Petsmart 2005 Annual Report Download - page 44

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Results of Operations
The following table presents the percent to net sales of certain items included in our Consolidated Statements
of Operations:
Jan. 29,
2006
Jan. 30,
2005
Feb. 1,
2004
Fiscal Year Ended
Statement of Operations Data:
Net sales . . . ............................................. 100.0% 100.0% 100.0%
Cost of sales ............................................. 68.7 69.1 69.9
Gross profit. ............................................. 31.3 30.9 30.1
Operating, general and administrative expenses ................... 23.0 23.2 22.8
Operating income ......................................... 8.3 7.7 7.3
Interest income ........................................... 0.2 0.1 0.1
Interest expense .......................................... (0.8) (0.6) (0.6)
Income before income tax expense ............................ 7.7 7.2 6.8
Income tax expense ........................................ 2.8 2.5 2.6
Net income . ............................................. 4.9% 4.7% 4.2%
Fiscal 2005 Compared to Fiscal 2004
Net Sales
Fiscal 2005 net sales increased $397.0 million, or 11.8%, to $3.8 billion, compared to net sales of $3.4 billion
in fiscal 2004, due to the addition of 100 net new stores since January 30, 2005 and a 4.2% increase in comparable
store sales for fiscal 2005. Our comparable store sales growth was 6.3% for fiscal 2004. We believe the decrease in
our comparable store sales growth rate during fiscal 2005 as compared to fiscal 2004 was due to general economic
conditions, including increased fuel prices, which caused a decrease in consumer spending. In addition, we lost
437 days of sales from store closures due to the effect of hurricanes in the third quarter of fiscal 2005.
Services sales, which are included in our net sales and include grooming, pet training, boarding and day camp
operations, increased by 24.2%, or $58.2 million, to $298.9 million. This increase was primarily due to an increase
in grooming volume during fiscal 2005.
Gross Profit
Gross profit increased as a percentage of net sales to 31.3% for fiscal 2005, from 30.9% for fiscal 2004. The
increase reflects higher margins on product sales due to improved buying practices, our ongoing pricing strategies
and increased inventory levels resulting in more of our costs capitalized in inventory. These increases were partially
offset by various fixed and variable expenses in cost of sales including occupancy, warehousing and transportation
costs and inventory-related costs.
Store and occupancy costs increased as we opened more stores and opened our Illinois distribution facility.
Warehousing and transportation costs increased due to additional variable expenses from our Illinois distribution
facility and higher fuel prices. Inventory-related costs increased due to higher inventory shrinkage results and
higher obsolescence charges.
In addition, gross profit on our services decreased as a percentage of net sales due to the increase in variable
and infrastructure expenses associated with the opening of new PetsHotels.
Operating, General and Administrative Expenses
Operating, general and administrative expenses, or OG&A, decreased as a percentage of net sales to 23.0% for
fiscal 2005, from 23.2% for fiscal 2004. This decrease was primarily driven by decreases in compensation costs and
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