PetSmart, Inc. (PETM)
Q2 2009 Earnings Call Transcript
August 19, 2009 4:30 p.m. ET

Executives

Dave Cone – Vice President, Investor Relations & Treasury
Robert F. Moran - President, Chief Executive Officer & Director
Lawrence P. Molloy - Senior Vice President & Chief Financial Officer

Analysts

Christopher Horvers – JPMorgan
Matthew Fassler - Goldman Sachs
Alan Rifkin - Bank of America/Merrill Lynch
Michael Lasser - Barclays Capital
Gary Balter - Credit Suisse
Michael Baker - Deutsche Bank
David Mann - Johnson Rice & Company
Brian Nagel – Oppenheimer & Co.
Peter Benedict - Robert W. Baird & Co.

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by and welcome to the PetSmart second quarter 2009 analyst conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions for audio questions will be given at that time. If anyone should require any assistance during the program, please press star then zero on your touchtone telephone for a live operator. As a reminder, this conference may be recorded. And now I would like to turn the program over to our speaker, Mr. Dave Cone. Sir, please go ahead.

Dave Cone

Good afternoon and welcome to PetSmart''s conference call to announce our results for the second quarter of fiscal 2009. With me on the call today are Executive Chairman, Phil Francis; our Chief Executive Officer and President, Bob Moran, as well as Chip Molloy, Senior Vice President and Chief Financial Officer.

Bob will kick off the call with an overview of our second quarter results, then Chip will take you through the financial review of the quarter as well as our earnings guidance. 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 Bob.

Robert F. Moran

Thanks, Dave. First, I would like to take a moment to thank Phil Francis for his tremendous work at PetSmart as our Chief Executive Officer over the past 10 years. Phil has been a great leader, mentor, and a personal friend. His efforts have produced significant value to our shareholders. I am now honored to have this same opportunity.

So let’s move on to the business. All of us have seen glimmers of hope in the macro environment; however, reports of recent weakness in retail industry sales, especially in more discretionary areas, and volatility in consumer confidence have challenged the idea that the retail customer is ready to return to levels at or near previous spending habits. Despite the weak retail environment, I am pleased to report that we’ve delivered second quarter earnings per share of $0.31 compared to $0.30 in the same period last year. Comparable store sales, or sales in stores open at least a year were slightly less than expected with growth of 0.8%. Our traffic was down only slightly for the quarter, as evidenced by comp transactions of a negative 0.5%.

The large benefit that we have experienced from food inflation over the last several quarters have slowed significantly. However, we are finally beginning to see an overall deceleration in the decline of comp units and with that; I will turn it over to Chip.

Lawrence P. Molloy

Thanks, Bob and good afternoon, everyone. Today I will be reviewing our second quarter performance, as well as providing guidance for the third quarter and full year. As Bob mentioned, earnings for the quarter were $0.31 per share. This compares to $0.30 per share for the second quarter of last year. Total sales for the quarter were $1.31 billion, up 5.4% from the same quarter last year. The increase in net sales was partially impacted by $8.6 million in unfavorable foreign currency fluctuations.

Services sales, which are included in total sales, increased 10.2%. Our comparable store sales, or sales in stores open at least a year, grew 0.8% for the quarter. Operating income was 5.6% of sales, a 50 basis point decline compared to 6.1% for the same period last year.