Petsmart 2002 Annual Report Download - page 34

Equity Loss in PETsMART.com and Minority Interest
In January 2002, we acquired all the remaining shares held by PETsMART.com minority stockholders
for approximately $9.5 million.
Income Tax Expense
For 2002, the $65.0 million income tax expense represents an eÅective rate of 42.2%. For 2001, the
$8.0 million income tax expense included a $10.3 million tax beneÑt associated with the June 2001 increase in
ownership of PETsMART.com and a tax expense of $18.3 million for 2001 results, or an eÅective rate of
40.4%.
Fiscal 2001 Compared to Fiscal 2000
Net Sales
Net sales increased $276.8 million, or 12.4%, to $2,501.0 million for 2001, from $2,224.2 million for 2000.
Store sales increased by $234.7 million as a result of 27 additional net stores and a 6.5% increase in
comparable store sales. As of February 3, 2002, we operated 560 stores compared with 533 stores as of
January 28, 2001. In 2001, we opened 34 new stores and closed seven stores. Also contributing to the sales
increase was a $27.3 million increase, or 29.7% increase in services revenue, which includes grooming,
training, and PETsHOTEL revenue in 2001 compared with 2000. In 2001, net sales related to the catalog and
Internet businesses increased $14.8 million, or 15.5%, to $110.9 million, compared with $96.1 million in 2000.
The increase in catalog and Internet sales was due to the inclusion of PETsMART.com's sales in 2001 due to
consolidation accounting that began in December of 2000. Fiscal 2001 had 53 weeks compared with 52 weeks
in Ñscal 2000, and this additional week also contributed to the increase in net sales.
Gross ProÑt
Gross proÑt increased as a percentage of net sales to 26.9% in 2001, from 23.8% in 2000. The increase
primarily reÖected increased services revenue, which carries a higher margin than merchandise, lower product
cost of goods sold, and sales of higher margin products for retail stores, as compared with 2000. These
increases were partially oÅset by increased warehouse and distribution costs and the addition of cost of goods
sold related to PETsMART.com. Warehouse and distribution costs were higher in 2001 due to the additional
forward distribution centers and our change in distributing directly to the stores from the forward distribution
centers as opposed to the stores receiving vendor deliveries. In 2001, we recorded a charge to cost of sales of
$2.1 million associated with a write down of PETsMART Direct's inventory, which had an impact of 0.1%.
The reduction in product cost of goods sold was primarily the result of our shift in purchasing arrangements
with vendors, as well as a decrease in costs related to shrinkage. The shift from the traditional volume and
promotional discounts to a more competitive unit pricing began during the Ñrst quarter of 2000, and the
majority of those purchase cost reductions have now been cycled through the inventory system.
Operating Expenses
Operating expenses, which include payroll and beneÑts, advertising for stores and catalog production, pre-
opening, and other store level expenses, increased as a percentage of net sales to 19.3% in 2001 from 19.0% in
2000. Retail store operating expenses primarily drove the increase due primarily to increased payroll and
beneÑts as a result of higher wages and additional personnel. Store operating expenses related to our catalog
and Internet businesses increased primarily due to additional expenses from PETsMART.com, which were
not included on a consolidated basis through December 20, 2000.
General and Administrative Expenses
General and administrative expenses as a percentage of net sales increased to 4.8% in 2001, from 3.6% in
2000. In 2001, we recorded $6.9 million for impairment charges, $3.7 million in charges related to the
reorganization of subsidiaries, $13.5 million for store closures, $5.0 million related to litigation costs, and
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