PETCO Animal Supplies, Inc.
(Logo: http://www.newscom.com/cgi-bin/prnh/20030603/PETCOLOGO ) Fourth Quarter Results
Net sales in the fourth quarter of 2003 were $455.7 million with a comparable store net sales increase of 5.6%. The comparable store net sales increase in the period comes on top of a 6.0% increase in the prior year's fourth quarter. Overall, net sales increased 12.4% over the fourth quarter of fiscal 2002.
Net earnings for the fourth quarter were $20.9 million, or $0.36 per diluted share, including a charge of $10.6 million, or $0.11 per diluted share, for debt retirement costs associated with the successful tender offer for $50 million in principal amount of the Company's 10 3/4% senior subordinated notes, compared with net earnings of $19.4 million, or $0.33 per diluted share, in the prior-year fourth quarter. The fourth quarter of fiscal 2002 included a charge of $3.5 million related to a litigation settlement.
Excluding the previously mentioned items and related tax effects, pro forma net earnings for the fourth quarter of fiscal 2003 increased 29% to $27.4 million, or $0.47 per diluted share, compared to pro forma net earnings for the fourth quarter of fiscal 2002 of $21.3 million, or $0.37 per diluted share.
Commenting on PETCO's fourth quarter performance, Brian K. Devine, Chairman of the Board, said: "The 5.6% comparable store net sales increase we achieved in the fourth quarter again illustrates the exceptional and consistent growth PETCO has achieved for more than a decade. We are also pleased to report a 29% increase to pro forma net earnings for the period, or $0.47 per diluted share. Strong operating performance and cash flows funded over $96 million in capital expenditures during fiscal 2003 to continue growing the business while reducing debt by over $100 million. We enjoy significant financial flexibility to take advantage of opportunities as they arise."
Full Year 2003 Results
Net sales in fiscal 2003 were $1.65 billion with a comparable store net sales increase of 5.6%. The comparable store net sales increase comes on top of an 8.0% increase in the prior-year period. Overall, net sales increased 12% over fiscal 2002.
Net earnings available to common stockholders in fiscal 2003 were $64.7 million, or $1.11 per diluted share, compared with $11.7 million, or $0.20 per diluted share, in the prior-year. Fiscal 2003 includes a charge of $12.2 million, or $0.07 per diluted share, for debt retirement costs associated with the successful tender offer for $50 million in principal amount of the Company's 10 3/4% senior subordinated notes and the early retirement of $50 million of long-term debt. In the first quarter of fiscal 2002, PETCO completed an initial public offering, and the 2002 results include the following items that were recorded in the first quarter: $12.8 million in management fees and termination costs related to the termination in February 2002 of a management services agreement that was entered in conjunction with the Company's leveraged recapitalization; $8.4 million in stock-based compensation expense and other primarily financing and legal costs of $1.2 million related to the Company's initial public offering; debt retirement costs of $3.3 million related to the early repurchase of senior subordinated notes with proceeds of the offering; and, an increase in the carrying amount and premium on redemption of previously outstanding preferred stock of $20.5 million. Additionally, the results for the fourth quarter of fiscal 2002 include a charge of $3.5 million related to a litigation settlement.
Excluding the previously mentioned items and related tax effects, pro forma net earnings for fiscal 2003 increased to $68.8 million, or $1.18 per diluted share, a 32% increase over the $52.0 million, or $0.90 per diluted share, in the prior year.
Improved Gross Profit Margins
Gross profit margin improved 290 basis points to 35.9% in the fourth quarter of 2003 compared to 33.0% for the fourth quarter of 2002. The gross profit improvement was driven by the continuing change in mix from lower margin pet food sales to higher margin categories, such as pet accessories, supplies and services which accounted for 90 basis points of the improvement. The balance of the improvement is a result of the adoption of Emerging Issues Task Force Consensus No. 02-16 ("EITF 02-16"), an accounting change related to the treatment of vendor consideration. As a percentage of net sales, the net benefit consisted of the initial reclassification of 250 basis points from selling, general and administrative expenses, before the deferral of 50 basis points to inventory.
Store Expansion Program
PETCO opened 63 new stores during fiscal 2003. The addition of approximately 50 new stores, net of relocations and closings, during the period has increased the store base to 654 stores. With 65-70 new stores, or approximately 55-60 new stores net of relocations and closings, planned for 2004, PETCO will continue to advance its national brand presence.
In addition to its new store openings in fiscal 2003, PETCO completed 50 remodels of existing stores to its latest store format. In fiscal 2004, the Company plans to maintain its commitment to this initiative by remodeling up to an additional 75 existing stores to the latest store format.
Outlook
The Company currently expects a comparable store net sales increase of approximately 5% - 6% in the first quarter of fiscal 2004. This increase in comparable store net sales would come on top of the 4.6% increase achieved in the first quarter of fiscal 2003. Accordingly, the Company currently expects first quarter earnings per diluted share in the range of $0.24 - $0.25, which would represent an increase of more than 25% over the $0.19 per diluted share reported in the first quarter of fiscal 2003.
For fiscal 2004, the Company currently expects a comparable store net sales increase of approximately 5% - 6%. Including additional expansion costs associated with its planned store openings and remodels, the Company currently expects diluted earnings per common share in the range of $1.45 - $1.46 for the full fiscal year 2004, an increase of more than 20% over the pro forma net earnings of $1.18 per common share which the Company is reporting today for the full fiscal year 2003.
About PETCO Animal Supplies
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 $1.65 billion in fiscal 2003. It operates 654 stores in 43 states and the District of Columbia, as well as a leading destination for on-line pet food and supplies at www.petco.com. Since its inception in 1999, The PETCO Foundation, PETCO's non-profit organization, has raised more than $15 million in support of more than 1,900 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 February 1, 2003.
PETCO Animal Supplies, Inc.
Consolidated Statements of Operations
(Unaudited, in thousands, except per share data)
As Reported Pro Forma
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
01/31/2004 02/01/2003 01/31/2004 02/01/2003
Net sales $455,651 $405,423 $455,651 $405,423
Cost of sales and
occupancy costs 292,113 271,438 292,113 271,438
Gross profit 163,538 133,985 163,538 133,985
Selling, general
and administrative
expenses 113,122 91,412 113,122 91,412
Stock based
compensation and
other costs -- 212 -- 212
Litigation Settlement -- 3,497 -- --
Operating income 50,416 38,864 50,416 42,361
Interest expense, net 6,073 7,398 6,073 7,398
Debt retirement costs 10,617 -- -- --
Earnings before
income taxes 33,726 31,466 44,343 34,963
Income taxes 12,779 12,034 16,920 13,636
Net earnings $20,947 $19,432 $27,423 $21,327
Net earnings per
common share, basic $0.36 $0.34 $0.48 $0.37
Net earnings per
common share, diluted $0.36 $0.33 $0.47 $0.37
Basic weighted
average number
of common shares 57,454 57,373 57,454 57,373
Diluted weighted
average number
of common shares 58,496 58,007 58,496 58,007
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 to Pro Forma Net Earnings per Common Share
(Unaudited, in thousands, except per share data)
Quarter Quarter
Ended Ended
01/31/2004 02/01/2003
GAAP net earnings available to
common stockholders $20,947 $19,432
Adjustments:
Litigation Settlement -- 3,497
Debt retirement costs 10,617 --
Tax effect (Note 1) (4,141) (1,602)
Pro forma net earnings available to
common stockholders $27,423 $21,327
GAAP net earnings per common share,
diluted $0.36 $0.33
Pro forma net earnings per
common share, diluted $0.47 $0.37
GAAP diluted weighted average number
of shares 58,496 58,007
Note 1 - The Company used a standard tax rate of 39% for pro forma
purposes in the current year.
PETCO Animal Supplies, Inc.
Consolidated Statements of Operations
(Unaudited, in thousands, except per share data)
As Reported Pro Forma
Year Year Year Year
Ended Ended Ended Ended
01/31/2004 02/01/2003 01/31/2004 02/01/2003
Net sales $1,654,138 $1,476,634 $1,654,138 $1,476,634
Cost of sales and
occupancy costs 1,104,649 1,016,249 1,104,649 1,014,789
Gross profit 549,489 460,385 549,489 461,845
Selling, general
and administrative
expenses 411,816 343,752 411,816 343,752
Management fees and
termination costs -- 12,760 -- --
Stock based
compensation and
other costs -- 8,388 -- 212
Litigation settlement -- 3,497 -- --
Operating income 137,673 91,988 137,673 117,881
Interest expense, net 26,115 32,666 26,115 32,666
Debt retirement costs 12,189 3,336 -- --
Earnings before
income taxes 99,369 55,986 111,558 85,215
Income taxes 34,656 23,845 42,782 33,234
Net earnings 64,713 32,141 68,776 51,981
Increase in carrying
amount and premium
on redemption of
preferred stock -- (20,487) -- --
Net earnings
available to
common stockholders $64,713 $11,654 $68,776 $51,981
Net earnings per
common share, basic $1.13 $0.21 $1.20 $0.91
Net earnings per
common share, diluted $1.11 $0.20 $1.18 $0.90
Basic weighted
average number
of common shares 57,422 56,094 57,422 57,298
Diluted weighted
average number
of common shares 58,299 56,906 58,299 57,985
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 to Pro Forma Net Earnings per Common Share
(Unaudited, in thousands, except per share data)
Year Year
Ended Ended
01/31/2004 02/01/2003
GAAP net earnings available to
common stockholders $64,713 $11,654
Adjustments:
Management fees and termination costs -- 12,760
Stock based compensation and other costs
(including 0 and $1,460, respectively,
in cost of sales and occupancy costs) -- 13,133
Debt retirement costs 12,189 3,336
Increase in carrying amount and premium
on redemption of preferred stock -- 20,487
Resolution of income tax accrual (3,372) --
Tax effect (Note 1) (4,754) (9,389)
Pro forma net earnings available
to common stockholders $68,776 $51,981
GAAP net earnings per common share,
diluted $1.11 $0.20
Pro forma net earnings per common share,
diluted $1.18 $0.90
GAAP diluted weighted average number
of shares 58,299 56,906
Incremental shares from assumed
conversion of stock options
and warrants -- 1,079
Pro forma diluted weighted average
number of common shares 58,299 57,985
Note 1 - The Company used a standard tax rate of 39% for pro forma
purposes in the current year.
PETCO Animal Supplies, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
January 31, February 1,
2004 2003
(Unaudited)
ASSETS
Cash and cash equivalents $62,201 $108,937
Receivables 12,514 14,303
Inventories 139,513 138,410
Deferred tax assets 12,047 14,492
Other current assets 12,907 7,459
Total current assets 239,182 283,601
Fixed assets, net 256,347 218,442
Goodwill 40,289 40,644
Other assets 16,044 12,168
$551,862 $554,855
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $63,773 $61,308
Accrued expenses & other liabilities 126,403 109,242
Total current liabilities 190,176 170,550
Long-term debt, excluding current portion 139,370 190,500
Senior subordinated notes payable 120,000 170,000
Deferred rent and other liabilities 49,183 34,888
Total liabilities 498,729 565,938
Stockholders' equity (deficit) 53,133 (11,083)
$551,862 $554,855
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SOURCE: PETCO Animal Supplies, Inc.
CONTACT: Rodney Carter, Senior Vice President and Chief Financial
Officer of PETCO Animal Supplies, Inc., +1-858-453-7845, option #2
Web site: http://www.petco.com/
