Petsmart 2012 Annual Report Download - page 32

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Executive Summary
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, other than comparable store sales, which was calculated on an equivalent
53 week basis, also reflect the impact of one additional week.
• Diluted earnings per common share for 2012 increased 39.2% to $3.55 on net income of $389.5 million compared to diluted
earnings per common share of $2.55 on net income of $290.2 million in 2011. The additional week increased diluted earnings
per common share by approximately $0.17.
• Net sales increased 10.5% to $6.8 billion in 2012 compared to $6.1 billion in 2011. The increase in net sales included an
estimated impact from the additional week of $126.0 million and an unfavorable impact from foreign currency fluctuations
of $1.9 million.
• Comparable store sales, or sales in stores open at least one year, increased 6.3% during 2012 compared to a 5.4% increase
during 2011.
• Services sales increased 9.7% to $740.5 million, or 11.0% of net sales, for 2012 compared to $674.9 million, or 11.0% of
net sales, during 2011. The increase in services sales included an estimated impact from the additional week of $12.8 million.
• As of February 3, 2013, we had $335.2 million in cash and cash equivalents and $71.9 million in restricted cash. We had
no short-term debt, and did not borrow against our revolving credit facility during 2012.
• We purchased 7.2 million shares of our common stock for $456.6 million during 2012, and 7.6 million shares of our common
stock for $336.8 million during 2011.
• We added 46 net new stores during 2012, and operated 1,278 stores at 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 consolidated 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.
Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we
may be exposed to losses or gains that could be material.
Inventory Valuation Reserves
We have established reserves for estimated inventory shrinkage between physical inventories. Distribution centers perform
cycle counts using a velocity based system that determines whether the inventory should be counted every 30, 90, 180, or 365
days. Stores generally perform 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 certain 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.