Petsmart 2009 Annual Report Download - page 36

2008 (52 weeks) compared to 2007 (53 weeks)
Net Sales
Net sales increased $0.4 billion, or 8.4%, to $5.1 billion in 2008, compared to net sales of $4.7 billion in 2007.
The increase in net sales was partially impacted by $6.3 million in unfavorable foreign currency fluctuations during
2008. The 53rd week in 2007 increased net sales by approximately $89.7 million. Excluding the impact of the 53
rd
week of sales in 2007, approximately 65% of the sales increase is due to the addition of 104 net new stores since
February 3, 2008, and 35% of the sales increase is due to a 3.8% increase in comparable store sales for 2008. Our
comparable store sales growth was 2.4% for 2007. The increase in our comparable sales growth rate was due to
inflation and pricing strategies, partially offset by economic conditions and a slow down in consumer spending,
primarily in our hardgoods category. A decrease in the number of transactions represented (2.0)% of the comparable
store sales growth in 2008, compared to (0.8)% in 2007. An increase in the average sales per transaction represented
5.8% of the comparable store sales in 2008, compared to 3.2% in 2007.
Services sales, which are included in our net sales amount discussed above and include grooming, training,
boarding and day camp, increased by 15.8%, or $71.8 million, to $526.7 million in 2008 compared to $454.9 million
in 2007. The increase during 2008 was primarily due to continued strong demand for our grooming services, the
addition of 104 net new stores, and 45 new PetsHotels, partially offset by the 53rd week in 2007, which increased
services sales by $8.4 million.
Gross Profit
Gross profit decreased to 29.5% of net sales for 2008 from 30.7% for 2007, representing a decrease of
120 basis points.
In 2008, store occupancy costs increased 70 basis points primarily due to the growth in new stores. We opened
104 net new stores and 45 PetsHotels. The increase in store occupancy costs as a percentage of net sales is due to the
addition of new stores in more expensive regions, as well as higher real property taxes and lower reimbursements
from Banfield for vet clinic expenses.
Supply chain costs were flat as a percentage of net sales. We realized cost savings from increased productivity
and efficiency across the distribution network due to our new replacement distribution centers in Newnan, Georgia
and Reno, Nevada, offset by pressure from higher fuel prices during 2008 compared to 2007.
Services sales were essentially flat as a percentage of net sales. We also opened 45 PetsHotels in 2008
compared to 35 in 2007. PetsHotels have higher costs as a percentage of net sales in the first several years.
Merchandise margin decreased 40 basis points, with mix representing 90% and rate representing 10% of the
decline. The mix shift is due to an increase of consumables merchandise sales relative to total net sales.
Consumables merchandise sales typically generate a lower gross margin compared to hardgoods merchandise.
Macroeconomic conditions, including a decrease in consumer spending, challenged our merchandise margins. As a
result, we have experienced softness in our higher margin hardgoods merchandise sales.
Operating, General and Administrative Expenses
Operating, general and administrative expenses decreased as a percentage of net sales to 22.2% for 2008 from
23.2% for 2007, representing a 100 basis point improvement.
The decrease in operating, general and administrative expenses as a percentage of net sales was attributable to
various cost savings initiatives, including a new store labor management process, combined with reduced
professional fees, renegotiated maintenance and supply contracts, and lower insurance-related costs. These expense
decreases were partially offset by higher payroll and benefit costs for additional headcount at our corporate
headquarters, and higher stock-based compensation expense.
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