PETCO Reports Results for the Fourth Quarter and Fiscal Year 2004 *
Fourth Quarter Comparable Store Net Sales Increase 5.1% on Top of
5.6% in the Prior Year Period SAN DIEGO, March 10
/PRNewswire-FirstCall/ -- PETCO Animal Supplies, Inc. (NASDAQ:PETC)
today reported unaudited financial results for the fourth quarter
and fiscal year 2004 ended January 29, 2005. The Company also
provided its guidance for the first quarter and full fiscal year
2005. Fourth Quarter Results Net sales in the fourth quarter of
2004 were $492.3 million with a comparable store net sales increase
of 5.1%. The comparable store net sales increase in the period
comes on top of a 5.6% increase in the prior year's fourth quarter.
Overall, net sales increased 10.9% over the fourth quarter of
fiscal 2003. Net earnings for the fourth quarter increased to $27.6
million, or $0.47 per diluted share. This included after-tax
charges of $4.1 million, or $0.07 per diluted share, for debt
retirement costs associated with the refinancing of the Company's
senior credit facilities and the repurchase of $16.0 million of
senior subordinated notes, and $0.8 million, or $0.01 per diluted
share, for lease accounting corrections, as described below. These
results compared to net earnings of $20.9 million, or $0.36 per
diluted share, in the prior year fourth quarter. The fourth quarter
2003 results included an after-tax charge of $6.5 million for debt
retirement costs. Excluding the previously mentioned items, pro
forma net earnings for the fourth quarter of 2004 increased 18.6%
to $32.5 million, or $0.55 per diluted share, compared to pro forma
net earnings for the fourth quarter of fiscal 2003 of $27.4
million, or $0.47 per diluted share. "The comparable store sales
increase of 5.1% in the fourth quarter extends our record of strong
comp sales increases to 48 consecutive quarters of 4.6% or
greater," commented PETCO's Chairman, Brian K. Devine. When
reviewing the Company's sales for the fourth quarter, PETCO's Chief
Executive Officer, James M. Myers commented, "As we reported
previously, we had a relatively slow start to the fourth quarter in
the election doldrums of November. Solid holiday sales in December
accelerated into January. However, in the second half of January,
harsh winter storms in the northeast and unusually rainy weather on
the west coast negatively affected customer traffic and diluted
comp sales for the quarter. Our sales performance to date in the
first quarter of fiscal 2005 resumed to levels consistent with our
experience and expectations." Full Year 2004 Results Net sales in
fiscal 2004 were $1.81 billion with a comparable store net sales
increase of 6.2%. The comparable store net sales increase comes on
top of a 5.6% increase in the prior-year period. Overall, net sales
increased 12.5% over fiscal 2003. Net earnings in fiscal 2004 were
$83.7 million, or $1.43 per diluted share, compared to net earnings
of $64.7 million, or $1.11 per diluted share, in the prior year
period. Fiscal 2004 included after-tax charges of $4.1 million, or
$0.07 per diluted share, for debt retirement costs, and $0.8
million, or $0.01 per diluted share, for the lease accounting
corrections. Fiscal 2003 included an after-tax charge of $7.4
million for debt retirement costs and a favorable resolution of an
income tax accrual of $3.4 million. Excluding the previously
mentioned items, pro forma net earnings for fiscal 2004 increased
28.8% to $88.6 million, or $1.51 per diluted share from $68.8
million, or $1.18 per diluted share, in the prior year. Improved
Operating Margins Operating income was $56.3 million in the fourth
quarter of 2004. This included a charge of $1.3 million for the
lease accounting corrections. Excluding this item, pro forma
operating margin was 11.7%, an increase of approximately 40 basis
points over the prior year period. A 90 basis point decrease in
selling, general and administrative expenses as a percentage of
sales was offset by a 50 basis point decrease in gross profit
margin to produce the overall increase in pro forma operating
margin. Gross profit margin was 36.0% for the fourth quarter of
2004. Excluding the lease accounting corrections, pro forma gross
profit margin was 36.3%. Initial gross margin improved 70 basis
points from the continued change in mix from lower margin pet food
to higher margin categories. Higher distribution costs decreased
gross margin by 55 basis points primarily related to recent
penetration into new markets, such as South Florida, where initial
entry costs have been high. Occupancy costs associated with the
delay in new store openings and increased store closing costs
decreased gross margin by 75 basis points. Adoption of Emerging
Issues Task Force Consensuses No.'s 02-16 and 03-10 Emerging Issues
Task Force Consensus No. 02-16 (EITF 02-16) addresses the
accounting for consideration received from suppliers. As required
by the transition provisions, the Company adopted EITF 02-16 in the
first quarter of 2003 for supplier arrangements entered into or
modified subsequent to December 31, 2002. This results in the
initial deferral of vendor support as a reduction of inventory,
which is realized into cost of sales as the related inventory is
sold. Because the Company follows a practice of continually
negotiating new arrangements with suppliers, the effects of this
accounting change were phased in over the course of fiscal 2003. As
of the beginning of fiscal 2004, substantially all supplier
arrangements were accounted for under the new rules. The phased-in
effect of the adoption of the standard in 2003 affected
year-over-year financial comparisons to a progressively lesser
degree each quarter over the course of 2004. The adoption of EITF
02-16 did not have a significant effect on gross margin or selling,
general and administrative expenses in the fourth quarter of 2004.
This is the final quarter that the Company will report an EITF
02-16 effect, as the first quarter of fiscal 2005 will be fully
comparable to the prior year. During the first quarter of 2004, the
Company adopted EITF 03-10, a follow-on to EITF 02-16. This change
results in certain sales incentives received from vendors being
reflected as a reduction of both net sales and cost of sales and
occupancy costs and has no effect on the Company's earnings or
balance sheet. Prior year financial statements have been
reclassified to comply with EITF 03-10. As a result, net sales and
cost of sales and occupancy costs have been reduced by
approximately $14.5 million in the fourth quarter of 2004, and
$11.7 million has been similarly reclassified in last year's fourth
quarter. This is the final quarter that the Company will report an
EITF 03-10 effect, as the first quarter of fiscal 2005 will be
fully comparable to the prior year. Lease Accounting Matters An
after-tax charge of $0.8 million, or $0.01 per diluted share, was
recorded in the fourth quarter of fiscal 2004 as a cumulative
correction of lease accounting matters. The lease accounting
correction, which is a pro forma adjustment in the Company's
reconciliation of GAAP to pro forma net earnings, will not result
in a restatement of the Company's financial statements. Background
On February 7, 2005, the Securities and Exchange Commission (SEC)
clarified certain lease accounting matters and their application
under generally accepted accounting principles. This clarification
addressed, among other things, the SEC staff's view of the
appropriate accounting for tenant improvement allowances. Based on
an internal review and consultation with its independent auditors,
the Company has identified an error in its accounting practices
associated with tenant improvement allowances. Historically, these
allowances were classified on the balance sheet as a reduction of
leasehold improvements within fixed assets and amortized as a
reduction of depreciation and amortization expense over the
estimated useful lives of the leasehold improvements or the lease
term, whichever is shorter. To correct this error, the Company will
now record tenant improvement allowances as a credit to deferred
rent, which will be amortized as a reduction of rent expense over
the lease term. This change will not affect the income statement
classification of these amounts, since both leasehold improvement
amortization expense and rent expense are classified in cost of
sales and occupancy costs in the statement of operations. The
Company has recorded the necessary adjustments to its balance sheet
as of January 29, 2005 and statements of operations and of cash
flows for the fiscal year ended January 29, 2005. The adjustments
recorded on the January 29, 2005 balance sheet were to increase
fixed assets by $23.6 million and increase deferred rent by $24.9
million. The adjustments resulted in a $1.3 million increase in
cost of sales and occupancy costs in the 2004 statement of
operations which is a pro forma adjustment in the Company's
reconciliation of GAAP to pro forma net earnings. Regarding the
fiscal 2004 statement of cash flows, the changes in lease
accounting will result in an $8.5 million increase in net cash
provided by operating activities and an $8.5 million increase in
net cash used in investing activities. Prior years' balance sheets
and statements of operations and of cash flows will not be restated
due to the immaterial effect of the changes in lease accounting on
the Company's prior results. Store Expansion Program PETCO opened
17 new stores during the fourth quarter of fiscal 2004. The
addition of 11 new stores during the period, net of relocations and
closings, increased the store base to 716 locations. During this
same period, PETCO completed 10 remodels of existing stores and now
has over 335 stores in its latest store formats. The Company opened
81 new stores during fiscal 2004, or 62 new stores net of
relocations and closings. During this same period, the Company
completed 50 remodels of existing stores. PETCO will continue to
advance its national presence in 2005 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. In commenting on PETCO's
expansion plans, Mr. Myers stated, "We now believe that there is
the potential for 1,500-1,600 PETCO stores nationwide. Recent
analysis of our targeted demographics, including population growth
and density, income levels, market share, and overall spending on
pets supports this opportunity." Outlook The Company currently
expects a comparable store net sales increase of approximately
5%-6% for the first quarter of fiscal 2005. This increase in
comparable store net sales would come on top of the 6.3% increase
achieved in the first quarter of 2004. Accordingly, the Company
currently expects earnings per diluted share in the range of
$0.33-$0.34 for the first quarter of fiscal 2005. For the full
fiscal year of 2005, the Company currently expects a comparable
store net sales increase of approximately 5%-6%. The Company
currently expects earnings per diluted share in the range of
$1.80-$1.81 for the full fiscal year 2005, which would represent an
increase of approximately 20% over the pro forma net earnings of
$1.51 per diluted share the Company is reporting today for the full
fiscal year 2004. This outlook includes the effect of the recent
lease accounting clarification by the SEC, as well as a higher
effective tax rate of 39.7%. Their combined effect reduces earnings
by $0.01-$0.02 per diluted share for fiscal 2005. The outlook for
the first quarter and full fiscal year of 2005 excludes an
after-tax charge of approximately $1.5 million, or $0.03 per
diluted share, for debt retirement costs associated with the $14.7
million of senior subordinated notes repurchased during the first
quarter of fiscal 2005. 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 725 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
$21 million in support of more than 2,500 non-profit grassroots
animal welfare organizations around the nation. 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, 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. These 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 1/29/2005 1/31/2004
1/29/2005 1/31/2004 Net sales $492,313 $443,963 $492,313 $443,963
Cost of sales and occupancy costs 314,886 280,425 313,546 280,425
Gross profit 177,427 163,538 178,767 163,538 Selling, general and
administrative expenses 121,124 113,122 121,124 113,122 Operating
income 56,303 50,416 57,643 50,416 Interest expense, net 4,589
6,073 4,589 6,073 Debt retirement costs 6,754 10,617 -- -- Earnings
before income taxes 44,960 33,726 53,054 44,343 Income taxes 17,353
12,779 20,541 16,920 Net earnings $27,607 $20,947 $32,513 $27,423
Net earnings per common share, basic $0.48 $0.36 $0.56 $0.48 Net
earnings per common share, diluted $0.47 $0.36 $0.55 $0.47 Basic
weighted average number of common shares 57,631 57,454 57,631
57,454 Diluted weighted average number of common shares 58,725
58,496 58,725 58,496 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
reconciliations set forth below are provided in accordance with
Regulation G and reconcile the pro forma financial measures with
the most directly comparable GAAP-based financial measures. 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 1/29/2005 1/31/2004
Reconciliation of GAAP to Pro Forma Gross Profit GAAP gross profit
$177,427 $163,538 Adjustments: Lease accounting adjustment 1,340 --
Pro forma gross profit $178,767 $163,538 Reconciliation of GAAP to
Pro Forma Operating Income GAAP operating income $56,303 $50,416
Adjustments: Lease accounting adjustment 1,340 -- Pro forma
operating income $57,643 $50,416 Reconciliation of GAAP to Pro
Forma Net Earnings GAAP net earnings $27,607 $20,947 Adjustments:
Lease accounting adjustment 1,340 -- Debt retirement costs 6,754
10,617 Tax effect of adjustments (3,188) (4,141) Pro forma net
earnings $32,513 $27,423 GAAP net earnings per common share,
diluted $0.47 $0.36 Pro forma net earnings per common share,
diluted $0.55 $0.47 Diluted weighted average number of shares (GAAP
and Pro forma) 58,725 58,496 PETCO Animal Supplies, Inc. Condensed
Consolidated Statements of Operations (Unaudited, in thousands,
except per share data) As Reported Pro Forma Year Year Year Year
Ended Ended Ended Ended 1/29/2005 1/31/2004 1/29/2005 1/31/2004 Net
sales $1,812,145 $1,610,431 $1,812,145 $1,610,431 Cost of sales and
occupancy costs 1,175,771 1,060,942 1,174,431 1,060,942 Gross
profit 636,374 549,489 637,714 549,489 Selling, general and
administrative expenses 472,780 411,816 472,780 411,816 Operating
income 163,594 137,673 164,934 137,673 Interest expense, net 19,337
26,115 19,337 26,115 Debt retirement costs 6,754 12,189 -- --
Earnings before income taxes 137,503 99,369 145,597 111,558 Income
taxes 53,830 34,656 57,018 42,782 Net earnings $83,673 $64,713
$88,579 $68,776 Net earnings per common share, basic $1.45 $1.13
$1.54 $1.20 Net earnings per common share, diluted $1.43 $1.11
$1.51 $1.18 Basic weighted average number of common shares 57,542
57,422 57,542 57,422 Diluted weighted average number of common
shares 58,511 58,299 58,511 58,299 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
reconciliations set forth below is provided in accordance with
Regulation G and reconcile the pro forma financial measures with
the most directly comparable GAAP-based financial measures. PETCO
Animal Supplies, Inc. Reconciliation of GAAP Financial Measures to
Pro Forma Financial Measures (Unaudited, in thousands, except per
share data) Year Year Ended Ended 1/29/2005 1/31/2004
Reconciliation of GAAP to Pro Forma Gross Profit GAAP gross profit
$636,374 $549,489 Adjustments: Lease accounting adjustment 1,340 --
Pro forma gross profit $637,714 $549,489 Reconciliation of GAAP to
Pro Forma Operating Income GAAP operating income $163,594 $137,673
Adjustments: Lease accounting adjustment 1,340 -- Pro forma
operating income $164,934 $137,673 Reconciliation of GAAP to Pro
Forma Net Earnings GAAP net earnings $83,673 $64,713 Adjustments:
Lease accounting adjustment 1,340 -- Debt retirement costs 6,754
12,189 Tax effect of adjustments (3,188) (4,754) Resolution of
income tax accrual -- (3,372) Pro forma net earnings $88,579
$68,776 GAAP net earnings per common share, diluted $1.43 $1.11 Pro
forma net earnings per common share, diluted $1.51 $1.18 Diluted
weighted average number of shares (GAAP and Pro forma) 58,511
58,299 PETCO Animal Supplies, Inc. Condensed Consolidated Balance
Sheets (In thousands) January 29, January 31, 2005 2004 (Unaudited)
ASSETS Cash and cash equivalents $36,815 $62,201 Receivables 17,875
12,514 Inventories 167,038 139,513 Deferred tax assets 18,012
12,047 Other current assets 9,481 12,907 Total current assets
249,221 239,182 Fixed assets, net 333,300 256,347 Goodwill 40,179
40,289 Other assets 16,650 16,044 $639,350 $551,862 LIABILITIES AND
STOCKHOLDERS' EQUITY Accounts payable $82,142 $63,773 Accrued
expenses and other current liabilities 136,078 124,483 Current
portion of long-term debt 353 1,920 Total current liabilities
218,573 190,176 Senior credit facility, excluding current portion
85,000 139,370 Senior subordinated notes payable 103,982 120,000
Deferred rent and other liabilities 92,703 49,183 Total liabilities
500,258 498,729 Stockholders' equity 139,092 53,133 $639,350
$551,862 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/
Copyright
Petco Animal Supplies (NASDAQ:PETC)
Historical Stock Chart
From May 2024 to Jun 2024
Petco Animal Supplies (NASDAQ:PETC)
Historical Stock Chart
From Jun 2023 to Jun 2024