Petsmart 2007 Annual Report Download - page 35

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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 and Comprehensive Income:
February 3,
2008
January 28,
2007
January 29,
2006
Year Ended
(53 weeks) (52 weeks) (52 weeks)
Statement of Operations Data:
Net sales ....................................... 100.0% 100.0% 100.0%
Cost of sales .................................... 69.3 69.1 68.8
Gross profit ..................................... 30.7 30.9 31.2
Operating, general and administrative expenses ........... 23.2 23.3 22.9
Operating income ................................. 7.5 7.6 8.3
Gain on sale of investment .......................... 2.0 — —
Interest income................................... 0.1 0.2 0.2
Interest expense .................................. (1.1) (1.0) (0.8)
Income before income tax expense and equity in income
from investee .................................. 8.6 6.9 7.7
Income tax expense ............................... (3.1) (2.5) (2.8)
Equity in income from investee. . . .................... 0.0 — —
Net income ..................................... 5.5% 4.4% 4.9%
2007 (53 weeks) compared to 2006 (52 weeks)
Net Sales
Net sales increased $438.8 million, or 10.4%, to $4.7 billion in 2007, compared to net sales of $4.2 billion in
2006. The sales increase is primarily due to the addition of 100 net new stores since January 28, 2007, the 53rd week
of sales and a 2.4% increase in comparable store sales for 2007. The 53rd week increased net sales by approximately
$89.7 million. Our comparable store sales growth was 5.0% for 2006. The decrease in our comparable sales growth
rate was due to economic conditions, a slow down in consumer spending and the impact of the recall of certain pet
food products during the first two quarters of 2007, as well as reduced sales of equine products as a result of our
decision to exit that product line.
Services sales, which are included in our net sales amount discussed above and include grooming, training,
boarding and day camp, increased by 22.0%, or $82.8 million, to $458.7 million. This increase was primarily due to
continued strong demand for our grooming and training services, the addition of 35 new PetsHotels during 2007 and
the 53rd week, which increased services sales by $8.4 million.
Gross Profit
Gross profit decreased to 30.7% of net sales for 2007 from 30.9% for 2006.
Fixed costs in cost of sales, including store occupancy costs and warehouse and distribution costs, increased as
a percentage of net sales. In 2007, we opened 100 net new stores, 35 PetsHotels and a new distribution center and
completed a portion of the store remodel projects. These investments increased the amount of rent and other
occupancy costs and increased depreciation expense. These additional expenses coupled with a slower growth rate
in net sales decreased our gross profit as a percentage of net sales.
Additionally, services sales increased as a percentage of net sales. Services sales generate lower gross margins
than product sales as we include service-related labor in cost of sales; however, services generate higher operating
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