Petsmart 2005 Annual Report Download - page 40

(3) Net sales per square foot were calculated by dividing net sales, excluding catalog and Internet sales, by average
square footage. Net sales per square foot may be considered a “non-GAAP financial measure” as defined in
Item 10(e) of Regulation S-K. Management believes that this presentation provides useful information to
investors regarding the results of operations of its stores.
(4) Retail stores only, excludes catalog and Internet sales in all periods, and includes only stores open at least
52 weeks. Fiscal 2001 data has been adjusted to reflect 52 weeks of the 53-week fiscal year.
(5) Represents capital lease obligations. In addition, the February 3, 2002 amount included subordinated con-
vertible debt.
(6) As adjusted, see Note 2 to the Notes to Consolidated Financial Statements.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Except for historical information, the following discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could materially differ from those discussed here. Factors that could
cause or contribute to such differences include, but are not limited to, those discussed in this section, as well as in
the sections entitled Competition, Distribution, Information Systems and Government Regulation included in Item 1
Part I and Risk Factors included in Item 1 Part 1a of this Annual Report on Form 10-K.
The accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations
includes the change in accounting principle and reclassifications discussed in Note 2 to the Notes to Consolidated
Financial Statements.
Overview
Based on our fiscal 2005 sales of $3.8 billion, we are North America’s leading specialty provider of products,
services and solutions for the lifetime needs of pets. As of January 29, 2006, we operated 826 stores, and we
anticipate opening approximately 90 net new stores in fiscal 2006. Our stores carry a broad and deep selection of
high-quality pet supplies at everyday low prices. We offer more than 12,800 distinct items, including nationally
recognized brand names, as well as an extensive selection of private brands across a range of product categories. We
continue to invest in education for our approximately 34,600 associates as part of our emphasis on customer service
and providing pet care solutions.
We complement our extensive product assortment with a wide selection of value-added pet services, including
grooming, pet training, boarding and day camp. All our stores offer complete pet training services, and virtually all
our stores feature pet styling salons that provide high-quality grooming services.
Through our strategic relationship with Banfield, The Pet Hospital, and other third-party operators, we made
full-service veterinary care available in 525 of our stores as of January 29, 2006. In fiscal 2005, we began a national
roll out of the PetsHotel boarding and day camp concept. As of January 29, 2006, we operated 32 PetsHotels within
our retail stores in addition to one stand-alone location. In October 2004, we launched our test of the Doggie Day
Camp concept, which is also available at our PetsHotel locations. During 2005, we expanded our test of Doggie Day
Camp to six additional stores without a full hotel, for a total of seven Doggie Day Camps. We believe we ultimately
can operate 300 PetsHotels, as well as 40 additional in-store Doggie Day Camps.
We also reach customers through our direct marketing channels, including PetSmart.com, one of the Internet’s
most popular pet e-commerce sites, an e-commerce site dedicated to equine products and an equine catalog.
Executive Summary
• Fiscal 2005 diluted earnings per common share increased 19% to $1.25, on net income of $182.5 million,
compared to diluted earnings per common share of $1.05 on net income of $157.5 million in fiscal 2004. The
increase is due to a combination of revenue gains and gross profit rate improvement, partially offset by an
increase in operating, general and administrative expenses, net interest expense and income taxes.
• Net sales increased 11.8% to $3.8 billion in fiscal 2005 compared to $3.4 billion in fiscal 2004 due to new
store openings and an increase in comparable store sales.
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