Petsmart 2007 Annual Report Download - page 3

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Letter to Stockholders
April 21, 2008
Dear Fellow Stockholders:
In 2007, PetSmart simplified our business and built on our core strengths. This helped us navigate a challenging economic
environment and set us up to emerge a stronger, more resilient competitor.
We exited the State Line Tack equine business, allowing us to better focus our resources on our core business. We renegotiated
our operating agreement and business ownership with Banfield, The Pet Hospital®. This will allow us to provide a more seamless
customer experience and fully leverage the power of having a vet—the most trusted advisor to a pet parent—inside our stores
to help drive the success of both businesses.
We expanded our presence in the Canadian market through an acquisition and continue to seek opportunities to grow in
that market. And, we weathered a sizeable pet food recall by putting pets and their parents first.
On the financial front, we delivered comp store sales growth of 2.4 percent for 2007. We ended the year with $333 million
in operating cash flow, bought back 9.8 million shares of our stock, and paid quarterly dividends of 3 cents per share.
While we’ve had better years, we remain confident this is a strong business with ample opportunity. We’ve built a highly
competitive business model that has helped us gain market share and deliver consistently impressive top- and bottom-line
performance for the past seven years. Our investment in growth, however, has given us a fixed expense structure that is
difficult to leverage with a weakened top line, making us more susceptible to the effects of the economic slowdown that
hit in the latter part of the year.
If we want to deliver ongoing earnings growth and consistent shareholder returns, we must strike a balance between investing
in top-line growth and our long-term competitive platform and, at the same time, manage our costs and maximize the
performance of our current asset base.
In this challenging environment, we’re intently focused on driving trips and transactions and taking great care of the customer.
We believe our model of providing Total Lifetime CareSM for pets continues to be an important competitive advantage.
PetSmart provides a superior shopping experience and is in an enviable position when it comes to giving customers solutions
and developing relationships with them. In 2008, we’ll continue to focus on customer service and the store experience.
We’ll also continue to gather meaningful data that helps us understand our customers and develop more relevant offers
through our PetPerks® loyalty program. Launched in early 2008, our new PetSmart® PetPerks® Visa® Credit Card serves
as both our loyalty program card and a credit card, bringing a new revenue stream to PetSmart. Customers can earn
points toward merchandise or donate to help pets in need, receive in-store and online discounts, and personalize their
card with a photo of their pet.
“We believe by focusing on and developing our core competencies today,
we’ll be in an even stronger position to drive results and take advantage
of new opportunities tomorrow.
”—Philip L. Francis, Chairman and Chief Executive Officer