PETM

PetSmart, Inc (PETM)

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PetSmart, Inc. (PETM)

Q4 2011 Earnings Conference Call

February 29, 2012 4:30 PM ET

Executives

Dave Cone – Vice President of Financial Planning and Analysis

Bob Moran – Chairman and Chief Executive Officer

David Lenhardt – President and Chief Operating Officer

Chip Molloy – Executive Vice President and Chief Financial Officer

Analysts

Matthew Fassler – Goldman Sachs

Chris Horvers – JP Morgan

David Mann – Johnson Rice

Helen Pan – Barclays Capital

Seth [ph] – Credit Suisse

Kate Wen [ph] – Wells Fargo

Michael Baker – Deutsche Bank

Michael Lasser – UBS

Peter Benedict – Robert W. Baird

Brian Nagel – Oppenheimer

Daniel Binder – Jefferies & Company

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to PetSmart’s Fourth Quarter and Full Year 2011 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 will be given at that time. (Operator instructions) And as a reminder, this conference call is being recorded.

I would now like to introduce your host for today’s conference, Mr. Dave Cone, Vice President of Financial Planning and Analysis.

Dave Cone

Good afternoon and welcome to PetSmart’s conference call to announce our results for the fourth quarter and for all of fiscal 2011. With me on the call today are Chairman and Chief Executive Officer, Bob Moran, our President and Chief Operating Officer, David Lenhardt; as well as Chip Molloy, Executive Vice President and Chief Financial Officer. Bob will kick off the call with an overview of our results, and then Chip will take you through the financial review as well as our earnings guidance. David will review the operations of the business, and provide insights into our upcoming year, 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.

Bob Moran

Thanks, Dave, and hello everyone. We are pleased to report another quarter of solid earnings growth. For the fourth quarter, earnings per share were $0.91, up 18% when compared to $0.77 for the same period last year. Comparable store sales or sales in stores opened at least a year grew 5.5% and comp transactions, which we use as a proxy for traffic, were up 2.9%.

Our results for the fourth quarter reflect our most successful holiday season yet. We built on the success of last year by focusing on our key differentiators with compelling holiday stories, and even stronger integrated marketing campaigns behind the events this year, and by having the right assortment at the right price, we were able to offer pet parents thousands of gift ideas at great value, with a sell through rate of over 90% for holiday merchandise.

But that is not all; we also saw double-digit growth in our services business as more pet parents became loyal users of our services. 2011 was a great year overall with even more stories of innovation and differentiation in our stores. We expanded our assortment of super-premium foods, our fastest growing category of food, with the addition of the Innova, and our own super-premium proprietary brand Simply Nourish in the second quarter.

In the third quarter, we built on the successful Martha Stewart pets products by extending the lines to include cat products, and we are very pleased with the results. We are not done. We have built a culture of innovation and differentiation within merchandising, so that we can continue to bring the best new brands and extended assortments to our pet parents, and with our customer insights and strong vendor partnerships, we will continue to maximize the potential of our key brands through our fully integrated and compelling marketing campaigns.

Our pet parents are showing us that they value our commitment to saving the lives of homeless pets through their support of our partnership with PetSmart Charities in our stores. With over $40 million in contribution income on an annual basis, PetSmart Charities is the largest funder of animal welfare efforts in North America. We are proud to be able to partner with PetSmart Charities, and adopt approximately 1100 pets per day in our stores, including more than 107,000 in the fourth quarter.

Over the past 17 years, the lives of nearly 5 million pets have been saved, and that really has made an impact. All these things define the PetSmart brand. It is a strong brand and resonates well with the consumer. Our performance continues to validate the work that we are doing to even further strengthen our brand, as we continue on our journey of becoming a best in class retailer. By focusing on solutions for our pet parents, we provide the broadest assortment with an unmatched customer experience, all at great value. Our differentiation ties it all together, and sets us apart from the competition making us the leading pet specialty retailer.

Our results are really a testament to the strength of our management team. Our seasoned management team is strategically aligned across the company, and I am confident in their ability to execute on our strategic priorities. We recently announced that David Lenhardt was appointed President and Chief Operating Officer. David has made many important contributions to PetSmart since joining the company 11 years ago.

Under David's leadership our services business one of our key differentiators has grown from $92 million in 2000 to $675 million in 2011. During that time, he has also evolved our customer experience and transformed our operational consistency making our stores easier and more efficient to run. As President and COO, David, will focus on the entire enterprise looking at ways we can strengthen integration and the overall customer experience, and assure that we can sustain our trajectory and continuing the path to becoming a best in class retailer. We will have the opportunity to hear from David today following Chip's financial review, and I look forward to David's contribution in his new role.

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