Petsmart 2002 Annual Report Download - page 21

Our results may Öuctuate as a result of seasonal changes associated with the pet food and pet supply
retailing industry and the timing of controllable expenses and new store openings.
Our business is subject to seasonal Öuctuation. We typically realize a higher portion of our net sales and
operating proÑt during the fourth Ñscal quarter. As a result of this seasonality, we believe that quarter-to-
quarter comparisons of our operating results are not necessarily meaningful and that these comparisons cannot
be relied upon as indicators of future performance. In addition, controllable expenses, such as advertising,
could Öuctuate from quarter-to-quarter in a Ñscal year. Also, sales of certain products and services designed to
address pet health needs are seasonal. Because our stores typically draw customers from a large trade area,
sales also may be impacted by adverse weather or travel conditions, which are more prevalent during certain
seasons of the year. Finally, as a result of our expansion plans, the timing of new store openings, related
preopening expenses, and the amount of revenue contributed by new and existing stores may cause our
quarterly results of operations to Öuctuate.
The pet food and pet supply retailing industry is highly competitive, and continued competitive forces may
reduce our sales and proÑtability.
The pet food and pet supply retailing industry is highly competitive. We compete with supermarkets,
warehouse clubs and mass merchandisers, many of which are larger and have signiÑcantly greater resources
than we have. We also compete with a number of pet supply warehouse or specialty stores, smaller pet store
chains, catalog retailers, Internet retailers and independent pet stores. The industry has become increasingly
competitive due to the entrance of other specialty retailers into the pet food and pet supply market, some of
which have developed store formats similar to ours, and due to the expansion of pet related-product oÅerings
by certain warehouse clubs and mass merchandisers. There can be no assurance we will not face greater
competition from these or other retailers in the future. In particular, if any of our major competitors seek to
gain or retain market share by reducing prices, we would likely reduce our prices in order to remain
competitive, which may result in a decrease in our sales and proÑtability and require a change in our operating
strategies.
The loss of any of our key vendors, a decision by our vendors to make their products available in
supermarkets or through mass merchandisers, or the inability of our vendors to provide products in a timely
or cost-eÅective manner could harm our business.
We have no long-term supply commitments from our vendors. We buy from several hundred vendors
worldwide and together our two largest vendors accounted for approximately 14% of our total sales for the
Ñscal 2002. Sales of premium pet food for dogs and cats comprise a signiÑcant portion of our revenues.
Currently, most of the major vendors of premium pet foods do not permit their products to be sold in
supermarkets, warehouse clubs, or through other mass merchandisers. If any of the premium pet food or pet
supply vendors were to make their products available in supermarkets or through mass merchandisers, our
business could be harmed. In addition, if the grocery brands currently available to such retailers were to gain
market share at the expense of the premium brands sold only through specialty pet food and pet supply outlets,
our business could be harmed.
We purchase signiÑcant amounts of pet supplies from a number of vendors with limited supply
capabilities. There can be no assurance that our current pet supply vendors will be able to accommodate our
anticipated needs. In addition, we purchase signiÑcant amounts of pet supplies from vendors outside of the
United States. There can be no assurance our overseas vendors will be able to satisfy our requirements,
including timeliness of delivery, acceptable product quality, packaging and labeling requirements, and our
other requirements. Any inability of our existing vendors to provide products in a timely or cost-eÅective
manner could harm our business. While we believe our vendor relationships are satisfactory, any vendor could
discontinue selling to us at any time.
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