PETCO Reports First Quarter Fiscal 2005 Results - Pro Forma Net
Earnings Increase to $0.32 Per Diluted Share SAN DIEGO, May 25
/PRNewswire-FirstCall/ -- PETCO Animal Supplies, Inc.
(NASDAQ:PETCE) today reported financial results for the first
quarter ended April 30, 2005. The Company also provided financial
guidance for the second quarter and full fiscal year 2005. First
Quarter Results Net sales in the first quarter of 2005 were $479.6
million with a comparable store net sales increase of 5.2%. The
comparable store net sales increase in the period comes on top of a
6.3% increase in the prior year's first quarter. Overall, net sales
increased 12.6% over the first quarter of fiscal 2004. Net earnings
for the first quarter increased to $17.2 million, or $0.29 per
diluted share. This included an after-tax charge of $1.5 million,
or $0.03 per diluted share, for debt retirement costs associated
with the repurchase of $14.7 million of the Company's 10.75% senior
subordinated notes during the quarter. These results compared to
net earnings of $15.8 million, or $0.27 per diluted share, in the
prior year first quarter. Excluding the debt retirement costs, pro
forma net earnings for the first quarter of 2005 increased 18.8% to
$18.7 million, or $0.32 per diluted share, compared to net earnings
for the first quarter of fiscal 2004 of $15.8 million, or $0.27 per
diluted share. "The comparable store sales increase of 5.2% in the
first quarter extends our record of strong comp sales increases to
49 consecutive quarters of 4.6% or greater," commented PETCO's
Chairman, Brian K. Devine. "We are excited about the strength of
services in the first quarter, with services sales increasing
24.1%. Our service offerings are designed to meet the needs and
exceed the expectations of our best customers and further
differentiate PETCO as a leader in the pet industry," commented
PETCO's Chief Executive Officer, James M. Myers. Gross Profit and
Operating Margins Gross profit margin was 33.8% for the first
quarter of fiscal 2005. Initial gross margin improved 40 basis
points as a percentage of sales from the continued change in mix
from lower margin pet food to higher margin categories. Occupancy
costs as a percentage of sales increased 20 basis points as a
result of a larger number of new store openings and higher store
closing costs, as well as from the effect of the recent lease
accounting clarification by the SEC. Distribution related costs
increased 70 basis points as a percentage of sales primarily due to
the Company's initial entry into a number of new markets, such as
South Florida, as well as more remote markets. Distribution
expenses overall were further impacted by higher fuel costs. These
higher distribution and occupancy costs resulted in an overall net
decrease of 50 basis points in gross margin. The Company realized
40 basis points of leverage in selling, general and administrative
expenses primarily through savings in personnel costs, store
operations, and the planned timing of advertising. Included in
selling, general and administrative expenses were higher
pre-opening costs related to opening 15 more stores than in the
prior-year period. Overall, operating income increased 12% to $34.6
million, or 7.2% of net sales, in the first quarter of 2005. Store
Expansion Program PETCO opened 34 new stores during the first
quarter of fiscal 2005. The addition of 25 new stores during the
period, net of relocations and closings, increased the Company's
store base to 741 locations. PETCO continued with its ongoing
program to refresh its store base, completing the remodels of 15
stores to its Pisces format in the first quarter, and now has over
385 stores in its newer store formats. "The addition of nearly 50
Pisces format stores made this quarter one of our most active store
development periods. More than half of our store base is now in one
of our newer, exciting store formats," stated Mr. Myers. In 2005,
PETCO plans to advance its national presence by opening
approximately 90 new stores, or approximately 70 new stores net of
relocations and closings, while continuing with its strategic
initiative of remodeling up to 50 existing stores. The Company
plans to open two additional regional distribution centers -- one
in Denver, CO and the other in Orlando, FL -- later in fiscal 2005.
These new facilities will be of similar size to the five existing
regional distribution centers, using the same systems and
infrastructure. The Company believes that the new facilities will
help mitigate the rising costs in its Distribution Operation noted
above. Outlook "There are several factors to be considered as part
of our financial guidance for the second quarter and fiscal year
2005 including costs associated with the Distribution Operation;
the continuing costs of the independent, external review of that
Operation; investments in our remerchandising initiative;
refinements to our marketing program; and the effects of the
generally sluggish macro-economic environment," commented Rodney
Carter, PETCO's Senior Vice President and Chief Financial Officer.
"As a result, we are changing our earnings guidance range to
reflect these factors." The Company currently expects a comparable
store net sales increase of approximately 4% - 5% for the second
quarter, and approximately 5% for the full year of fiscal 2005.
Accordingly, the Company expects earnings per diluted share in the
range of $0.33 - $0.35 for the second quarter and pro forma net
earnings of $1.66 - $1.72 per diluted share, which excludes the
effects of the debt retirement costs noted above, for the full
fiscal year 2005. Filing of Fiscal 2004 Form 10-K and Certain
Balance Sheet Data The Company previously announced a delay in the
filing of its 2004 Form 10-K pending the completion of its internal
review into errors involving the under-accrual of expenses in the
Company's Distribution Operation. The Company expects to file its
2004 Form 10-K within the next couple of weeks; as such, a
condensed consolidated balance sheet has not been presented in this
release pending the filing of the Form 10-K. However, certain key
balance sheet data as of the first quarter ended April 30, 2005
includes: cash and cash equivalents of $43.6 million, inventories
of $171.6 million, and long-term debt of $184.3 million. About
PETCO Animal Supplies, Inc. PETCO is a leading specialty retailer
of premium pet food, supplies and services. PETCO's vision is to
best promote, through its people, the highest level of well being
for companion animals, and to support the human-animal bond. PETCO
generated net sales of more than $1.8 billion in fiscal 2004. It
operates over 740 stores in 47 states and the District of Columbia,
as well as a leading destination for on-line pet food and supplies
at http://www.petco.com/. Since its inception in 1999, The PETCO
Foundation, PETCO's non-profit organization, has raised more than
$23 million in support of more than 2,700 non-profit grassroots
animal welfare organizations around the nation. Forward-Looking
Statements Certain statements in this news release that are not
historical fact constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
Stockholders and other readers are cautioned not to place undue
reliance on these forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other
factors, including the possibility that, in finalizing year-end
processes, PETCO may determine that it had a significant deficiency
or material weakness in internal control over financial reporting
for fiscal 2004, which may cause the actual results of PETCO to be
materially different from historical results or from any results
expressed or implied by such forward-looking statements or that
other facts may come to the Company's attention which may result in
a restatement of the Company's financial statements. These and
other factors, such as performance of new stores, ability to
execute expansion strategy and sustain growth, debt levels,
reliance on vendors and exclusive distribution arrangements,
competition, integration of operations as a result of acquisitions,
compliance with various state and local regulations and dependence
on senior management, are discussed from time to time in the
reports filed by PETCO with the Securities and Exchange Commission,
including the Annual Report on Form 10-K for the fiscal year ended
January 31, 2004. PETCO Animal Supplies, Inc. Condensed
Consolidated Statements of Operations (Unaudited, in thousands,
except per share data) As Reported Pro Forma Quarter Quarter
Quarter Quarter Ended Ended Ended Ended 04/30/2005 05/01/2004
04/30/2005 05/01/2004 Net sales $479,594 $425,877 $479,594 $425,877
Cost of sales and occupancy costs 317,541 279,872 317,541 279,872
Gross profit 162,053 146,005 162,053 146,005 Selling, general and
administrative expenses 127,431 115,077 127,431 115,077 Operating
income 34,622 30,928 34,622 30,928 Interest expense, net 3,586
4,929 3,586 4,929 Debt retirement costs 2,447 -- -- -- Earnings
before income taxes 28,589 25,999 31,036 25,999 Income taxes 11,350
10,242 12,321 10,242 Net earnings $17,239 $15,757 $18,715 $15,757
Net earnings per common share, basic $0.30 $0.27 $0.32 $0.27 Net
earnings per common share, diluted $0.29 $0.27 $0.32 $0.27 Basic
weighted average number of common shares 57,706 57,471 57,706
57,471 Diluted weighted average number of common shares 58,713
58,450 58,713 58,450 This earnings release includes information
presented on a pro forma basis. These pro-forma financial measures
are considered "non-GAAP" financial measures within the meaning of
SEC Regulation G. The Company believes that this presentation of
pro forma results provides useful information to both management
and investors by excluding specific costs and expenses that we
believe are not indicative of core operating results. The
presentation of this additional information should not be
considered in isolation or as a substitute for results prepared in
accordance with generally accepted accounting principles. The
reconciliation set forth below is provided in accordance with
Regulation G and reconciles the pro forma financial measure with
the most directly comparable GAAP-based financial measure. PETCO
Animal Supplies, Inc. Reconciliation of GAAP Financial Measures to
Pro Forma Financial Measures (Unaudited, in thousands, except per
share data) Quarter Quarter Ended Ended 04/30/2005 05/01/2004
Reconciliation of GAAP to Pro Forma Net Earnings GAAP net earnings
$17,239 $15,757 Adjustments: Debt retirement costs 2,447 -- Tax
effect of adjustment (971) -- Pro forma net earnings $18,715
$15,757 GAAP net earnings per common share, diluted $0.29 $0.27 Pro
forma net earnings per common share, diluted $0.32 $0.27 Diluted
weighted average number of shares (GAAP and Pro forma) 58,713
58,450 DATASOURCE: PETCO Animal Supplies, Inc. CONTACT: Rodney
Carter, Senior Vice President and Chief Financial Officer of PETCO
Animal Supplies, Inc., +1-858-202-7848 Web site:
http://www.petco.com/
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