.9 % 119,038 8.0 % 392,152 8.0 % 364,290 8.1 %
Cost of other revenue   9,810       0.6 %   9,399       0.6 %   28,547       0.6 %   27,455       0.6 %
 
Total cost of sales   1,146,999       70.4 %     1,069,397       71.4 %   3,410,370       69.9 %     3,168,917       70.8 %
 
Gross profit 482,512 29.6 % 428,160 28.6 % 1,468,701 30.1 % 1,306,559 29.2 %
 
Operating, general and administrative expenses   342,958       21.0 %   326,964       21.8 %   1,038,736       21.3 %   973,404       21.7 %
 
Operating income 139,554 8.6 % 101,196 6.8 % 429,965 8.8 % 333,155 7.4 %
 
Interest expense, net   (13,375 )     -0.8 %   (14,038 )     -0.9 %   (41,054 )     -0.8 %   (42,740 )     -1.0 %
 

Income before income tax expense and equity income from Banfield

126,179 7.8 % 87,158 5.8 % 388,911 8.0 % 290,415 6.5 %
 
Income tax expense (48,335 ) -3.0 % (33,826 ) -2.3 % (144,840 ) -3.0 % (110,356 ) -2.5 %
 
Equity income from Banfield   4,472       0.3 %   2,826       0.2 %   11,448       0.2 %   8,184       0.2 %
 
Net income $ 82,316       5.1 % $ 56,158       3.7 % $ 255,519       5.2 % $ 188,243       4.2 %
 
Earnings per common share:
Basic $ 0.76   $ 0.50   $ 2.36   $ 1.67  
Diluted $ 0.75   $ 0.50   $ 2.32   $ 1.65  
 
Weighted average shares outstanding:
Basic 107,719 111,330 108,303 112,425
Diluted 109,333 113,081 110,117 114,399
                                                         
Stores open at beginning of each period 1,249 1,197 1,232 1,187
Stores opened during each period 24 15 49 28
Stores closed during each period   (4 )   (2 )   (12 )   (5 )
Stores open at end of each period         1,269                 1,210                 1,269                 1,210        
 
 
 
PetSmart, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except par value)
(Unaudited)
                 
October 28, January 29, October 30,
2012 2012 2011
 
Assets
Cash and cash equivalents $ 298,090 $ 342,892 $ 271,252
Short-term investments 13,862 20,311 19,555
Restricted cash 71,916 70,189 61,439
Receivables, net 49,811 53,899 65,709
Merchandise inventories 765,831 644,864 707,997
Deferred income taxes 51,381 51,381 44,999
Prepaid expenses and other current assets   111,164     80,352     88,908  
 
Total current assets 1,362,055 1,263,888 1,259,859
 
Property and equipment, net 997,361 1,067,028 1,064,993
Equity investment in Banfield 35,412 37,824 35,082
Deferred income taxes 85,308 93,485 95,426
Goodwill 44,248 44,084 44,266
Other noncurrent assets   44,623     37,775     34,336  
 
Total assets $ 2,569,007   $ 2,544,084   $ 2,533,962  
 
Liabilities and Stockholders' Equity
Accounts payable and bank overdraft $ 266,708 $ 199,177 $ 228,431
Accrued payroll, bonus and employee benefits 161,030 158,079 149,032
Accrued occupancy expenses and deferred rents 74,106 68,584 72,563
Current maturities of capital lease obligations 60,023 54,219 52,446
Other current liabilities   181,381     201,247     169,733  
 
Total current liabilities 743,248 681,306 672,205
 
Capital lease obligations 475,552 505,273 511,984
Deferred rents 75,948 81,403 82,565
Other noncurrent liabilities   117,248     122,273     121,068  
 
Total liabilities   1,411,996     1,390,255     1,387,822  
 
Stockholders' Equity:
Preferred stock; $.0001 par value - - -
Common stock; $.0001 par value 17 16 16
Additional paid-in capital 1,393,158 1,312,996 1,290,152
Retained earnings 1,711,574 1,507,054 1,420,471
Accumulated other comprehensive income 5,600 5,490 5,731
Less: Treasury stock   (1,953,338 )   (1,671,727 )   (1,570,230 )
 
Total stockholders' equity   1,157,011     1,153,829     1,146,140  
 
Total liabilities and stockholders' equity $ 2,569,007   $ 2,544,084   $ 2,533,962  

Contacts

PetSmart, Inc.
Investor Relations, 623-587-2025

Release Summary

PetSmart Reports Results for the Third Quarter 2012; Q3 Earnings up 50% to $0.75 per Share; Comp Sales of 6.5%; Chip Molloy, Executive Vice President and Chief Financial Officer resigning in 2014

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Contacts

PetSmart, Inc.
Investor Relations, 623-587-2025