PetSmart Reports Second Quarter 2007 Results

* Earnings of $0.35 per Share
* Comp Sales Growth of 4 Percent
* Board Authorizes $300 Million Stock Purchase Plan and $225 Million ASR

PHOENIX--(BUSINESS WIRE)--Aug. 15, 2007--PetSmart, Inc. (NASDAQ: PETM), today reported net income of $47.1 million, or $0.35 per diluted share, for the second fiscal quarter of 2007. That compares with net income of $34.6 million, or $0.25 per diluted share, for the second quarter of fiscal 2006.

Included in the company's second quarter 2007 results was $2.2 million, or approximately $0.01 per share, of net after tax expense to exit the State Line Tack business. The net expense included accelerated depreciation of assets and costs to remerchandise the equine sections of stores.

Excluding those items, non-GAAP earnings per diluted share for the second quarter of fiscal 2007 were $0.36. The company's earnings per diluted share exceeded expectations due to a benefit related to the renegotiation of a contract with MMI Holdings Inc., and favorable results in insurance expense based on updated actuarial estimates. Non-GAAP earnings per diluted share were $0.27 for the second quarter of 2006.

"PetSmart has yet again demonstrated its resilience, our associates have shown a continued ability to execute on our list of initiatives, and the pet parent consumer is showing signs of strength," said Phil Francis, chairman and CEO.

Sales

Net sales for the second quarter of 2007 were $1.1 billion, compared to $1.0 billion for the same period in 2006, and comparable store sales - or sales in stores open at least a year - grew 4.0 percent in the second quarter, on top of 4.9 percent in the same period in 2006. Excluding the State Line Tack business, comparable store sales for the core pet business for the second quarter grew 5.0 percent.

Pet services sales were $117.2 million, up 19.5 percent from the second quarter last year.

PetSmart opened 40 new stores, including the acquisition of stores in Canada, and closed two locations during the second quarter of 2007, which compares with 22 new stores and one closure during the second quarter of 2006.

Gross margins and expense

Gross margins were 31.0 percent in the second quarter of 2007, compared with 29.9 percent in the same period in 2006.

Non-GAAP gross margins in the second quarter of 2006 were 30.4 percent.

Operating, general and administrative expenses were 23.4 percent of net sales in the second quarter of 2007, compared with 23.8 percent in the second quarter of 2006.

Excluding the net expense from exiting the State Line Tack business, operating, general and administrative expenses were 23.1 percent of net sales in the second quarter of 2007. That compares with non-GAAP operating, general and administrative expenses in the second quarter of 2006 of 23.5 percent.

Dividend payments

As previously announced, the company paid a dividend of $0.03 per share on August 10, 2007, to shareholders of record at the close of business on July 27, 2007.

Stock Purchase Program

PetSmart purchased approximately 1.9 million of its shares at an average price of $33.97 during the second quarter of 2007. At the end of the second quarter, the company had used all its $250 million authorization.

The Board of Directors has authorized a new program that allows the company to purchase $300 million of stock over two years. PetSmart will use a portion of the authorization immediately to execute an accelerated share repurchase (ASR) program, with Lehman Brothers as the counterparty, for the repurchase of $225 million of common stock no later than January 2008. The exact number of repurchased shares will be determined at the conclusion of the agreement. The majority of the impact of the ASR will be included in the Company's share count by the end of September. Combined with the $89.9 million of stock purchases to date, the company will purchase nearly $315 million of stock in fiscal 2007.

The company has replaced its existing $125 million credit facility with a $350 million five-year revolving credit facility. The company will fund the $225 million ASR program through cash and its credit facility. It expects to use the remaining $75 million available under the new stock purchase authorization opportunistically.

"With our solid business model and the initiatives we have in place, we remain confident in our future prospects, and our ability to generate long-term shareholder value," Francis said. "In addition, we believe in providing our shareholders with a tangible return in the form of dividends and share repurchases."

Outlook

PetSmart projects comparable store sales growth in the low- to mid-single digits for the third quarter of 2007 and for the full year.

The company estimates earnings of $0.21 to $0.23 per share in the third quarter, which includes an impact of $0.04 per share to exit the State Line Tack business.

For all of 2007, PetSmart expects earnings of $2.08 to $2.10 per share which includes $0.47 per share from the sale of shares of MMI in the first quarter of 2007. In addition the change to the equity method of accounting for the investment in MMI should result in a $0.01 per share benefit. Also included is a loss of approximately $0.08 per share related to exiting the State Line Tack business, an estimated $0.08 per share benefit for a 53rd week of sales in 2007, and about a $0.01 benefit from the ASR.

Conference call information

PetSmart management has scheduled a teleconference for 4:30 p.m. (EDT) today to discuss results for the second quarter of 2007 as well as the current outlook. This teleconference will be Web-cast live for all investors at www.petm.com or www.streetevents.com

The Web-cast will be available until the company announces results for the third quarter of 2007. In addition, you can listen to the call live by dialing 800-709-7416 (within the United States and Canada) or 706-679-5320 (for international callers), code 2204885. A phone replay also will be available through August 29, 2007, at 800-642-1687 in the United States and Canada, or at 706-645-9291 for international callers, code 2204885.

About PetSmart

PetSmart, Inc. is the largest specialty pet retailer of services and solutions for the lifetime needs of pets. The company operates more than 966 pet stores in the United States and Canada, a growing number of in-store PetsHotel cat and dog boarding facilities, and is a leading online provider of pet supplies and pet care information (www.petsmart.com). PetSmart provides a broad range of competitively priced pet food and pet products; and offers complete pet training, pet grooming, pet boarding, doggie day camp and pet adoption services. Since 1994, PetSmart Charities, Inc., an independent 501(c)(3) non-profit animal welfare organization, has donated more than $52 million to animal welfare programs and, through its in-store pet adoption programs, has saved the lives of more than 3 million pets.

Forward-looking statements

This news release contains forward-looking statements including statements relating to future revenue growth and goals, our expectations regarding the exit from our State Line Tack product line, our expectations with respect to our investment in MMI and future business opportunities that involve substantial risks and uncertainties. Such risks and uncertainties include, but are not limited to, general economic conditions, competitive forces, our ability to successfully exit the State Line Tack product line and our ability to manage our operations and growth. Actual results and developments may therefore differ materially from those described in this release. For more information about PetSmart, Inc., and risks arising when investing in PetSmart, Inc., you are directed to the company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Statement of utility

PetSmart continues to provide all information required in accordance with Generally Accepted Accounting Principles (GAAP), but it believes that evaluating its ongoing operating results may be difficult if an investor is limited to reviewing only GAAP financial measures. Accordingly, PetSmart uses non-GAAP financial measures of its performance internally to evaluate its ongoing operations and to allocate resources within the organization.

PetSmart's management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The non-GAAP financial measures used by PetSmart may not be consistent with the presentation of similar companies in PetSmart's industry. However, PetSmart presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate PetSmart's operating results in a manner that focuses on what it believes to be its ongoing business operations.

PetSmart's management believes it is useful for itself and investors to review both GAAP information and non-GAAP measures of earnings per share, and the related impacts on gross margins and operating, general and administrative expenses as adjusted. For the second quarter of 2007, these non-GAAP measures exclude the effect of net expense from the exit of the State Line Tack product line. For the second quarter of 2006, the non-GAAP measures exclude the effect of costs related to an acquisition the company chose not to pursue, distribution costs for a re-racking project, a change in accounting practice for early pay discounts and a tax benefit. PetSmart's management believes that these measures allow investors to have a better understanding of the overall performance of PetSmart's business and its ability to perform in subsequent periods.

Management believes the inclusion of these non-GAAP financial measures provides consistency and comparability of financial results and better enables investors to evaluate the ongoing operations and prospects of PetSmart by providing better comparisons. Whenever PetSmart uses such a non-GAAP financial measure, it strives where possible to provide a reconciliation of non-GAAP financial measures to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure.

Source: PetSmart

Bookmark/Search this post with:

 •    •    •    •    •    •    •    •    •    •    •    •