Petsmart 2007 Annual Report Download - page 16

amount of discretionary spending could reduce our sales and harm our business. The success of our business
depends in part on our ability to identify and respond to evolving trends in demographics and consumer preferences.
Failure to timely identify or effectively respond to changing consumer tastes, preferences, spending patterns and pet
care needs could adversely affect our relationship with our customers, the demand for our products and services, our
market share and our profitability.
Our quarterly operating results may fluctuate due to seasonal changes associated with the pet retail industry
and the timing of expenses, new store openings and store closures.
Our business is subject to seasonal fluctuation. We typically realize a higher portion of our net sales and
operating profit during the fourth fiscal quarter. Sales of certain products and services are seasonal and because our
stores typically draw customers from a large area, sales may also be impacted by adverse weather or travel
conditions, which are more prevalent during certain seasons of the year. As a result of this seasonality, we believe
that quarter-to-quarter comparisons of our operating results are not necessarily meaningful and that these
comparisons cannot be relied upon as indicators of future performance. Also, controllable expenses, such as
advertising, may fluctuate from quarter to quarter within a fiscal year. As a result of our expansion plans, the timing
of new store openings and related preopening expenses, the amount of revenue contributed by new and existing
stores, and the timing and estimated obligations of store closures, our quarterly results of operations may fluctuate.
Finally, because new stores tend to experience higher payroll, advertising and other store level expenses as a
percentage of net sales than mature stores, new store openings will also contribute to lower store operating margins
until these stores become established.
The pet products retail industry is very competitive and continued competitive forces may adversely impact
our business and financial results.
The pet retail industry is very competitive. We compete with supermarkets, warehouse clubs and other mass
and retail merchandisers, many of which are larger and have significantly greater resources than we have. We also
compete with a number of specialty pet supply chains and pet supply stores, independent pet stores, veterinarians,
catalog retailers and e-commerce retailers. The pet retail industry has become increasingly competitive due to the
expansion of pet-related product offerings by certain supermarkets, warehouse clubs and other mass and retail
merchandisers and the entrance of other specialty retailers into the pet food and pet supply market, some of which
have developed store formats similar to ours. We can make no assurances we will not face greater competition from
these or other retailers in the future. In particular, if our supermarket, warehouse club or other mass and retail
merchandiser competitors seek to gain or retain market share by reducing prices, we would likely reduce our prices
on similar product offerings in order to remain competitive, which may result in a decrease in our market share,
sales, operating results and profitability and require a change in our operating strategies.
Failure to successfully manage and execute our marketing initiatives could have a negative impact on our
business.
Our continued success and growth depend on improving customer traffic to gain sales momentum in our stores
and on our e-commerce web site. Historically, we have utilized various media to reach the consumer, and we have
experienced varying levels of favorable response to our marketing efforts. Often, media placement decisions are
made months in advance, and our inability to accurately predict our consumers’ preferred method of communi-
cation may result in fewer customers shopping at our stores and thereby negatively impact our business and
financial performance.
Our operating margins at new stores may be lower than those of existing stores.
Preopening expenses and lower sales volumes associated with newly opened stores can impact operating
margins. In some geographic regions, we expect certain new store operating costs, particularly those related to
occupancy, to be higher than in the past. As a result of our new stores and the impact of these rising costs, our total
store contribution and operating margins may be lower in future periods than they have been in the past.
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