Petsmart 2014 Annual Report Download - page 41

Table of Contents
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(1) 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, reflect the impact of one additional week. The estimated
impact of this additional week resulted in the following increases: net sales, $126.0 million; gross profit, $48.3 million;
operating, general, and administrative expenses, $18.3 million; income before income tax expense and equity income
from Banfield, $29.9 million; net income, $18.6 million; and diluted earnings per common share, $0.17.
(2) In accordance with our master operating agreement with Banfield, we charge Banfield license fees for the space used by
the veterinary hospitals and for its portion of specific operating expenses. Prior to February 1, 2010, license fees were
treated as a reduction of occupancy costs, which are included as a component of cost of merchandise sales, and
reimbursements for specific operating expenses were treated as a reduction of operating, general, and administrative
expenses in the Consolidated Statements of Income and Comprehensive Income. Beginning February 1, 2010, license
fees and the reimbursements for specific operating expenses are included in other revenue.
(3) Comparable store sales, or sales in stores open at least one year, including internet sales, were calculated on an equivalent
52-week basis for the year ended February 2, 2014, as compared to the 52 weeks ended February 3, 2013. Comparable
store sales were calculated on an equivalent 53-week basis for the year ended February 3, 2013, as compared to the 53
weeks ended February 5, 2012. Without the additional week in 2012, comparable store sales growth would have been
6.5%, as compared to 6.3%, calculated on a 53-week basis.
(4) Represents merchandise inventories divided by stores open at end of period.
(5) Represents capital lease obligations and other financing activities.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results
could materially differ from those discussed here. Factors that could cause or contribute to such differences include, but are
not limited to, those discussed in this section, as well as in the sections entitled “Competition,” “Our Stores,” “Distribution,”
and “Government Regulation” included in Item 1, Part I and Risk Factors included in Item 1A, Part I of this Annual Report
on Form 10-K.
Overview
Based on our 2013 net sales of $6.9 billion, we are North America's leading specialty provider of products, services, and
solutions for the lifetime needs of pets. As of February 2, 2014, we operated 1,333 stores, and we plan to continue our store
growth in 2014. Our stores carry a broad assortment of high-quality pet supplies at everyday low prices. We offer
approximately 11,000 distinct items in our stores and 9,000 additional items on PetSmart.com, including nationally recognized
brand names, as well as an extensive selection of proprietary brands across a range of product categories.
We complement our extensive product assortment with a wide selection of services, including professional grooming and
boarding, as well as training and day camp for dogs. All our stores feature pet styling salons that provide high-quality
grooming services and most of our stores offer comprehensive dog training services. Our PetsHotels provide boarding for
dogs and cats, which includes 24-hour supervision by caregivers who are PetSmart trained to provide personalized pet care,
temperature-controlled rooms and suites, daily specialty treats and play time, as well as day camp for dogs. As of February 2,
2014, we operated 199 PetsHotels.
We make full-service veterinary care available through our strategic relationship with certain third-party operators. As of
February 2, 2014, we had full-service veterinary hospitals in 844 of our stores. We have a 21.0% investment in MMI
Holdings, Inc., which is accounted for under the equity method of accounting. MMI Holdings, Inc., through a wholly owned
subsidiary, Medical Management International, Inc., collectively referred to as “Banfield,” operated 837 of the veterinary
hospitals under the registered trade name of “Banfield, The Pet Hospital.” The remaining 7 hospitals are operated by other
third parties in Canada.
The principal challenges we face as a business are the highly competitive market in which we operate and volatility in the
macro-economy. However, we believe we have a competitive advantage in our solutions for pet parents, which cannot be
easily duplicated, including differentiated products and merchandising capabilities, as well as expansion of our proprietary and
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