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PetSmart Q3 Earnings Call Transcript
Author: 123jump.com Staff
123jump.com
Last Update: 8:49 PM ET December 06 2008


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David Cumberland – Robert W. Baird and Co

And my other questions are on the Eagle 2 refreshes, where do you stand on those and I know those aren''t capital intensive, but does your lower CapEx plan for next year affect that program?

Lawrence P. Molloy

Yes it does and a good question here and this is an example, I think, of what businesses that haven''t been capital starved can do. We would have had, I think the number''s plus or minus a couple of 159 stores left to do on Eagle 2 next year. We''re not going to do that. We''re going to be working with much of our class of ''09 on Eagle 3. We''re going to have several initiatives in place with the Q resets, but mostly the new stores and what we think the next generation''s going to be. Whatever part of that we validate during ''09 we''ll then take those 169 stores that were not going to be the last tranche of Eagle 2; make them the first tranche of Eagle 3 in ''10. We''ll essentially collapse Eagle 2 and Eagle 3 into one effort and in the short term we can save the money. These are stores that were Eagle 1ed and they''re not bad looking. Most of Eagle 2 is adoptions and training which are softened a bit just now and so we''re saving the money. We''re going to take care of the shareholders and the very tail end of Eagle 2 will be collapsed into Eagle 3 in 2010.

David Cumberland – Robert W. Baird and Co

So can you talk a little about what changes are going to take place with Eagle 3?

Philip L. Francis

Well, with a smile on my face I say I could but I''m not going to. We, I bet we''ve got a dozen initiatives that we''re going to have in various tests around the place. Surely some of them will fail. Surely several of them will be reshaped as we look through it but the headline is if it is differentiation we’ll test a dozen of them and I''ll just bet you four will work and four will be modified and work and four of them are going to be lousy ideas, but we''re going to figure out the eight by the year from now and that''ll be the class of ten that will be the last 169 stores in Eagle One that we''ll do in 2010 and we''re going to keep this thing fresh and going.

David Cumberland – Robert W. Baird and Co

Great thank you.

Operator

Your next question is from Dan Wewer – Raymond James.

Dan Wewer – Raymond James & Associates

Chip, when you were working on the last two new distribution centers, the company was anticipating a faster rate of unit growth than what''s currently planned. Will you be able to get the leverage on these distribution facilities that you had originally anticipated given the density of stores is going to be less?

Lawrence P. Molloy

We will. The primary reason is that at that point we actually thought we needed three and so we had one planned, I think it was planned for 11. We were going to spend the capital in ''10, and we''ve actually pushed that out. We needed the capacity that we now currently have and we have enough capacity now, we believe to get through probably with the stores that we expect, probably through ''12 into ''13. But we needed three and we''ve spared that. We''ve paired that down to two and have extended the time for the third one so we''re in good shape there.

Dan Wewer – Raymond James & Associates

And then the drop in diesel fuel prices, as you alluded to, will benefit your freight expense going forward. But at the same time I guess it offsets some of the benefits of shortening your stem links. So when you''re looking at the leverage in transportation, will the benefits be somewhat less given where diesel is currently running?

Lawrence P. Molloy

No, actually I think that we''ll continue to, we''ll see some pretty significant benefits from the reduced line and the capacity that we have. I think we''ll see in Q4 that the benefits are going to be higher than they were in Q3 and I think next year you''re going to see some pretty significant benefits on it.


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