PETCO Reports First Quarter Fiscal 2004 Results

PETCO Reports First Quarter Fiscal 2004 Results
* Net Earnings Increase 42% to $0.27 Per Diluted Share * Comparable Store Sales
Increase 6.3% * Raising 2004 Earnings Outlook to $1.43 to $1.44 per Diluted
Share 


SAN DIEGO, May 19  /PRNewswire-FirstCall/ -- PETCO Animal Supplies, Inc.  today
reported financial results for the first quarter ended May 1, 2004.  The
Company also provided its guidance for the second quarter and full fiscal year
2004.

  (Logo:  http://www.newscom.com/cgi-bin/prnh/20030603/PETCOLOGO)

  First Quarter Results


Net sales in the first quarter of 2004 were $425.9 million with a comparable
store net sales increase of 6.3%.  The comparable store net sales increase in
the period comes on top of a 4.6% increase in the prior year's first quarter. 
Overall, net sales increased 13.7% over the first quarter of fiscal 2003.

Net earnings for the first quarter increased 42% to $15.8 million, or $0.27 per
diluted share, compared with net earnings of $11.1 million, or $0.19 per
diluted share, in the prior-year first quarter.

"The 6.3% comparable store net sales increase we achieved in the first quarter
again highlights the consistency and resiliency of our business and continues
our strong comparable store sales growth trend, now more than a decade long,"
commented PETCO's Chairman, Brian K. Devine.

"Our strongest comp sales in six quarters drove a 42% increase in quarterly net
earnings to $0.27 per diluted share," commented PETCO's Chief Executive
Officer, James M. Myers.  "We will continue to execute our industry leading
growth strategies in order to provide our customers and shareholders with
exceptional performance."

Rising Gross Profit and Operating Margins

Gross profit margin improved 250 basis points to 34.3% in the first quarter of
2004 compared to 31.8% for the first quarter of 2003.  Continued change in mix
from lower margin pet food sales to higher margin categories, such as pet
accessories, supplies, and services, net of store closing costs, produced a 50
basis point improvement in gross profit margin.  In addition, this gross profit
margin performance includes the effects of the adoption of EITF 02-16, which
resulted in a 200 basis point increase, as described below.

Operating income for the first quarter increased 25% to $30.9 million, compared
with $24.7 million in the prior-year first quarter.  Operating income as a
percentage of sales increased 70 basis points to 7.3% in the first quarter of
2004 compared to 6.6% in the first quarter of 2003.

"PETCO's strong operating margins reflect our successful execution of our
long-term growth strategies and further enable us to reinvest in our business
and implement such initiatives as our remodel program and the opportunistic
acquisition of selected locations," commented Rodney Carter, Senior Vice
President and Chief Financial Officer.   "During the first quarter, we were
active on both of these fronts, and we believe they will generate competitive
advantages that will enhance shareholder value well into the future."

Adoption of Emerging Issues Task Force Consensuses No. 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 year 2003.  As of the beginning
of fiscal year 2004, substantially all supplier arrangements are now accounted
for under the new rules.  The phased in effect of the adoption of the standard
in 2003 affects year over year financial comparisons to a progressively lesser
degree each quarter over the course of 2004.  The effect of the adoption of
EITF 02-16 resulted in a 200 basis point increase in gross margin and 160 basis
point increase in selling, general and administrative expenses in the first
quarter of 2004.

During the first quarter of 2004, the Company adopted EITF 03-10, a follow-on
to EITF 02-16.  This change results in certain vendors' sales incentives 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 these new rules.  As
a result, net sales and cost of sales and occupancy costs have been reduced by
an aggregate of $10.8 million in the first quarter of 2004, and an aggregate of
$10.1 million has been similarly reclassified in last year's first quarter.

Store Expansion Program

PETCO opened 19 new stores during the first quarter of fiscal 2004.  The
addition of 15 new stores during the period, net of relocations and closings,
increased the store base to 669 locations.  PETCO will continue to advance its
national brand presence in 2004 by opening approximately 90 new stores, or 70
new stores net of relocations and closings, with approximately 20 -- 25 planned
for the second quarter.

In anticipation of the increased number of new store openings for 2004, the
Company reduced the number of remodels by the same number of sites, and
reallocated the appropriate internal resources to ensure the effective, timely
opening of these great new locations.

In the first quarter of 2004, PETCO completed 9 remodels of existing stores and
now has 228 stores in this latest store format.  In fiscal 2004, the Company
plans to continue with this strategic initiative by remodeling up to an
additional 41 existing stores.

Outlook for the Second Quarter and Full Fiscal Year 2004

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 share in the range of $1.43 -- $1.44 for the full
fiscal year 2004, up from previous guidance, representing an increase of more
than 20% over the prior year.

The Company currently expects a comparable store net sales increase of
approximately 5% -- 6% in the second quarter of fiscal 2004.  This increase in
comparable store net sales would come on top of the 6.1% increase achieved in
the second quarter of fiscal 2003.  The second and third quarters of 2004
represent key reinvestment periods reflecting the additional occupancy costs
and pre-opening expenses related to the previously announced acquisitions of
former Zany Brainy and Kids 'R Us new store locations.  Accordingly, the
Company currently expects second quarter earnings per diluted share in the
range of $0.28 -- $0.29.

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 $1.6 billion in fiscal 2003.  It operates
669 stores in 44 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 $17 million in support of more than 2,000 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.
                    Consolidated Statements of Operations
              (Unaudited, in thousands, except per share data)

                                                Quarter           Quarter
                                                 Ended             Ended
                                              May 1, 2004       May 3, 2003
   Net sales                                    $425,877          $374,652
   Cost of sales and occupancy costs             279,872           255,593
        Gross profit                             146,005           119,059

   Selling, general and administrative
    expenses                                     115,077            94,320
        Operating income                          30,928            24,739

   Interest expense, net                           4,929             6,577
        Earnings before income taxes              25,999            18,162

   Income taxes                                   10,242             7,083
        Net earnings                             $15,757           $11,079



   Net earnings per common share, basic            $0.27             $0.19
   Net earnings per common share,
    diluted                                        $0.27             $0.19

   Basic weighted average number of
    common shares                                 57,471            57,377
   Diluted weighted average number of
    common shares                                 58,450            57,983



                         PETCO Animal Supplies, Inc.
                    Condensed Consolidated Balance Sheets
                               (In thousands)

                                                 May 1,          January 31,
                                                  2004              2004
                                               (Unaudited)
   ASSETS

   Cash and cash equivalents                     $65,141           $62,201
   Receivables                                    14,264            12,514
   Inventories                                   149,133           139,513
   Deferred tax assets                            13,006            12,047
   Other current assets                           12,728            12,907
   Total current assets                          254,272           239,182

   Fixed assets, net                             257,315           256,347
   Goodwill                                       40,237            40,289
   Other assets                                   18,862            16,044
                                                $570,686          $551,862

   LIABILITIES AND STOCKHOLDERS' EQUITY

   Accounts payable                              $58,399           $63,773
   Accrued expenses and other
    liabilities                                  128,961           124,483
   Current portion of long-term debt               1,925             1,920
   Total current liabilities                     189,285           190,176

   Long-term debt, excluding current
    portion                                      139,015           139,370
   Senior subordinated notes payable             120,000           120,000
   Deferred rent and other liabilities            53,212            49,183
   Total liabilities                             501,512           498,729

   Stockholders' equity                           69,174            53,133
                                                $570,686          $551,862


http://www.newscom.com/cgi-bin/prnh/20030603/PETCOLOGO

http://photoarchive.ap.org/

DATASOURCE: PETCO Animal Supplies, Inc.



CONTACT:  Rodney Carter, Senior Vice President and Chief Financial

Officer of PETCO Animal Supplies, Inc., [phone]



Web site:  http://www.petco.com/ 

Copyright