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| PetSmart Reports Fiscal 2006 Results |
PHOENIX--(BUSINESS WIRE)--Feb. 28, 2007--PetSmart, Inc. (NASDAQ:
PETM)
-- Earnings of $1.33 per Share
-- Comp Sales Growth of 5 Percent
-- Services Sales Up 26 Percent
PetSmart, Inc. (NASDAQ: PETM) today reported net income of $76.9 million, or $0.56 per diluted share for the fiscal fourth quarter of 2006. That compares with net income of $70.9 million, or $0.50 per diluted share, for the fourth quarter of fiscal 2005. The fourth quarter of 2006 included tax benefits of $2.5 million, or approximately $0.02 per share, primarily related to the release of tax reserves as a result of a state settlement and the recognition of credits from a change in tax law. The fourth quarter of 2005 included a benefit from a credit card settlement and a stock-based compensation adjustment. Excluding these amounts, the company's earnings per diluted share were $0.54 in the fourth quarter of 2006 and $0.47 in the fourth quarter of 2005. For all of fiscal 2006, the company reported net income of $185.1 million, or $1.33 per diluted share. Fiscal 2006 included tax benefits, which were fully offset by previously disclosed costs related to an acquisition the company chose not to pursue, distribution costs for a re-racking project, and a change in accounting practice for early pay discounts. Excluding those amounts, earnings per diluted share were $1.33 in fiscal 2006. That compares with fiscal 2005 net income of $182.5 million, or $1.25 per diluted share. Fiscal 2005 included the fourth quarter credit card rate settlement and stock-based compensation expense benefits, as well as a legal settlement in the first quarter and tax adjustments in the third quarter. Excluding those items, fiscal 2005 earnings per share were $1.17. "Throughout 2006, we saw continued evidence of the resilience of our model, its strong differentiation, and its ability to attract the pet parent customer," said Phil Francis, chairman and CEO. "We're entering 2007 on solid footing and in a good position to take advantage of the opportunities before us." Plan to exit the State Line Tack horse business PetSmart also announced its plans to exit the State Line Tack horse business, which includes 180 departments inside PetSmart stores, and to reallocate the space for higher-margin pet products or PetsHotels. It is also exploring strategic opportunities for its State Line Tack horse catalog and e-commerce operation. The State Line Tack horse business represented about two percent of PetSmart's sales in 2006. "The horse business operates quite differently than our core pet business, attracts a different customer, and doesn't perform as well. Exiting the State Line Tack business is an investment in the company's strategy and our long-term profitability. We expect it to be meaningfully accretive to earnings beginning in 2008," Francis said. MMI Holdings, Inc., stock transaction PetSmart also announced an agreement to increase its portion of the voting shares of MMI Holdings, Inc. (MMI), the third-party operator of PetSmart's in-store Banfield veterinary hospitals, which will result in PetSmart accounting for its share in MMI using the equity method of accounting. As part of that agreement, PetSmart will sell a portion of its shares in MMI to Mars, Incorporated, the owner of the largest portion of MMI. During the first quarter of 2007, PetSmart expects to record a net benefit of approximately $64 million from the stock sale. "This transaction supports the interests of both PetSmart and our veterinary partners," Francis said, "We expect it to drive good value for our shareholders, to further strengthen our relationship with MMI and to even more closely align Banfield's veterinary services with our stores and our Total Lifetime Care proposition." Sales Net sales for the fourth quarter of 2006 were $1.17 billion, compared to $1.05 billion for the same period in 2005, and comparable store sales - or sales in stores open at least a year - grew 4.6 percent in the fourth quarter, on top of 4.5 percent in the fourth quarter of 2005. PetSmart generated $4.23 billion in net sales in 2006, up from $3.76 billion in net sales a year ago. Comparable store sales grew 5.0 percent in 2006, on top of 4.2 percent growth in 2005. During the fourth quarter, pet services sales were $97.2 million, up 22 percent from the same period last year. For the full year, pet services generated $376.0 million in revenue, or 26 percent growth over 2005. PetSmart opened 22 new stores and closed one location during the fourth quarter of 2006, which compares with 36 new stores and one closure during the fourth quarter of 2005. During 2006, the company opened 92 new stores and closed 10 locations, compared with 107 new stores and seven closures in 2005. Gross margins and expense Gross margins were 32.9 percent in the fourth quarter of 2006, compared with 33.2 percent in the same period in 2005. Gross margins for all of 2006 were 30.9 percent, compared with 31.2 percent in the previous year. Excluding the items listed above, gross margins were 31.1 percent for all of fiscal 2006. Operating, general and administrative expenses were 21.9 percent of net sales in the fourth quarter of 2006, compared with 21.6 percent in the fourth quarter of 2005. Excluding the items listed above, operating, general and administrative expenses were 22.0 percent of net sales in the fourth quarter of 2005. For all of 2006, operating, general and administrative expenses were 23.3 percent of net sales, compared with 22.9 percent in 2005. Excluding the items listed above, operating, general and administrative expenses were 23.2 percent of net sales in 2006, compared with 23.3 percent in 2005. Pre-tax income PetSmart generated pre-tax income of 10.3 percent of sales in the fourth quarter and 6.9 percent of sales for all of 2006. That compares with 11.0 percent and 7.7 percent for the comparable periods last year. Excluding the various items described above, pre-tax income was 10.3 percent in the fourth quarter and 7.1 percent for all of 2006, compared to 10.6 percent in the fourth quarter of 2005 and 7.3 percent for all of 2005. Share purchases and dividend payments PetSmart purchased approximately 1.3 million of its shares at an average price of $28.98 during the fourth quarter of 2006. For all of 2006, PetSmart purchased 6.3 million shares at an average price of $25.83. At the end of the fourth quarter, the company had $90 million remaining on its current authorization, which extends through August 9, 2007. As previously announced, the company paid a dividend of $0.03 per share on February 9, 2007, to shareholders of record at the close of business on January 26, 2007. Outlook PetSmart projects comparable store sales in the low- to mid-single digits for the first quarter of 2007 and in the mid-single digits for the full year. PetSmart estimates earnings of $0.73 to $0.74 per share in the first quarter which includes $0.07 per share in estimated expense to exit the State Line Tack business. Also included is $0.47 per share of expected benefit related to the MMI stock transaction as well as about a half a cent per share of expected benefit for the change to equity accounting for the investment in MMI. For the full year PetSmart expects earnings of $2.03 to $2.05 per share which includes approximately $0.12 in expenses to exit the State Line Tack business. In addition, the MMI stock transaction is expected to add $0.47 per share of benefit, while the change to equity accounting for the investment in MMI should be a benefit of $0.02 per share. Also included is the benefit of a 53rd week of sales in 2007 which is estimated at $0.08 per share. Conference call information PetSmart management has scheduled a teleconference for 4:30 p.m. (EST) today to discuss results for the fourth 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 first quarter of 2007. 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 5559489. A phone replay will also be available through March 13, 2007, at 800-642-1687 in the United States and Canada, or at 706-645-9291 for international callers, code 5559489. 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 908 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 $42 million to animal welfare programs and, through its in-store pet adoption programs, has saved the lives of more than 2.8 million pets. Forward-looking statements This news release contains forward-looking statements including statements relating to future revenue growth and goals, our expectations regarding strategic opportunities for our State Line Tack horse catalog and e-commerce operation, our expectations with respect to our investment in MMI 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, our ability to successfully exit the State Line Tack business, the completion of the MMI transaction 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, and the related impacts on gross margins, operating, general and administrative expenses and pretax income as adjusted. For fiscal 2006, these non-GAAP measures exclude the effect of a change in accounting treatment for early pay discounts, costs related to a rack replacement in the distribution center, expenses related to the review of an acquisition the company ultimately chose not to pursue and tax benefits. For fiscal 2005, these non-GAAP measures exclude the effect of a legal settlement gain, a credit card settlement gain, a stock compensation adjustment and tax adjustments. PetSmart's management believes that 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.
PetSmart, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share and store data)
(Unaudited)
Thirteen Weeks Thirteen Weeks
Ended Ended
-------------------- --------------------
January 28, % of January 29, % of
2007 Sales 2006 Sales
-------------------- -------------------
Net sales $1,166,909 100.00% $1,050,589 100.00%
Cost of sales 782,675 67.07% 702,249 66.84%
-------------------- -------------------
-
Gross profit 384,234 32.93% 348,340 33.16%
Operating, general and
administrative expenses 255,521 21.90% 226,531 21.56%
-------------------- -------------------
-
Operating income 128,713 11.03% 121,809 11.59%
Interest expense, net 8,745 0.75% 6,331 0.60%
-------------------- -------------------
-
Income before income tax
expense 119,968 10.28% 115,478 10.99%
Income tax expense 43,021 3.69% 44,575 4.24%
-------------------- -------------------
Net income $76,947 6.59% $70,903 6.75%
==================== ===================
Basic earnings per share $0.58 $0.51
=========== ===========
Diluted earnings per share $0.56 $0.50
=========== ===========
Weighted average shares
outstanding - basic 133,188 137,974
Weighted average shares
outstanding - diluted 136,928 142,130
---------------------------------------- -------------------- --------
Stores open at beginning of
each period 887 791
Stores opened during each
period 22 36
Stores closed during each
period (1) (1)
Stores open at end of each
period 908 826
---------------------------------------- -------------------- --------
Fifty-Two Weeks Fifty-Two Weeks
Ended Ended
------------------- -------------------
January 28, % of January 29, % of
2007 Sales 2006 Sales
------------------- -------------------
Net sales $4,233,857 100.00% $3,760,499 100.00%
Cost of sales 2,926,087 69.11% 2,587,498 68.81%
------------------- -------------------
- -
Gross profit 1,307,770 30.89% 1,173,001 31.19%
Operating, general and
administrative expenses 985,936 23.29% 861,621 22.91%
------------------- -------------------
- -
Operating income 321,834 7.60% 311,380 8.28%
Interest expense, net 31,717 0.75% 22,171 0.59%
------------------- -------------------
- -
Income before income tax
expense 290,117 6.85% 289,209 7.69%
Income tax expense 105,048 2.48% 106,719 2.84%
------------------- -------------------
Net income $185,069 4.37% $182,490 4.85%
=================== ===================
Basic earnings per share $1.36 $1.30
=========== ===========
Diluted earnings per share $1.33 $1.25
=========== ===========
Weighted average shares
outstanding - basic 135,836 140,791
Weighted average shares
outstanding - diluted 139,537 145,577
----------------------------------------------------------------------
Stores open at beginning of
each period 826 726
Stores opened during each
period 92 107
Stores closed during each
period (10) (7)
Stores open at end of each
period 908 826
----------------------------------------------------------------------
PetSmart, Inc. and Subsidiaries
Reconciliation of non-GAAP to GAAP Measures
(In thousands, except per share data)
(Unaudited)
Thirteen Weeks Ended January 28, 2007
--------------------------------------------------
Reconciling
Item
------------
As Reported Tax
(GAAP) benefits Non-GAAP
------------------ ----------- -------------------
Net sales $1,166,909 100.00% $- $1,166,909 100.00%
Cost of sales 782,675 67.07% - 782,675 67.07%
------------------ ----------- ----------- -------
Gross profit 384,234 32.93% - 384,234 32.93%
Operating, general
and
administrative
expenses 255,521 21.90% - 255,521 21.90%
------------------ ----------- ----------- -------
Operating income 128,713 11.03% - 128,713 11.03%
Interest expense,
net 8,745 0.75% - 8,745 0.75%
------------------ ----------- ----------- -------
Income before
income tax
expense 119,968 10.28% - 119,968 10.28%
Income tax expense 43,021 3.69% 2,459 45,480 3.90%
------------------ ----------- ----------- -------
Net income $76,947 6.59% $(2,459) $74,488 6.38%
================== =========== =========== =======
Basic earnings per
share $0.58 $0.56
Diluted earnings
per share $0.56 $0.54
Weighted average
shares
outstanding -
basic 133,188 133,188
Weighted average
shares
outstanding -
diluted 136,928 136,928
Fifty-Two Weeks Ended January 28, 2007
-------------------------------------------
Reconciling Items
-----------------------
Early pay
discount Tax
As Reported (GAAP) change benefits
------------------- ---------------------
Net sales $4,233,857 100.00% $- $-
Cost of sales 2,926,087 69.11% (3,922) -
----------- ------- ---------- ----------
Gross profit 1,307,770 30.89% 3,922 -
Operating, general and
administrative expenses 985,936 23.29% - -
----------- ------- ---------- ----------
Operating income 321,834 7.60% 3,922 -
Interest expense, net 31,717 0.75% - -
----------- ------- ---------- ----------
Income before income tax
expense 290,117 6.85% 3,922 -
Income tax expense 105,048 2.48% 1,506 6,158
----------- ------- ---------- ----------
Net income $185,069 4.37% $2,416 $(6,158)
=========== ======= ========== ==========
Basic earnings per share $1.36
Diluted earnings per
share $1.33
Weighted average shares
outstanding - basic 135,836
Weighted average shares
outstanding - diluted 139,537
Fifty-Two Weeks Ended January 28, 2007
------------------------------------------------
Reconciling
Items
----------------------------
Costs related
to
Acquisition distribution
review center re-
expenses racking Non-GAAP
------------------------------------------------
Net sales $- $- $4,233,857 100.00%
Cost of sales - (3,644) 2,918,521 68.93%
------------- -------------- ----------- -------
Gross profit - 3,644 1,315,336 31.07%
Operating, general
and administrative
expenses (2,939) - 982,997 23.22%
------------- -------------- ----------- -------
Operating income 2,939 3,644 332,339 7.85%
Interest expense,
net - - 31,717 0.75%
------------- -------------- ----------- -------
Income before income
tax expense 2,939 3,644 300,622 7.10%
Income tax expense 1,129 1,399 115,240 2.72%
------------- -------------- ----------- -------
Net income $1,810 $2,245 $185,382 4.38%
============= ============== =========== =======
Basic earnings per
share $1.36
Diluted earnings per
share $1.33
Weighted average
shares outstanding
- basic 135,836
Weighted average
shares outstanding
- diluted 139,537
PetSmart, Inc. and Subsidiaries
Reconciliation of non-GAAP to GAAP Measures
(In thousands, except per share data)
(Unaudited)
Thirteen Weeks Ended January 29, 2006
----------------------------------------------
Reconciling Items
--------------------------
As Reported (GAAP) Credit card Stock comp
settlement adjustment
------------------- --------------------------
Net sales $1,050,589 100.00% $- $-
Cost of sales 702,249 66.84% - -
------------------- ------------ -------------
Gross profit 348,340 33.16% - -
Operating, general and
administrative
expenses 226,531 21.56% 2,750 1,900
------------------- ------------ -------------
Operating income 121,809 11.59% (2,750) (1,900)
Interest expense, net 6,331 0.60% - -
------------------- ------------ -------------
Income before income
tax expense 115,478 10.99% (2,750) (1,900)
Income tax expense 44,575 4.24% (1,059) -
------------------- ------------ -------------
Net income $70,903 6.75% $(1,691) $(1,900)
=================== ============ =============
Basic earnings per
share $0.51
Diluted earnings per
share $0.50
Weighted average
shares outstanding -
basic 137,974
Weighted average
shares outstanding -
diluted 142,130
PetSmart, Inc. and Subsidiaries
Reconciliation of non-GAAP to GAAP Measures
(In thousands, except per share data)
(Unaudited)
Thirteen Weeks Ended
January 29, 2006
---------------------
Non-GAAP
---------------------
Net sales $1,050,589 100.00%
Cost of sales 702,249 66.84%
----------- -------
Gross profit 348,340 33.16%
Operating, general and administrative expenses 231,181 22.00%
----------- -------
Operating income 117,159 11.15%
Interest expense, net 6,331 0.60%
----------- -------
Income before income tax expense 110,828 10.55%
Income tax expense 43,516 4.14%
----------- -------
Net income $67,312 6.41%
=========== =======
Basic earnings per share $0.49
Diluted earnings per share $0.47
Weighted average shares outstanding - basic 137,974
Weighted average shares outstanding - diluted 142,130
Fifty-Two Weeks Ended January 29, 2006
---------------------------------------------
Reconciling Items
-------------------------
Legal Tax
As Reported (GAAP) settlement benefits
------------------- ------------ ----------
Net sales $3,760,499 100.00% $- $-
Cost of sales 2,587,498 68.81% - -
------------------- ------------ ----------
Gross profit 1,173,001 31.19% - -
Operating, general and
administrative
expenses 861,621 22.91% 8,500 -
------------------- ------------ ----------
Operating income 311,380 8.28% (8,500) -
Interest expense, net 22,171 0.59% - -
------------------- ------------ ----------
Income before income
tax expense 289,209 7.69% (8,500) -
Income tax expense 106,719 2.84% (3,273) 3,797
------------------- ------------ ----------
Net income $182,490 4.85% $(5,227) $(3,797)
=================== ============ ==========
Basic earnings per
share $1.30
Diluted earnings per
share $1.25
Weighted average shares
outstanding - basic 140,791
Weighted average shares
outstanding - diluted 145,577
Fifty-Two Weeks Ended January 29, 2006
-------------------------------------------
Reconciling Items
------------------------
Credit card Stock comp
settlement adjustment Non-GAAP
-------------------------------------------
Net sales $- $- $3,760,499 100.00%
Cost of sales - - 2,587,498 68.81%
------------ ----------- ------------------
Gross profit - - 1,173,001 31.19%
Operating, general and
administrative expenses 2,750 1,900 874,771 23.26%
------------ ----------- ------------------
Operating income (2,750) (1,900) 298,230 7.93%
Interest expense, net - - 22,171 0.59%
------------ ----------- ------------------
Income before income tax
expense (2,750) (1,900) 276,059 7.34%
Income tax expense (1,059) - 106,184 2.82%
------------ ----------- ------------------
Net income $(1,691) $(1,900) $169,875 4.52%
============ =========== ==================
Basic earnings per share $1.21
Diluted earnings per share $1.17
Weighted average shares
outstanding - basic 140,791
Weighted average shares
outstanding - diluted 145,577
PetSmart, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
(Unaudited)
January 28, January 29,
2007 2006
----------- -----------
Assets
Cash and cash equivalents $148,799 $110,415
Short-term investments 19,200 219,900
Restricted cash and short-term investments 60,700 -
Receivables, net 36,541 36,902
Merchandise inventories 487,400 399,413
Other current assets 90,629 73,866
----------- -----------
Total current assets 843,269 840,496
Property and equipment, net 1,032,421 857,658
Deferred income taxes 97,648 92,092
Other noncurrent assets 80,139 73,445
----------- -----------
Total assets $2,053,477 $1,863,691
=========== ===========
Liabilities and Stockholders' Equity
Accounts payable and bank overdraft $179,638 $155,424
Other current liabilities 321,077 294,747
Current maturities of capital lease
obligations 17,667 12,559
----------- -----------
Total current liabilities 518,382 462,730
Capital lease obligations 431,334 351,564
Deferred rents and other noncurrent
liabilities 102,867 108,647
----------- -----------
Total liabilities 1,052,583 922,941
Stockholders' equity 1,000,894 940,750
----------- -----------
Total liabilities and stockholders'
equity $2,053,477 $1,863,691
=========== ===========
CONTACT: PetSmart, Inc.Tawni Adams, 623-587-2686 PetSmart Media Line, 623-587-2177 SOURCE: PetSmart, Inc. |
