PetSmart, Inc. (PETM)
Q3 2008 Earnings Call Transcript
November 19, 2008 5:30 p.m. ET

Executives

David Cone – Vice President of Investor Relations & Treasury
Philip L. Francis – Chairman & Chief Executive Officer
Robert F. Moran – President & Chief Operating Officer
Lawrence P. Molloy – Chief Financial Officer & Senior Vice President

Analysts

Matthew Fassler – Goldman Sachs & Co.
Alan Rifkin – Merrill Lynch
Gary Balter – Credit Suisse
David Mann – Johnson Rice & Company
Matt Nemer – Thomas Weisel Partners
Peter Benedict – Wachovia Capital Markets, LLC
Michael Baker – Deutsche Bank
Christopher Horvers – JP Morgan
David Cumberland – Robert W. Baird & Co., Inc.
Dan Wewer – Raymond James & Associates
Brian Nagel –UBS
Joe Feldman – Telsey Advisory Group

Presentation

Operator

Good day ladies and gentlemen, and welcome to the PetSmart third quarter 2008 analysts conference call. At this time, all participants are in a listen-only mode. Later, we''ll conduct a question-and-session session and instructions will be given at that time. If anyone should require assistance during the conference, please press “*” then “0” on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host for today''s conference, Mr. David Cone, Vice President of Investor Relations and Treasury. Mr. Cone, you may begin.

David Cone

Good afternoon and welcome to PetSmart’s conference call to announce our results for the third quarter of fiscal 2008. With me on the call today are Chairman & Chief Executive Officer, Phil Francis, our President & Chief Operating Officer, Bob Moran, as well as Chip Molloy, Senior Vice President & Chief Financial Officer.

Phil will kick off the call with an overview of our third quarter results, then Chip will take you through the financial review of the quarter, as well as our earnings guidance and Bob will provide a review of the operations of the business, and finally we’ll take your questions.

Please keep in mind everything we cover during today’s call, including the question-and-answer session, is subject to the Safe Harbor Statement for forward-looking information you’ll find in today’s news release.

Thanks and I’ll now turn the call over to Phil.

Philip L. Francis

Thank you Dave and hello everyone. The world has gone through striking changes since we spoke about our second quarter results, but our commitment to delivering on our targets and building a business model that can deliver ongoing and sustainable returns for our shareholders has not changed.

Our performance for the quarter was in line with our guidance. Earnings per share were $0.28, up 21.7% when compared to the same period last year. And comparable store sales or sales in stores open at least a year grew at 5.4%. The unique blend of staples and discretionary items inherent to our business model has allowed us to manage through this challenging environment and deliver on our guidance for the quarter.

But we’re not without our share of challenges. We continue to see top line strength coming from our ability to pass inflation through to the customer. Our average ticket was up 6.2% in the third quarter, including a 690 basis point inflation benefit to comp sales. Last year our average ticket was up 3.5% and included a 225 basis point inflation benefit. Comp transactions which were used as a proxy for traffic decreased 0.9%, slightly better than the 1.7% decline we saw in the second quarter.

We continue to experience weakness in our higher margin, more discretionary hard goods business. And our services sales growth dropped to 152% for the quarter from 20.4% in the second quarter. For the first time, we’re seeing some weakness across all three of our services businesses, grooming, training, and the PetsHotel.

Like many other retailers, we believe the weakening economy is impacting the discretionary spending of pet parents a bit. But these challenges don’t require that we change our commitment to our shareholders or our customers. In fact, our management team and our associates are more focused than ever on efficiently using our capital and emerging from this challenging time as a stronger player.

We have a number of things working in our favor that make us confident we can deliver. The pet industry continues to be one of the most attractive in retail. Pet parents continue to show that their emotional bond is powerful enough to keep pet spending in the budget. While it was the worst retail sales month in a number of years, PetSmart delivered 4.1% comp sales growth in October.