Petsmart 2011 Annual Report Download - page 35

• Comparable store sales increased 5.4% during 2011 compared to a 4.8% increase during 2010. The
increase in sales was partially impacted by $11.2 million in favorable foreign currency fluctuations in
2011, compared to $24.6 million in favorable foreign currency fluctuations in 2010.
• Services sales increased 9.1% to $674.9 million, or 11.0% of net sales, for 2011 compared to
$618.8 million, or 10.9% of net sales, during 2010.
• As of January 29, 2012, we had $342.9 million in cash and cash equivalents and $70.2 million in
restricted cash. We had no short-term debt, and did not borrow against the revolving credit facility during
2011.
• We purchased 7.6 million shares of our common stock during each of 2011 and 2010 for $336.8 million
and $263.3 million, respectively.
• We added 45 net new stores during 2011 and operated 1,232 stores as of the end of the year.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based on our con-
solidated financial statements, which have been prepared in accordance with GAAP. The preparation of these
consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our estimates for inventory valuation
reserves, asset impairments, reserve for closed stores, insurance liabilities and reserves, and income tax reserves.
We base our estimates on historical experience and on various other assumptions we believe to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Under different assumptions or conditions,
actual results may differ from these estimates. We believe the following critical accounting policies reflect the
more significant judgments and estimates we use in preparing our consolidated financial statements.
Inventory Valuation Reserves
We have established reserves for estimated inventory shrinkage between physical inventories. Distribution
centers perform cycle counts encompassing all inventory items at least once every quarter. Stores generally per-
form physical inventories at least once a year. Between the physical inventories, stores perform counts on certain
inventory items. For each reporting period presented, we estimate the inventory shrinkage based on a two-year
historical trend analysis. Changes in shrink results or market conditions could cause actual results to vary from
estimates used to establish the inventory reserves.
We also have reserves for estimated obsolescence and to reduce merchandise inventory to the lower of cost
or market. We evaluate inventories for excess, obsolescence or other factors that may render inventories
unmarketable at their historical cost. Factors included in determining obsolescence reserves include current and
anticipated demand, customer preferences, age of merchandise, seasonal trends and decisions to discontinue cer-
tain products. If assumptions about future demand change, or actual market conditions are less favorable than
those projected by management, we may require additional reserves.
We have not made any significant changes in the accounting methodology we use to establish our inventory
valuation reserves during the past three fiscal years. We do not presently believe there is a reasonable likelihood
of a material change in the accounting methodology and assumed factors used to create the estimates we use to
calculate our inventory valuation reserves.
As of January 29, 2012, and January 30, 2011, we had inventory valuation reserves of $11.6 million and
$10.0 million, respectively. Additionally, we do not believe that a 10% change in our inventory valuation
reserves would be material to our consolidated financial statements.
Asset Impairments
We review long-lived assets for impairment on a quarterly basis and whenever events or changes in circum-
stances indicate that the book value of such assets may not be recoverable.
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