Petsmart 2010 Annual Report Download - page 35

Results of Operations
The following table presents the percent to net sales of certain items included in our Consolidated Statements
of Income and Comprehensive Income:
January 30,
2011
January 31,
2010
February 1,
2009
Year Ended
Statement of Operations Data:
Net sales ....................................... 100.0% 100.0% 100.0%
Cost of sales .................................... 70.9 71.5 70.5
Gross profit ..................................... 29.1 28.5 29.5
Operating, general and administrative expenses ........... 21.5 21.6 22.2
Operating income ................................. 7.5 6.9 7.3
Interest expense, net ............................... (1.0) (1.1) (1.2)
Income before income tax expense and equity in income
from Banfield .................................. 6.5 5.8 6.1
Income tax expense ............................... (2.5) (2.2) (2.4)
Equity in income from Banfield . . .................... 0.2 0.1 0.1
Net income ..................................... 4.2% 3.7% 3.8%
2010 compared to 2009
Net Sales
Net sales increased $0.4 billion, or 6.7%, to $5.7 billion in 2010, compared to net sales of $5.3 billion in 2009.
The increase in net sales was partially impacted by $24.6 million in favorable foreign currency fluctuations during
2010. Approximately 20% of the sales increase is due to the addition of 38 net new stores and 18 new PetsHotels
since January 31, 2010, and 70% of the increase is due to a 4.8% increase in comparable store sales for 2010, and the
remaining 10% of the sales increase is due to other revenue from reimbursements charged to Banfield. The increase
in comparable store sales was due to the impact of merchandising strategies, pricing strategies and new product
offerings. Comparable store transactions, which we use as a proxy for traffic, represented 210 basis points of the
comparable store sales growth in 2010, compared to a 30 basis point decline in 2009. An increase in the average
sales per transaction represented 270 basis points of the comparable store sales growth in 2010, compared to
190 basis points in 2009.
Services sales, which include grooming, training, boarding and day camp, increased 7.5%, or $43.4 million, to
$618.8 million for 2010, compared to $575.4 million for 2009. Services sales represented 10.9% and 10.8% of net
sales for 2010 and 2009, respectively. The increase in services sales is primarily due to continued strong demand for
our grooming services, and the addition of 38 net new stores and 18 new PetsHotels since 2009.
Gross Profit
Gross profit increased 60 basis points to 29.1% of net sales for 2010, from 28.5% for 2009.
Overall merchandise margin increased 30 basis points due to the sales of a higher margin mix of products
within the product categories. Our hardgoods sales outpaced the sales growth of our consumables category during
2010, primarily due to the addition of the flea and tick product line. The flea and tick margin, net of shrink, was
slightly higher than our average consumables margin, but significantly less than our average merchandise margin.
Hardgoods merchandise includes pet supplies such as collars, leashes, health care supplies, grooming and beauty
aids, toys and apparel, as well as pet beds and carriers. Consumables merchandise sales, which include pet food,
treats, and litter, generate lower gross margins on average compared to hardgoods merchandise.
27