Petsmart 2012 Annual Report Download - page 31

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(1) The year ended February 3, 2013, consisted of 53 weeks while all other periods presented consisted of 52 weeks. As a result,
all comparisons for the year ended February 3, 2013, reflect the impact of one additional week. The estimated impact of this
additional week resulted in the following increases: net sales, $126.0 million; gross profit, $48.3 million; operating, general
and administrative expenses, $18.3 million; income before income tax expense and equity income from Banfield, $29.9
million; net income, $18.6 million; and diluted earnings per common share, $0.17.
(2) In accordance with our master operating agreement with Banfield, we charge Banfield license fees for the space used by the
veterinary hospitals and for their portion of utilities costs. We also charge Banfield for its portion of specific operating
expenses. Prior to February 1, 2010, license fees were treated as a reduction of occupancy costs, which are included as a
component of cost of merchandise sales, and reimbursements for specific operating expenses were treated as a reduction of
operating, general and administrative expenses in the Consolidated Statements of Income and Comprehensive Income.
Beginning February 1, 2010, license fees and the reimbursements for specific operating expenses are included in other revenue.
(3) Net sales per square foot were calculated by dividing net sales, excluding e-commerce sales, by the square footage at the end
of the period.
(4) Comparable store sales, or sales in stores open at least one year, are calculated on an equivalent 53 week basis for the year
ended February 3, 2013, as compared to the 53 weeks ended February 5, 2012. The impact of the additional week resulted in
a 0.2% decrease to comparable store sales in 2012.
(5) Represents merchandise inventories divided by stores open at end of period.
(6) Represents capital lease obligations.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could
materially differ from those discussed here. Factors that could cause or contribute to such differences include, but are not limited
to, those discussed in this section, as well as in the sections entitled “Competition,” "Our Stores," “Distribution” and “Government
Regulation” included in Item 1, Part I and Risk Factors included in Item 1A, Part I of this Annual Report on Form 10-K.
Overview
Based on our 2012 net sales of $6.8 billion, we are North America's leading specialty provider of products, services and
solutions for the lifetime needs of pets. As of February 3, 2013, we operated 1,278 stores, and we plan to continue our store growth
in 2013. Our stores carry a broad assortment of high-quality pet supplies at everyday low prices. We offer approximately 11,000
distinct items in our stores and 10,000 additional items on our website, PetSmart.com, including nationally recognized brand
names, as well as an extensive selection of proprietary brands across a range of product categories.
We complement our extensive product assortment with a wide selection of pet services, including grooming, training, day
camp for dogs and boarding. All our stores feature pet styling salons that provide high-quality grooming services and offer
comprehensive pet training services. Our PetsHotels provide boarding for dogs and cats, which includes 24-hour supervision by
caregivers who are PetSmart trained to provide personalized pet care, temperature controlled rooms and suites, daily specialty
treats and play time, as well as day camp for dogs. As of February 3, 2013, we operated 196 PetsHotels.
We make full-service veterinary care available through our strategic relationship with certain third-party operators. As of
February 3, 2013, full-service veterinary hospitals were in 816 of our stores. MMI Holdings, Inc., through a wholly owned
subsidiary, Medical Management International, Inc., collectively referred to as “Banfield,” operated 809 of the veterinary hospitals
under the registered trade name of “Banfield, The Pet Hospital.” The remaining 7 hospitals are operated by other third parties in
Canada.
The principal challenges we face as a business are the highly competitive market in which we operate and volatility in the
macro-economy. However, we believe we have a competitive advantage in our solutions for the Total Lifetime CareSM of pets,
including pet services and proprietary brands, which we think cannot be easily duplicated. Additionally, we consider our cash flow
from operations and cash on hand to be adequate to meet our operating, investing and financing needs in the foreseeable future,
and we continue to have access to our revolving credit facility. We continuously assess the economic environment and market
conditions to guide our decisions regarding our uses of cash, including capital expenditures, investments, dividends and the purchase
of treasury stock.