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| PETM > SEC Filings for PETM > Form 10-Q on 23-Aug-2012 | All Recent SEC Filings |
23-Aug-2012
Quarterly Report
Except for historical information, the following discussion contains forward-looking statements that involve risks and uncertainties. In the normal course of business, our financial position is routinely subjected to a variety of risks, including market risks associated with store expansion, investments in information systems, international expansion, vendor reliability, competitive forces and government regulatory actions. Our actual results could differ materially from projected results due to some or all of the factors discussed below. You should carefully consider the risks and uncertainties described below:
• A decline in consumer spending or a change in consumer preferences could reduce our sales or profitability and harm our business.
• The pet products and services retail industry is very competitive and continued competitive forces may adversely impact our business and financial results.
• Comparable store sales growth may decrease. If we are unable to increase sales at our existing stores, our results of operations could be harmed.
• We may be unable to continue to open new stores and enter new markets successfully. If we are unable to successfully reformat existing stores and open new stores, our results of operations could be harmed. Also, store development may place increasing demands on management and operating systems and may erode sales at existing stores.
• Our quarterly operating results may fluctuate due to seasonal changes associated with the pet products and services retail industry and the timing of expenses, new store openings and store closures.
• Failure to successfully manage and execute our marketing initiatives could have a negative impact on our business.
• A disruption, malfunction or increased costs in the operation, expansion or replenishment of our distribution centers or our supply chain would impact our ability to deliver to our stores or increase our expenses, which could harm our sales and results of operations.
• Failure to successfully manage our inventory could harm our business.
• If our information systems fail to perform as designed or are interrupted for a significant period of time, our business could be harmed.
• If we fail to protect the integrity and security of customer and associate information, our business could be adversely impacted.
• The disruption of the relationship with or the loss of any of our key vendors, including our vendors with whom we have exclusive relationships, a decision by our vendors to make their products available in supermarkets or through warehouse clubs and other mass and retail merchandisers, the inability of our vendors to provide quality products in a timely or cost-effective manner, the availability of generic products, or risks associated with the suppliers from whom products are sourced, all could harm our business.
• Our expanded offering of proprietary branded products may not improve our financial performance and may expose us to product liability claims.
• Food safety, quality and health concerns could affect our business.
• We depend on key executives, store managers and other personnel and may not be able to retain or replace these employees or recruit additional qualified personnel, which could harm our business.
• Our international operations may result in additional market risks, which may harm our business.
• Our business may be harmed if the operation of veterinary hospitals at our stores is limited or fails to continue.
• Our business could be harmed if we were unable to effectively manage our cash flow and raise any needed additional capital on acceptable terms.
• Failure to successfully integrate any business we acquire could have an adverse impact on our financial results.
• Failure to protect our intellectual property could have a negative impact on our operating results.
• A determination that we are in violation of any contractual obligations or government regulations could result in a disruption to our operations and could impact our financial results.
• Failure of our internal controls over financial reporting could harm our business and financial results.
• Changes in laws, accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results.
• An unfavorable determination by tax regulators may cause our provision for income and other taxes to be inadequate and may result in a material impact to our financial results.
• Failure to obtain commercial insurance at acceptable prices or failure to adequately reserve for self-insured exposures might have a negative impact on our business.
• Pending legislation, weather, catastrophic events, disease, or other factors, could disrupt our operations, supply chain and the supply of small pets and products we sell, which could harm our reputation and decrease sales.
• Fluctuations in the stock market, as well as general economic and market conditions, may impact our operations, sales, financial results and market price of our common stock.
• Volatility and disruption to the global capital and credit markets may adversely affect our ability to access credit and the financial soundness of our suppliers.
• We have implemented some anti-takeover provisions that may prevent or delay an acquisition of us that may not be beneficial to our shareholders.
For more information about these risks, see the discussion under the heading "Risk Factors" in our Form 10-K for the year ended January 29, 2012, filed with the Securities and Exchange Commission on March 23, 2012, which is incorporated herein by reference.
Overview
Based on our 2011 net sales of $6.1 billion, we are North America's leading specialty provider of products, services and solutions for the lifetime needs of pets. As of July 29, 2012, we operated 1,249 stores, and we anticipate opening 30 net new stores during the remainder of 2012. 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 8,000 additional items on our website, 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 pet services, including grooming, training, boarding and day camp. All our stores feature pet styling salons that provide high-quality grooming services and offer comprehensive pet 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, an on-call veterinarian, temperature controlled rooms and suites, daily specialty treats and play time, as well as day camp for dogs. As of July 29, 2012, we operated 194 PetsHotels, and we anticipate opening 2 additional PetsHotels during the remainder of 2012.
We make full-service veterinary care available through our strategic relationship with certain third-party operators. As of July 29, 2012, full-service veterinary hospitals were in 809 of our stores. MMI Holdings, Inc., through a wholly owned subsidiary, Medical Management International, Inc., collectively referred to as "Banfield," operated 802 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 the continuing changes in the macro-economy. However, we believe we have a competitive advantage in our solutions for the Total Lifetime CareSM of pets, including pet services and proprietary brands, which we think cannot be easily duplicated. Additionally, we consider our cash flow from operations and cash on hand to be adequate to meet our operating, investing and financing needs in the foreseeable future, and we continue to have access to our revolving credit facility. We continuously assess the economic environment and market conditions to guide our decisions regarding our uses of cash, including capital expenditures, investments, dividends and the purchase of treasury stock.
Executive Summary
• Diluted earnings per common share increased 31.5% to $0.71 on net income of $78.5 million, for the thirteen weeks ended July 29, 2012, compared to diluted earnings per common share of $0.54 on net income of $61.2 million for the thirteen weeks ended July 31, 2011. Diluted earnings per common share were $1.57 and $1.15 for the twenty-six weeks ended July 29, 2012, and July 31, 2011, respectively.
• Net sales increased 8.9% to $1.6 billion for the thirteen weeks ended July 29, 2012, compared to $1.5 billion for the thirteen weeks ended July 31, 2011. The increase in net sales was partially impacted by $4.1 million in unfavorable foreign currency fluctuations for the thirteen weeks ended July 29, 2012. Net sales increased 9.1% to $3.2 billion for the twenty-six weeks ended July 29, 2012, compared to $3.0 billion for the twenty-six weeks ended July 31, 2011. The increase in net sales was partially impacted by $5.9 million in unfavorable foreign currency fluctuations for the twenty-six weeks ended July 29, 2012.
• Comparable store sales, or sales in stores open at least one year, increased 7.0% and 7.2% for the thirteen and twenty-six weeks ended July 29, 2012.
• Services sales increased 7.3% to $190.9 million for the thirteen weeks ended July 29, 2012, compared to $177.9 million for the thirteen weeks ended July 31, 2011. Services sales increased 7.8% to $371.9 million for the twenty-six weeks ended July 29, 2012, compared to $345.0 million for the twenty-six weeks ended July 31, 2011.
• As of July 29, 2012, we had $282.0 million in cash and cash equivalents and $71.9 million in restricted cash. We had no short-term debt, and did not borrow against our revolving credit facility during the twenty-six weeks ended July 29, 2012.
• We purchased 0.7 million shares of our common stock for $46.7 million during the thirteen weeks ended July 29, 2012, and 3.8 million shares of our common stock for $221.6 million during the twenty-six weeks ended July 29, 2012.
Critical Accounting Policies and Estimates
We discuss our critical accounting policies and estimates in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the year ended January 29, 2012. We have made no significant change in our critical accounting policies since January 29, 2012.
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