Petsmart 2012 Annual Report Download - page 35

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Gross Profit
Gross profit increased 100 basis points to 30.5% of net sales for 2012, from 29.5% for 2011. Overall merchandise margin
increased 15 basis points primarily due to rate improvement. Services margin increased 5 basis points. Store occupancy and supply
chain costs included in margin provided 55 and 10 basis points of leverage, respectively. The additional week increased margin
by 15 basis points.
Operating, General and Administrative Expenses
Operating, general and administrative expenses decreased 40 basis points to 20.9% of net sales for 2012, from 21.3% of net
sales for 2011. Operating, general and administrative expenses increased on a dollar basis by $109.6 million. The primary reasons
for the year over year increase include store growth, planned incremental advertising spend focused on our differentiated offerings,
and the additional week, which increased operating, general and administrative costs by $18.3 million.
Interest Expense, net
Interest expense, which is primarily related to capital lease obligations, decreased to $55.6 million for 2012, compared to
$58.1 million for 2011 due to a decrease in capital lease obligations. Included in interest expense, net was interest income of $1.3
million for 2012 and for 2011.
Income Tax Expense
Income tax expense for 2012 and 2011 was $223.3 million and $167.0 million, respectively. Both 2012 and 2011 had an
effective tax rate of 37.4%. The effective tax rate is calculated by dividing our income tax expense, which includes the income
tax expense related to our equity income from Banfield, by income before income tax expense and equity income from Banfield.
Equity Income from Banfield
Our equity income from our investment in Banfield was $16.0 million and $10.9 million for 2012 and 2011, respectively,
based on our 21.0% ownership in Banfield.
2011 (52 weeks) Compared to 2010 (52 weeks)
Net Sales
Net sales increased 7.4%, to $6.1 billion in 2011, compared to net sales of $5.7 billion in 2010. The increase in net sales was
partially impacted by $11.2 million in favorable foreign currency fluctuations during 2011. Approximately 75% of the sales increase
is due to a 5.4% increase in comparable store sales for 2011, and 25% of the sales increase is due to the addition of 45 net new
stores and 12 new PetsHotels since January 30, 2011.
Comparable store sales growth was driven by an increase in comparable transactions and average sales per comparable
transaction due to the impact of merchandising strategies, pricing strategies and new product offerings. Comparable transactions
were 2.5% for 2011 and 2.1% for 2010.
Services sales, which include grooming, training, day camp for dogs and boarding, increased 9.1%, or $56.1 million, to $674.9
million for 2011, compared to $618.8 million for 2010. Services sales represented 11.0% and 10.9% of net sales for 2011 and
2010, respectively. The increase in services sales is primarily due to continued strong demand for our grooming services, and the
addition of 45 net new stores and 12 new PetsHotels since January 30, 2011.
Other revenue included in net sales during 2011, represents license fees and reimbursements for utilities and specific operating
expenses charged to Banfield under the master operating agreement which comprised 0.6% of net sales, or $36.7 million, in 2011,
compared to 0.6% of net sales, or $34.2 million, during 2010.
Gross Profit
Gross profit increased 40 basis points to 29.5% of net sales for 2011, from 29.1% for 2010.
Overall merchandise margin increased 5 basis points due to a 20 basis point improvement in rate, which was offset by a 15
basis point decline in mix. The rate improvement is the result of increased sales of higher margin goods within the product categories
and improvement in shrink during 2011, relative to 2010. Mix was negatively impacted as the sales growth in our consumables
continued to outpace the sales growth of our higher margin hardgoods category. Hardgoods merchandise includes pet supplies