PETsMART, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PETM)") else Response.Write("(NASDAQ: PETM)") end if %>

10000 North 31st Avenue, Suite C100

Phoenix, AZ 85051

(602) 944-7070

UNION CITY, Ca., August 22, 1996/FOOLWIRE/ --- PETsMART announced their Q2 1996 results yesterday morning. The company reported earnings of $0.10 per share which were ahead of forecasts by a penny and were up 150% from last year on a 31% sales gain which was the best sales gain in over a year.

The company reported excellent results for the quarter and they reflected the substantial market share growth potential of management's concept as well as the margin expansion possibilities as the company's immature store base matures.

In the opinion of Alex Brown & Company, which hosted the company's analyst conference call, PETsMART has among the best margin expansion potential of any US retailer and that potential, along with the opportunity to raise the company's market penetration from the current level at around 6% to over 30% makes this one of the most exciting US retailers. Alex Brown continues to rate the stock a "strong buy" and reiterated that opinion yesterday morning.

The company had an excellent quarter. As a business, their revenue achievements, their earnings achievements, and their business achievements all were very good and at least met or exceeded their own internal estimates of what they wanted to do for the business.

For the quarter they reported $321 million in sales versus last year's quarter of $259 million which is a 24.3% comparison. The true number is about 30% when you take out the closed facilities from 1995's acquisition of the PetStuff chain in the middle of the year. On a year to date basis they reported $632 million versus $510 million for the first half of last year. They are slightly ahead of their own internal estimates in terms of revenue growth on a year-to-year basis.

They are particularly pleased with their comparable store performance for the quarter and the year-to-date basis. For the quarter they reported a comp store change of +11.9% and on a year-to-date basis that was up 12%. This exceeded their internal plan for the year of +10% comp store growth.

During the quarter they recorded a $12.3 million additional merger and non-recurring charge which represents a change in their 1995 accounting estimates related to the real estate disposition costs for 17 former PetStuff stores closed in 1995 and the disposition of 7 PetStuff lease commitments for stores which they did not deem appropriate investments for their shareholder dollars.

So, if you look at reported earnings, they actually reported $2.9 million including this accounting adjustment for last year's merger and non-recurring costs. However if you exclude the accounting adjustment they actually reported a $10.6 million earnings number for the quarter, or $0.10 per share which exceeds the average estimate of their retail analysts consensus by about 12.2% for Q2. The consensus estimate for their operating earnings for the quarter was $15.1 million and they actually came in at $16.9 million, so it is a substantial dollar increase versus analyst estimates.

During the quarter in terms of business achievements, they opened 16 new stores during the quarter and on a year to date basis they have opened 39 new stores. So they finished the quarter with 299 stores and had a very heavy early-year loading of their new store opening activity this year.

Importantly during the quarter from a strategic standpoint, they opened 6 40,000 square foot new concept stores in Southern California. 5 of those stores were in San Diego county and one store was north of Los Angeles in Oxnard. The stores are performing superbly and are running about 11-12% above their internal sales expectations. The product mix of the store has been excellent and in almost every case they are achieving their estimates or exceeding them in terms of how the store will perform in many of the new concept areas. The stores were designed to redefine a pet shopping experience and also offer a very destination-oriented kind of store which also features a major horse presentation of about 7-8,000 square feet. They are starting to achieve break-even and actually earnings in some of these stores much earlier than they expected and that was a major contributing factor to their success in Q2.

Looking at other achievements for the business in Q2, it is also important to point out a major achievement for the business is that for PETsMART they achieved cash-flow positive for the quarter in spite of the very heavy store opening process during the quarter -- a major milestone for their business.

In terms of challenges for the business during the quarter they had basically two big issues that they dealt with as a business. One of them they have talked during the year about and that is the disappointing season that the entire pet supply industry has had regarding flea and tick products. Because of the early drought this year in the Southwest, there has been an abnormally low flea population this year which has negatively effected the entire industry. This is normally an extremely profitable class of goods not only for merchandise but also to drive their grooming and veterinary businesses. In spite of this they were able to come out with a very good margin mix for the year. They did anticipate some sales slowdown during the Atlanta Olympics in their Georgia stores. That was not unanticipated and is very typical of the kinds of experiences retailers have had in the past.

The other thing they have achieved during the quarter is that they have moved aggressively on the consolidation of their catalog businesses. They bought a second catalog business earlier in the year called State Line Tack and they are in the process of consolidating that business into one business right now. And they have made progress as they have closed one fulfillment center and transferred that business to their New Hampshire fulfillment center.

They had excellent sales performance, particularly in the West Coast and the Southwest. They are particularly happy in the Midwest since they are posting very strong comparable store sales growth on a year to year basis.

They are on track to open their Phoenix distribution center in the early part of Q4. That will be a very positive thing for the business since they will use that investment to lower their distribution and transportation costs.

They have achieved an agreement in principle which they expect to close on in 10 days with the operator of about 31 veterinary hospitals in their syndicate which will mean they will move their company operated and owned veterinary hospitals from about 31 hospitals right now up to 63 hospitals within about 10 days. And this is consistent with their strategy of consolidating that business as it tends to be accreative for their shareholders.

During the quarter they did see a very significant shift on a year to year basis in their gross profit. This is a result of some occupancy leverage but most importantly it is the result of significant cost reductions in the PetStuff stores that they acquired last year, the shift in the business more towards a higher margin service component and also a reduction in their consumables business as a result of the accretion of their services and new product mix additions in some of their big box stores. So they are very pleased with that, moving from 24.91% up to 28.45%.

Also, their pre-opening expense is higher on a year-to-year basis. This is just the result of the very heavy early-year activity in new store openings.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.

(c) Copyright 1996, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.

Transmitted: 8/22/96

Copyright 1996, The Motley Fool
All Rights Reserved. This material is for personal use only.
Republication and redissemination, including posting to news groups,
is expressly prohibited without the prior written consent of The Motley Fool.