Petco Animal Supplies (NASDAQ:PETCE)
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PETCO Files Annual Report on Form 10-K
- Internal Review of Distribution Operation Is Complete
SAN DIEGO, June 28 /PRNewswire-FirstCall/ -- PETCO Animal Supplies, Inc.
(NASDAQ:PETCE) today announced that it has filed with the Securities and
Exchange Commission its annual report on Form 10-K for the fiscal year ended
January 29, 2005, as well as its quarterly report on Form 10-Q for the first
quarter of fiscal 2005.
The fourth quarter and fiscal year 2004 audited results reflect the following
changes:
* An after-tax charge of $3.6 million, or $0.06 per diluted share,
related to the conclusions of an internal review. As previously
announced on April 15, 2005, subsequent to the Company's
March 10, 2005 earnings release, PETCO discovered within its
Distribution Operation instances of errors in which certain expenses
were under-accrued. Upon identification of these errors, the Company
commenced a comprehensive internal review, which is now complete. The
internal review concluded that the errors were limited to the
Distribution Operation. In addition, the internal review confirmed
that a restatement of prior financial statements would not be
necessary.
* An income tax benefit of $2.3 million, or $0.04 per diluted share,
reflecting a one-time favorable adjustment of an income tax accrual.
Subsequent to the Company's March 10, 2005 earnings release, PETCO
identified a one-time favorable adjustment of an income tax accrual
related to certain franchise taxes. This favorable income tax
adjustment has been recorded in the fourth quarter of fiscal 2004.
Reflecting these adjustments, net earnings in fiscal 2004 were $82.4 million,
or $1.41 per diluted share. Pro forma net earnings for fiscal 2004, as
adjusted, were $84.9 million, or $1.45 per diluted share, excluding the
one-time income tax benefit, compared to pro forma net earnings previously
reported on March 10, 2005 of $88.6 million, or $1.51 per diluted share.
In the following pages of this news release, PETCO provides tables illustrating
its condensed consolidated statements of operations and balance sheet, with
comparisons of results "as reported" on March 10, 2005 with the "as adjusted"
results reported today, on both a GAAP and pro forma basis, for the fourth
quarter and full fiscal year ended January 29, 2005.
"We are pleased to file our Form 10-K, which represents the final step in a
process that included a comprehensive internal review," commented PETCO's Chief
Executive Officer, James M. Myers. "While it was very disappointing to
identify a control deficiency in any part of our Company, it is important to
note that the comprehensive review, which included the participation of
independent, external experts, concluded that the errors in under-accruals were
limited to our Distribution Operation. We acted quickly and decisively to
strengthen our controls, processes and oversight responsibilities to prevent
such errors in the future."
The filing of PETCO's 10-K and first quarter 2005 10-Q will bring the Company
back in compliance with SEC filing requirements, and is expected to result in
the cancellation of the NASDAQ review process with respect to the delisting of
PETCO stock and the restoration of the stock symbol to "PETC".
Outlook
In conjunction with its May 25, 2005 report of earnings for the first quarter
of fiscal 2005, PETCO had provided financial guidance for its second fiscal
quarter. That prior outlook indicated earnings of $0.33 - $0.35 per diluted
share, reflecting the expectation that costs associated with the now- completed
review of the Company's Distribution Operation would approximate $0.01 per
share. Those second quarter costs are now estimated to be $0.02 per share.
In its report of results for the first fiscal quarter, PETCO also discussed
refinements to its marketing plans to more effectively communicate with its
customers. These refinements are being implemented and, as previously
discussed, will be in effect during the latter part of the second fiscal
quarter.
The Company currently expects to report a comparable store net sales increase
of approximately 3% - 4% for the second fiscal quarter. In view of this
anticipated comparable store sales gain, as well as the additional $0.01 per
share in costs associated with the Distribution-related review, the Company now
expects to report earnings at the lower end of a revised range of $0.31 - $0.33
per diluted share. PETCO intends to provide an update to its outlook for
fiscal 2005 when it reports its earnings for the second fiscal quarter in
August.
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 more than $1.8 billion in fiscal 2004. It
operates over 740 stores in 47 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 $23 million in support of
more than 2,700 non-profit grassroots animal welfare organizations around the
nation.
Forward Looking Statements
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, remediation of any internal control deficiencies,
the outcome of existing litigation 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 29, 2005.
PETCO Animal Supplies, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
As Reported on As Adjusted
March 10, 2005 Quarter ended
Quarter ended 1/29/05 1/29/05
GAAP Pro Forma GAAP Pro Forma
Basis Basis Basis Basis
Net sales $492,313 $492,313 $492,313 $492,313
Cost of sales and
occupancy costs 314,886 313,546 320,469 319,129
Gross profit 177,427 178,767 171,844 173,184
Selling, general and
administrative expenses 121,124 121,124 121,124 121,124
Operating income 56,303 57,643 50,720 52,060
Interest expense, net 4,589 4,589 4,589 4,589
Debt retirement costs 6,754 --- 6,754 ---
Earnings before income taxes 44,960 53,054 39,377 47,471
Income taxes 17,353 20,541 13,070 18,591
Net earnings $ 27,607 $ 32,513 $ 26,307 $ 28,880
Net earnings per common share,
basic $ 0.48 $ 0.56 $ 0.46 $ 0.50
Net earnings per common share,
diluted $ 0.47 $ 0.55 $ 0.45 $ 0.49
Basic weighted average number of
common shares 57,631 57,631 57,631 57,631
Diluted weighted average number
of common shares 58,725 58,725 58,725 58,725
This press 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 reconciliations set forth below are provided in accordance
with Regulation G and reconcile the pro forma financial measures with the most
directly comparable GAAP-based financial measures.
PETCO Animal Supplies, Inc.
Reconciliation of GAAP Financial Measures to Pro Forma Financial Measures
(In thousands, except per share data)
Quarter ended 1/29/05
As reported As
on 3/10/2005 Adjusted
Reconciliation of GAAP to
Pro Forma Gross Profit
GAAP gross profit $177,427 $171,844
Adjustments:
Lease accounting adjustment 1,340 1,340
Pro forma gross profit $178,767 $173,184
Reconciliation of GAAP to Pro Forma
Operating Income
GAAP operating income $ 56,303 $ 50,720
Adjustments:
Lease accounting adjustment 1,340 1,340
Pro forma operating income $ 57,643 $ 52,060
Reconciliation of GAAP to Pro Forma
Net Earnings
GAAP net earnings $ 27,607 $ 26,307
Adjustments:
Lease accounting adjustment 1,340 1,340
Debt retirement costs 6,754 6,754
Tax effect of adjustments (3,188) (3,188)
Adjustment of income tax accrual --- (2,333)
Pro forma net earnings $ 32,513 $ 28,880
GAAP net earnings per common share, diluted $ 0.47 $ 0.45
Pro forma net earnings per common share,
diluted $ 0.55 $ 0.49
Diluted weighted average number of
shares (GAAP and Pro forma) 58,725 58,725
PETCO Animal Supplies, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
As Reported on
March 10, 2005 As Adjusted
Year ended 1/29/05 Year ended 1/29/05
GAAP Pro Forma GAAP Pro Forma
Basis Basis Basis Basis
Net sales $1,812,145 $1,812,145 $1,812,145 $1,812,145
Cost of sales and
occupancy costs 1,175,771 1,174,431 1,181,354 1,180,014
Gross profit 636,374 637,714 630,791 632,131
Selling, general and
administrative expenses 472,780 472,780 472,780 472,780
Operating income 163,594 164,934 158,011 159,351
Interest expense, net 19,337 19,337 19,337 19,337
Debt retirement costs 6,754 --- 6,754 ---
Earnings before
income taxes 137,503 145,597 131,920 140,014
Income taxes 53,830 57,018 49,547 55,068
Net earnings $ 83,673 $ 88,579 $ 82,373 $ 84,946
Net earnings per common
share, basic $ 1.45 $ 1.54 $ 1.43 $ 1.48
Net earnings per common
share, diluted $ 1.43 $ 1.51 $ 1.41 $ 1.45
Basic weighted average
number of common shares 57,542 57,542 57,542 57,542
Diluted weighted average
number of common shares 58,511 58,511 58,511 58,511
This press 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 reconciliations set forth below are provided in accordance
with Regulation G and reconcile the pro forma financial measures with the most
directly comparable GAAP-based financial measures.
PETCO Animal Supplies, Inc.
Reconciliation of GAAP Financial Measures to Pro Forma Financial Measures
(In thousands, except per share data)
Year ended 1/29/05
As reported As
on 3/10/2005 Adjusted
Reconciliation of GAAP to
Pro Forma Gross Profit
GAAP gross profit $636,374 $630,791
Adjustments:
Lease accounting adjustment 1,340 1,340
Pro forma gross profit $637,714 $632,131
Reconciliation of GAAP to Pro Forma
Operating Income
GAAP operating income $163,594 $158,011
Adjustments:
Lease accounting adjustment 1,340 1,340
Pro forma operating income $164,934 $159,351
Reconciliation of GAAP to Pro Forma
Net Earnings
GAAP net earnings $ 83,673 $ 82,373
Adjustments:
Lease accounting adjustment 1,340 1,340
Debt retirement costs 6,754 6,754
Tax effect of adjustments (3,188) (3,188)
Adjustment of income tax
accrual --- (2,333)
Pro forma net earnings $ 88,579 $ 84,946
GAAP net earnings per common share,
diluted $ 1.43 $ 1.41
Pro forma net earnings per common
share, diluted $ 1.51 $ 1.45
Diluted weighted average number of
shares (GAAP and Pro forma) 58,511 58,511
PETCO Animal Supplies, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
As Reported on
March 10, 2005 As Adjusted
January 29, 2005 January 29, 2005
ASSETS
Cash and cash equivalents $ 36,815 $ 36,815
Receivables 17,875 17,875
Inventories 167,038 167,038
Deferred tax assets 18,012 17,680
Other current assets 9,481 10,916
Total current assets 249,221 250,324
Fixed assets, net 333,300 333,300
Goodwill 40,179 40,179
Other assets 16,650 16,650
$639,350 $640,453
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 82,142 $ 82,142
Accrued expenses and other current
liabilities 136,078 141,044
Current portion of long-term debt 353 353
Total current liabilities 218,573 223,539
Senior credit facility 85,000 85,000
Senior subordinated notes payable 103,982 103,982
Deferred rent and other liabilities 92,703 90,637
Total liabilities 500,258 503,158
Stockholders' equity 139,092 137,295
$639,350 $640,453
DATASOURCE: PETCO Animal Supplies, Inc.
CONTACT: Rodney Carter, Senior Vice President and Chief Financial
Officer of PETCO Animal Supplies, Inc., +1-858-202-7848
Web site: http://www.petco.com/