<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED:
NOVEMBER 2, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM __________ TO ___________
Commission file number: 0-21888
PETSMART, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3024325
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
19601 NORTH 27TH AVENUE
PHOENIX, AZ 85027
(Address of principal executive offices, including Zip Code)
(602) 580-6100
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
(1) Yes (X) No ( )
(2) Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date:
COMMON STOCK, $.0001 PAR VALUE, 115,395,794 SHARES AT DECEMBER 4, 1997
<PAGE>
PETSMART, INC.
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at
November 2, 1997 and February 2, 1997 3
Consolidated Statements of Operations
for the thirteen and thirty-nine weeks ended
November 2, 1997 and October 27, 1996 4
Consolidated Statements of Cash Flows
for the thirty-nine weeks ended
November 2, 1997 and October 27, 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
Part II. Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
Exhibit Index 23
2
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
PETSMART, INC. AND SUBSIDIARIES
______________________________________________________________________________
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
November 2, February 2,
ASSETS 1997 1997
---- ----
<S> <C> <C>
Cash and cash equivalents $ 42,353 $ 39,868
Receivables 55,754 43,664
Merchandise inventories 322,988 300,892
Prepaid expenses and other current assets 36,685 24,860
---------- ----------
Total current assets 457,780 409,284
Property held for sale and leaseback 2,286 -
Property and equipment, net 209,365 219,263
Other assets 74,264 61,263
---------- ----------
Total assets $ 743,695 $ 689,810
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable to bank $ 98,000 $ 25,000
Accounts payable 145,943 138,913
Accrued payroll and employee benefits 14,595 14,192
Accrued occupancy expense 12,703 6,306
Accrued merger and business restructuring costs 35,115 21,584
Other accrued expenses 17,260 35,962
Current maturities of capital leases 8,434 9,145
---------- ----------
Total current liabilities 332,050 251,102
Capital lease obligations 58,027 62,535
Deferred rents 16,221 13,412
Other liabilities 1,877 1,716
---------- ----------
Total liabilities 408,175 328,765
---------- ----------
Stockholders' equity:
Preferred stock; $0.0001 par value; 10,000 shares authorized;
none outstanding - -
Common stock; $.0001 par value; 250,000 shares authorized,
115,294 and 113,958 shares issued and outstanding 11 11
Additional paid-in capital 382,417 373,764
Cumulative foreign currency translation adjustments 3,070 966
Accumulated deficit (49,978) (13,696)
---------- ----------
Total stockholders' equity 335,520 361,045
---------- ----------
Total liabilities and stockholders' equity $ 743,695 $ 689,810
---------- ----------
</TABLE>
The accompanying notes are an integral part of these
unaudited financial statements.
3
<PAGE>
PETSMART, INC. AND SUBSIDIARIES
______________________________________________________________________________
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the 13 weeks ended For the 39 weeks ended
November 2, October 27, November 2, October 27,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 441,456 $ 367,826 $ 1,279,970 $ 1,043,653
Cost of sales 337,378 266,068 977,764 750,495
---------- ---------- ------------ ------------
Gross profit 104,078 101,758 302,206 293,158
Store operating expenses 85,955 68,462 250,351 203,715
Store preopening expenses 1,916 2,277 7,925 7,788
General and administrative
expenses 10,844 11,277 35,345 32,484
Merger and restructuring costs 1,466 - 55,988 20,364
---------- ---------- ------------ ------------
Operating income (loss) 3,897 19,742 (47,403) 28,807
Interest income 69 153 182 906
Interest expense (3,492) (2,625) (9,608) (6,844)
---------- ---------- ------------ ------------
Income (loss) before income
taxes 474 17,270 (56,829) 22,869
Income tax expense (benefit) 294 6,837 (20,547) 9,863
---------- ---------- ------------ ------------
Net income (loss) $ 180 $ 10,433 $ (36,282) $ 13,006
---------- ---------- ------------ ------------
Net income (loss) per common share
and common share equivalent $ 0.00 $ 0.09 $ (0.32) $ 0.11
---------- ---------- ------------ ------------
Weighted average number of
common and common equivalent
shares outstanding 115,853 118,943 114,642 117,429
---------- ---------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these
unaudited financial statements.
4
<PAGE>
PETSMART, INC. AND SUBSIDIARIES
______________________________________________________________________________
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the 39 Weeks Ended
November 2, October 27,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ (36,282) $ 13,006
Adjustments to reconcile net income (loss) to net cash
from (used in) operating activities:
Adjustment to conform fiscal year of Pet City - 1,218
Depreciation and amortization 25,296 20,365
Loss on disposal of property and equipment 417 250
Changes in assets and liabilities:
Receivables (8,750) (16,465)
Merchandise inventories (22,096) (60,603)
Prepaid expenses and other current assets (11,825) (9,369)
Other assets (15,557) (539)
Accounts payable 7,030 18,253
Accrued payroll and employee benefits 403 (3,235)
Accrued occupancy expense 6,397 201
Accrued merger and restructuring costs 23,286 7,455
Other accrued expenses (16,596) (194)
Deferred rents 2,809 803
Other liabilities 161 (882)
--------- ---------
Net cash from (used in) operating activities (45,307) (29,736)
--------- ---------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchases of leaseholds, fixtures and equipment (25,653) (30,446)
Purchases of property held for sale and leaseback (2,286) (18,527)
Proceeds from sale of property held for sale and leaseback - 25,277
--------- ---------
Net cash from (used in) investing activities (27,939) (23,696)
--------- ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 7,113 12,472
Borrowings from bank credit facility 117,100 110,400
Repayment of bank credit facility (44,100) (104,088)
Tax benefit resulting from exercise of stock options 1,540 8,171
Payment on capital lease obligations (8,026) (7,593)
--------- ---------
Net cash from (used in) financing activities 73,627 19,362
--------- ---------
FOREIGN CURRENCY TRANSLATION GAINS (LOSSES) 2,104 527
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,485 (33,543)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 39,868 88,303
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 42,353 $ 54,760
--------- ---------
</TABLE>
The accompanying notes are an integral part of these
unaudited financial statements.
5
<PAGE>
PETSMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THIRTEEN
WEEKS AND THIRTY-NINE WEEKS ENDED NOVEMBER 2, 1997 AND
OCTOBER 27, 1996
NOTE 1 - GENERAL
The accompanying unaudited consolidated financial statements of PETsMART,
Inc. and Subsidiaries ("PETsMART" or "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been
included.
Because of the seasonal nature of the Company's business, the results of
operations for the thirteen weeks and thirty-nine weeks ended November 2,
1997 and October 27, 1996 are not necessarily indicative of the results to
be expected for the full year. For further information, refer to the
financial statements and footnotes thereto for the fiscal year ended
February 2, 1997, included in the Company's Annual Report on Form 10-K
(File No. 0-21888) filed with the Securities and Exchange Commission on
April 28, 1997.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
PETsMART and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Financial data for all periods presented reflect the retroactive effects of
the January 1996 merger with State Line Tack, Inc. ("State Line Tack"), and
the December 1996 merger with Pet City Holdings plc ("Pet City"), both of
which have been accounted for as poolings of interest. The consolidated
financial statements have been prepared by combining the historical
financial statements of PETsMART with the historical financial statements
of the acquired entities.
Of the above transactions, only Pet City required any material adjustments
to retained earnings in order to conform with PETsMART's fiscal year end,
as all prior historical financial statements of State Line Tack were for
fiscal years ended within 93 days of the Company's fiscal year end. The
Pet City transaction was accounted for by combining the historical
financial statements of PETsMART for each of the two years in the period
ended February 2, 1997 with the historical financial statements of Pet City
Holdings for the 53 week period ended February 2, 1997 and the 52 week
period ended July 27, 1996, respectively. An adjustment of $1.3 million
was required to the retained earnings of PETsMART during the 53 week period
ended February 2, 1997 in order to conform the fiscal year end of Pet City
to PETsMART's fiscal year. No material adjustments were necessary in
either of the above transactions to conform the accounting practices of the
companies, nor, for periods preceding the mergers, were there any
intercompany transactions which required elimination from the combined
consolidated results.
NOTE 3 - STOCK SPLITS
On July 19, 1996, the Company effected a 2-for-1 split of its common stock
in the form of a stock dividend to stockholders of record on July 8, 1996.
All share and per share data has been restated to reflect the stock splits
effected in the form of a stock dividend.
6
<PAGE>
PETSMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THIRTEEN
WEEKS AND THIRTY-NINE WEEKS ENDED NOVEMBER 2, 1997 AND
OCTOBER 27, 1996
NOTE 4 - BUSINESS COMBINATIONS:
1996 ACQUISITIONS
During fiscal 1996, the Company acquired, in two separate transactions, all
of the outstanding equity interests of State Line Tack in exchange for
1,200,000 shares of PETsMART common stock, including approximately 76,000
shares reserved for issuance upon exercise of State Line Tack stock options
assumed in the merger, and of Pet City for approximately 7,844,000 shares
of PETsMART common stock, plus approximately 304,000 shares reserved for
issuance upon exercise of Pet City stock options assumed in the merger.
In connection with the above transactions, the Company recorded merger and
business integration charges of $28.4 million, before income taxes, in
fiscal 1996, of which $8.1 million related to the State Line Tack
acquisition and was recorded in the first fiscal quarter ended April 28,
1996 and $20.3 million related to the Pet City acquisition and was recorded
in the fourth fiscal quarter ended February 2, 1997. These charges
included investment banking, legal and accounting fees, and miscellaneous
transaction costs ($8.8 million), provision for the closure of redundant or
inadequate facilities ($5.5 million), costs associated with the
reformatting, refixturing and remerchandising the acquired superstores to
the format consistent with that of a PETsMART superstore ($11.0 million),
and other costs of integration ($3.1 million).
During the second fiscal quarter ended July 28, 1996, the Company also
recorded merger and integration charges of $12.3 million, before income
taxes, principally as a result of a change in its accounting estimate of
the lease termination costs anticipated to be incurred in connection with
the settlement of lease obligations for the 17 former Petstuff stores,
along with seven lease commitments for future Petstuff locations that were
either duplicate or inadequate facilities and, therefore, never opened.
The Company estimated lease settlement costs associated with the closed
stores, and the leases related to the unopened locations, would require
$10.8 million of additional expenditures. The remaining $1.5 million of
the additional charge was primarily related to Petstuff store conversion
costs.
During the first fiscal quarter ended May 4, 1997, the Company recorded
merger and business integration charges related to the Pet City acquisition
of $9.6 million before income taxes. These charges included costs
associated with the reformatting, refixturing and remerchandising of the
acquired stores to the format consistent with that of a PETsMART
superstore, including changing the tradename ($8.6 million), and other
costs of integration ($1.0 million).
During the second fiscal quarter ended August 3, 1997 and during the third
fiscal quarter ended November 2, 1997, the Company recorded $1.1 million
and $1.5 million, respectively, before income taxes, of merger and business
integration charges related to the Pet City acquisition. These charges
included costs associated with reformatting, refixturing and
remerchandising the acquired stores to the format consistent with that of a
PETsMART superstore, and other costs of integration. Further merger and
integration charges related to the Pet City transaction, if any, will be
recorded in the period incurred and are not expected to exceed the
Company's original total estimate of $5.1 million for fiscal 1997. The
Company also recorded approximately $3.0 million of merger and integration
charges during the second fiscal quarter of 1997 as a result of
additional real estate costs incurred in connection with certain of its
previous acquisitions.
7
<PAGE>
PETSMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THIRTEEN
WEEKS AND THIRTY-NINE WEEKS ENDED NOVEMBER 2, 1997 AND
OCTOBER 27, 1996
NOTE 5 - MERGER AND RESTRUCTURING COSTS:
In the second fiscal quarter of 1997, the Company incurred charges of $61.0
million ($38.2 million after its related income tax benefit, or $0.33 per
share) to cover (i) the costs of closing nine underperforming stores and
relocating 24 stores previously identified as candidates for closure over
the next two years, (ii) the discontinuance of the Discovery Center
department within all stores, including the write-off of related inventory
and fixtures, (iii) provisions for the closure of excess facilities, and
(iv) other charges, including merger and integration charges of $4.1
million as a result of the Pet City acquisition and additional costs
resulting from the Company's prior acquisitions (See Note 4).
Approximately $44.9 million of the $61.0 million total charge was recorded
as a separate restructuring charge during the quarter. Of the remaining
$16.1 million, approximately $9.4 million of related charges were recorded
as cost of goods sold, $3.3 million were recorded as store operating
expenses, and $3.4 million were included in general and administrative
expenses for the period.
The activity within the accrued merger and restructuring costs liability
account is summarized below (in thousands):
<TABLE>
<CAPTION>
Balance at Additional Payments/ Balance at
Feb. 2, 1997 Expenses Asset Write-offs Nov. 2, 1997
------------ ----------- ---------------- ------------
<S> <C> <C> <C> <C>
Professional fees $938 $990 $(1,928) $ -
Accrued severance 1,287 1,083 (2,370) -
Lease termination & real estate costs 8,329 42,988 (16,202) 35,115
Accrued business integration costs 7,950 12,348 (20,298) -
Store conversion costs 3,080 14,729 (17,809) -
-------- -------- --------- -------
$21,584 $72,138 $(58,607) $35,115
-------- -------- --------- -------
</TABLE>
8
<PAGE>
PETSMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THIRTEEN
WEEKS AND THIRTY-NINE WEEKS ENDED NOVEMBER 2, 1997 AND
OCTOBER 27, 1996
NOTE 6 - SUBSEQUENT EVENT:
In November 1997, the Company sold $200 million aggregate principal amount
of 6 3/4% Convertible Subordinated Notes due 2004 (the "Notes"). The
Notes are convertible into shares of the Company's common stock at any time
prior to maturity at a conversion price of $8.75 per share, subject to
adjustment under certain conditions, and may be redeemed, in whole or in
part, by the Company at any time after November 1, 2000.
The following as adjusted balance sheet reflects the November 1997 sale of
the Notes and the application of the net proceeds therefrom as if the sale
had occurred on November 2, 1997.
November 2, 1997
--------------------------
Actual As Adjusted
---------- -----------
(in thousands)
Cash and cash equivalents $ 42,353 $ 137,603
Other current assets 415,427 415,427
---------- -----------
Total current assets 457,780 553,030
Other assets 285,915 292,665
---------- -----------
Total assets $ 743,695 $ 845,695
---------- -----------
Notes payable to bank $ 98,000 $ -
Other current liabilities 234,050 234,050
---------- -----------
Total current liabilities 332,050 234,050
6 3/4% Convertible Subordinated
Notes due 2004 - 200,000
Other liabilities 76,125 76,125
---------- -----------
Total liabilities 408,175 510,175
Stockholders' equity 335,520 335,520
---------- -----------
Total liabilities and stockholders' equity $ 743,695 $ 845,695
---------- -----------
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Except for the historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could materially differ from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in this section, as well as in the section entitled
RISK FACTORS in the Company's Registration Statement on Form S-3, File No. 333-
41111, filed with the Securities and Exchange Commission on November 26, 1997.
OVERVIEW
PETsMART is the largest operator of superstores specializing in pet food,
supplies and services in North America and the United Kingdom. At November 2,
1997, PETsMART operated 458 superstores, consisting of 371 superstores in the
United States, 77 superstores in the United Kingdom and 10 superstores in
Canada. PETsMART's store base has grown rapidly since the Company's inception
in 1986 through the opening of new stores and through the acquisitions of The
Weisheimer Companies,d/b/a PETZAZZ in March 1994, Petstuff, Inc. in June 1995,
The Pet Food Giant, Inc. in September 1995, and Pet City Holdings plc ("Pet
City") in December 1996. The Company also acquired two leading catalog
retailers, Sporting Dog Specialties, Inc. ("Sporting Dog") in May 1995 and State
Line Tack, Inc. in January 1996. All of these transactions were accounted for
as poolings of interest.
The Company expects that future increases in net sales and net income, if any,
will be dependent on the opening of additional superstores and the improved
performance of new and existing superstores. In view of the increasing maturity
of its superstore base, as well as the planned opening of additional superstores
in existing markets and single-store markets, the Company anticipates that its
comparable store sales increases may be less in future periods. As a result of
its expansion plans, the Company anticipates the timing of new superstore
openings, and related preopening expenses, and the amount of revenue contributed
by new and existing superstores may cause the Company's quarterly results of
operations to fluctuate. The Company has achieved less favorable operating
results in certain North American geographic regions it recently entered than it
has achieved historically in other regions. In addition, because new
superstores have higher payroll, advertising and other store level expenses as a
percentage of sales than mature superstores, the anticipated level of new
superstore openings will also contribute to lower store operating margins. The
Company charges preopening costs associated with each new superstore to earnings
when the superstore is opened. Therefore, the Company expects that the opening
of large numbers of new superstores in a given quarter will adversely impact its
quarterly results of operations for that period.
RECENT DEVELOPMENTS
For the first half of fiscal 1997, the Company reported disappointing operating
results due to a combination of reduced inventory levels, which led to out-of-
stock conditions in certain key categories, and lost sales momentum as a result
of a departure from the Company's historically more
10
<PAGE>
effective advertising programs. In June 1997, the Company's Chairman, Samuel J.
Parker, resumed his role as Chief Executive Officer. Since Mr. Parker resumed
his operating role, the Company has moved to implement a series of "Back to
Basics" initiatives intended to refocus the Company and improve its financial
performance.
In connection with the implementation of these initiatives and other
considerations, PETsMART recorded restructuring expenses and a charge for merger
and business integrations costs aggregating $61.0 million before tax benefits
($38.2 million or $0.33 per share after tax benefits) in the second quarter of
fiscal 1997, of which approximately $40.0 million represented a cash charge.
These charges consisted of $44.9 million in restructuring expenses related to
the closure and relocation of certain stores, the elimination of certain
departments within PETsMART superstores, and additional costs associated with
certain of the Company's prior acquisitions, and $16.1 million of other one-time
charges which were recorded as components of cost of goods sold, store operating
expenses and general and administrative expenses. In the first quarter and
third quarter of fiscal 1997, the Company had also recorded charges of $9.6
million and $1.5 million, respectively, for merger and business integration
costs, resulting in total charges for merger and business integration costs of
$56.0 million for the thirty-nine weeks ended November 2, 1997. See Note 4
to the unaudited consolidated financial statements for the thirty-nine weeks
ended November 2, 1997.
As a result of the acquisition of Pet City, the Company recorded charges for
merger and business integration costs of $1.5 million during the third quarter
of fiscal 1997, $1.1 million during the second quarter of fiscal 1997, and $9.6
million during the first quarter of fiscal 1997, primarily related to
reformatting, refixturing, and remerchandising the acquired stores to the
PETsMART superstore format and other costs of integration. Consistent with its
original estimate, the Company expects to recognize additional charges for
merger and business integration costs of up to $2.5 million in the fourth
quarter of fiscal 1997 relating to the acquisition of Pet City.
The following discussion of results of operations for the thirteen and thirty-
nine week periods ended November 2, 1997 and October 27, 1996 excludes the
effects of the restructuring, merger and business interation costs discussed
above in "Recent Developments."
THIRD QUARTER 1997 COMPARED TO THIRD QUARTER 1996
Net sales increased 20.0% to $441.5 million for the thirteen weeks ended
November 2, 1997 ("third quarter 1997") from $367.8 million for the thirteen
weeks ended October 27, 1996. Third quarter 1997 sales were adversely affected
by continued softness in sales, as well as by the operational difficulties which
arose in the first half of 1997 related to inventory levels and ineffective
advertising. Comparable North American store sales increased 4.5% in third
quarter 1997, and comparable United Kingdom store sales increased 5.4%. During
the quarter, the Company opened 13 new superstores, relocated 2 superstores and
closed 5 superstores in North America, and opened 10 superstores in the United
Kingdom. The Company had 458 superstores in operation at the end of third
quarter 1997 compared to 360 superstores open at the end of third quarter 1996,
after giving effect to its recent mergers.
11
<PAGE>
Gross profit, defined as net sales less cost of sales, including distribution
costs and store occupancy costs, decreased as a percentage of net sales to 23.6%
for third quarter 1997 as compared to 27.7% for third quarter 1996, primarily as
a result of higher occupancy costs in newer locations, increased warehouse and
distribution costs, and the effects of certain vendor cost increases and
lower than anticipated vendor monies resulting from decreased purchasing
activities.
Store operating expenses, which includes payroll and benefits, advertising
and other store level expenses, increased as a percentage of net sales to
19.5% for third quarter 1997 from 18.6% for third quarter 1996. This
increase as a percentage of net sales was due to planned increased store
labor costs to improve customer service and increased advertising
expenditures.
Store preopening expenses as a percentage of net sales decreased to 0.4% of net
sales for third quarter 1997 compared to 0.6% for third quarter 1996, primarily
as a result of the higher preopening costs associated with the Canadian stores
opened in 1996. The Company opened 23 North American stores and 10 United
Kingdom stores during the period, as compared to 13 stores during the same
period last year. Average preopening costs for third quarter 1997 approximated
$85,000 per store.
General and administrative expenses decreased as a percentage of sales to 2.5%
for third quarter 1997 from 3.1% for third quarter 1996. This decrease was the
result of an ongoing focus on expense management in both the North American and
United Kingdom retail operations.
The Company generated operating income of $5.4 million for third quarter 1997
compared to $19.7 million for third quarter 1996. Operating income as a
percentage of sales decreased to 1.2% for third quarter 1997 from 5.4% for third
quarter 1996, primarily as a result of the decrease in gross margin described
above.
Interest income decreased to $0.1 million for third quarter 1997 from $0.2
million for third quarter 1996 principally due to the decrease in average cash
balances in third quarter 1997 compared to last year. Interest expense
increased to $3.4 million for third quarter 1997 from $2.6 million for third
quarter 1996 principally due to higher average borrowings during third quarter
1997.
The Company's income tax provision for third quarter 1997 reflects the effects
of the nondeductibility of certain of the costs associated with the merger and
restructuring charges recorded in 1997. After excluding the effects of these
items, the Company's effective income tax rate from operations was 38.5% and 38%
for third quarter 1997 and third quarter 1996, respectively.
Excluding the third quarter 1997 merger and restructuring charges, and the
related tax benefits, net income for third quarter 1997 was $1.2 million (or
$0.01 per share), as compared to net income of $10.4 million (or $0.09 per
share) for third quarter 1996. Including the effect of the merger and
restructuring charges recorded in third quarter 1997, the Company reported net
income of $0.2 million (or $0.00 per share) for third quarter 1997 compared to
net income of $10.4 million (or $0.09 per share) for third quarter 1996.
12
<PAGE>
THIRTY-NINE WEEKS ENDED NOVEMBER 2, 1997 COMPARED TO THIRTY-NINE WEEKS ENDED
OCTOBER 27, 1996
Net sales increased 22.6% to $1.28 billion for the thirty-nine weeks ended
November 2, 1997 from $1.04 billion for the thirty-nine weeks ended October 27,
1996. Comparable North American store sales increased 5.4% in the period, and
comparable United Kingdom store sales increased 5.6%. During the period, the
Company opened 69 new superstores and closed 8 relocated stores in North America
and opened 22 stores and closed 1 relocated store in the United Kingdom. The
Company had 458 superstores in operation at November 2, 1997 compared to 360
superstores open at October 27, 1996, after giving effect to its recent mergers.
Gross profit, defined as net sales less cost of sales, including distribution
costs and store occupancy costs, decreased as a percentage of net sales to 24.3%
for 1997 year to date as compared to 28.1% for the same period in 1996. The
decrease is primarily a result of higher occupancy costs in newer locations,
increased warehouse and distribution costs, and the effects of certain vendor
cost increases and lower than anticipated vendor monies resulting from
decreased purchasing activities.
Store operating expenses, which includes payroll and benefits, advertising and
other store level expenses, decreased as a percentage of net sales to 19.3% for
the period from 19.5% for the first thirty-nine weeks of last year. This
decrease is the result of improved expense leverage in the United Kingdom
stores.
Store preopening expenses as a percentage of net sales decreased to 0.6% for the
period compared to 0.7% for the same period in 1996, primarily as a result of
the higher preopening costs associated with the five super-regional format
stores opened in San Diego and the eight Canadian stores opened in 1996. The
Company opened 69 North American stores and 22 United Kingdom stores during the
period, as compared to 52 stores during the same period last year. Average
preopening costs for 1997 approximated $100,000 per store.
General and administrative expenses decreased as a percentage of sales to 2.8%
for year to date 1997 from 3.1% for the comparable period of 1996. This
decrease was the result of management's focus on expense management in both
North American and United Kingdom operations.
The Company's operating income decreased to $24.7 million for the thirty-nine
weeks ended November 2, 1997 from $49.2 million for the comparable period in
1996. Operating income as a percentage of sales decreased to 1.9% for the 1997
period from 4.7% for the same period of 1996, primarily as a result of the
decrease in gross margin described above.
Interest income decreased to $0.2 million for year to date 1997 from $0.9 for
the same period of 1996 principally due to the decrease in average cash balances
in 1997 compared to 1996. Interest expense increased to $9.6 million for year
to date 1997 from $6.8 million for the same period of 1996 principally due to
higher average borrowings during the thirty-nine weeks ended November 2, 1997.
13
<PAGE>
The Company's income tax provision for both 1997 and 1996 reflects the effects
of the nondeductibility of certain of the costs associated with the merger and
restructuring charges recorded in both years. Additionally, the statutory
reduction in the United Kingdom corporate tax rate enacted during second quarter
1997 required a $0.6 million charge to reflect the decrease in the deferred tax
asset due to the rate reduction. After excluding the effects of these items,
the Company's effective income tax rate from operations was 38.5% and 38% for
1997 and 1996, respectively.
Excluding the merger and restructuring charges and other charges, and the
related tax benefits, net income for the 1997 period, decreased to $9.4 million
(or $0.08 per share), compared to $26.8 million (or $0.23 per share) for the
first thirty-nine weeks of fiscal 1996. Including the effect of the
restructuring and other charges recorded in both years, the Company reported a
net loss of $36.3 million (or $0.32 per share) for the thirty-nine weeks ended
November 2, 1997 compared to net income of $13.0 million (or $0.11 per share)
for the 1996 comparable period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and expansion program to date
principally through cash flows from operations, the sale of equity securities,
lease financing and borrowings under the Credit Facility. Additional sources of
financing include vendor terms on inventory purchases.
At November 2, 1997, total assets were $743.7 million, of which $457.8 million
were current assets. Cash and cash equivalents were $42.4 million.
Cash used in operations was $45.3 million for the thirty-nine weeks ended
November 2, 1997, compared to cash used in operations of $29.7 million for the
same period of the prior year. Approximately $15.1 million of the net cash used
in operations during the thirty-nine weeks ended November 2, 1997 related to the
timing of inventory purchases on account and payment of those accounts during
the year to date. Merchandise accounts payable leveraging (the percentage of
merchandise inventory financed by vendor credit terms, i.e., accounts payable
divided by merchandise inventory), decreased to 45.2% at November 2, 1997,
compared to 46.7% at February 2, 1997. Inventory balances were approximately
$323.0 million at November 2, 1997, and $300.9 million at February 2, 1997.
Average North American store inventory, which excludes the inventory of PETsMART
Direct, decreased 8% to $736,000 per store at November 2, 1997, from
approximately $800,000 at February 2, 1997, due to management's efforts to
improve inventory turns. The inventory reduction during first quarter 1997 was
in excess of management's plans and the Company believes sales were lost due to
out-of-stock conditions in certain categories and locations. Management
currently anticipates that inventory balances, in the aggregate, will remain
stable over the remainder of fiscal 1997.
Cash used in operations was offset by $23.2 million by the recording in second
quarter 1997 of the non-cash portion of the accrued merger and restructuring
costs. Future cash uses for restructuring costs will be partially offset by
cash inflows from the liquidation of inventory and the related tax benefits
associated with the discontinuation of certain departments within all
superstores and the closing of certain superstores.
14
<PAGE>
The Company estimates an approximate $12.0 million to $13.0 million aggregate
positive net cash flow from the restructuring activities over the next two
years.
The Company has used cash in investing activities since inception to purchase
leaseholds, fixtures and equipment for new superstores and, to a lesser extent,
to purchase equipment and computer software in support of its administrative
functions. The Company has lease arrangements with leasing companies that the
Company uses to finance certain store and warehouse fixtures and equipment,
point-of-sale equipment and management information systems. The Company has
also used cash to purchase properties for sale and leaseback. Net cash used in
investing activities was $27.9 million for the thirty-nine weeks ended November
2, 1997.
Net cash flow from financing activities, primarily borrowings and repayments
under the Company's Credit Facility and proceeds from the exercise of employee
stock options, was $73.6 million for the thirty-nine weeks ended November 2,
1997.
The Company's primary long-term capital requirement is for opening new
superstores, the costs of closing redundant or inadequate superstores identified
in second quarter 1997, merger and business integration costs, corporate
investment including costs associated with the development and implementation of
the Company's new information system and for working capital.
All of the Company's superstores are leased facilities. The Company estimates
that the cash requirements after lease financing to open each new U.S. prototype
superstore, including store fixtures and equipment, leasehold improvements,
preopening costs and inventory is approximately $600,000. This amount will
include an average of approximately $50,000 for leasehold improvements (an
average of approximately $200,000 if the superstore site is a rehabilitated
unit), approximately $100,000 for preopening costs, and approximately $450,000
for inventory, net of accounts payable. Approximately $400,000 is required for
store fixtures and equipment, which is typically fully funded through lease
financing.
Based upon the Company's current plan to open approximately 2 additional North
American superstores and 18 United Kingdom superstores in the fourth quarter of
fiscal 1997, approximately $14.8 million will be needed to finance these new
superstores, prior to related lease financing proceeds of approximately $8.5
million, a portion of which may not be received until fiscal 1998.
PETsMART is in the initial phases of developing and implementing an
integrated worldwide information system which will feature a common set of
applications. The new system will require significant financing, a portion of
which will be provided by proceeds from the offering. The Company estimates
that its costs in connection with the development and implementation of the
new system, before giving consideration to any lease financing that may be
available, will be up to $20 million annually through fiscal 2000. The
Company believes that certain hardware and software components of the new
system may be financed through lease transactions, although there can be no
assurance that the actual costs for the new system
15
<PAGE>
will not exceed current estimates. There can be no assurance that the new
system can be developed, tested and implemented on a timely basis, or at all,
or that it will deliver the anticipated operational benefits in a reliable
manner. Failure to complete the new system, or to complete the new system on
a timely basis, could materially adversely affect the Company's future
operating results or its ability to expand. In particular, should the new
system not be operational, or should an alternate solution not be
implemented, by January 1, 2000, the Company may experience software
difficulties as a result of the so-called "Year 2000" problem. In the event
that additional financing is required to complete the Company's new
information system, there can be no assurance that such additional financing
will be available to the Company on acceptable terms.
The Company expects that capital expenditures, net of construction allowances,
during the fourth quarter of fiscal 1997 and during fiscal 1998 will be
approximately $15.0 million and $65.0 million, respectively, primarily to fund
the opening of 77 superstores in North America and 38 superstores in the United
Kingdom, the development and implementation of the Company's new information
system and the remodel and maintenance of the Company's existing superstores.
In November 1997, $200.0 million of 6 3/4% Convertible Subordinated Notes (the
"Notes") were issued by the Company and sold to "qualified institutional buyers"
(as defined in Rule 144A of the Securities Act) in transactions exempt from
registration under the Securities Act, and in sales outside the United States
within the meaning of Regulation S under the Securities Act. The net proceeds
to PETsMART from the sale of the Notes were approximately $193.25 million.
In connection with the Note offering, the Company amended certain covenants,
interest rates, fees, and definitions in the Credit Facility, which expires in
April 2000. The Credit Facility, as amended, provides for revolving borrowings
in a maximum amount of up to $125.0 million, but not to exceed, together with
amounts outstanding under the Construction Facility (as defined) and outstanding
letters of credit, 50% of the Company's working capital (as defined therein).
The Construction Facility provides for borrowings of up to $60.0 million. The
Credit Facility contains certain restrictive covenants relating to net worth,
leverage and debt to equity ratios, capital expenditures and minimum fixed
charge coverage. At November 2, 1997, $98.0 million was outstanding under the
Credit Facility. These amounts have subsequently been substantially repaid in
full.
The Company incurred additional indebtedness as a result of the Note offering.
On an adjusted basis, after giving effect to the Note offering and application
of the net proceeds therefrom, the Company would have had approximately $266.5
million of indebtedness outstanding at November 2, 1997 as compared to
historical indebtedness outstanding of $164.5 million.
Management believes that proceeds from the Note offering, together with cash
flow from operations, borrowing capacity under the Credit Facility, and
available lease financing will provide adequate funds for the Company's
foreseeable working capital needs, planned capital expenditures and debt service
obligations. The Company's ability to fund its operations and to make planned
capital expenditures and scheduled debt payments, to refinance indebtedness and
to remain in compliance with all of the financial covenants under its debt
agreements depends on its future operating performance and cash flow, which in
turn are subject to prevailing economic conditions and to financial, business
and other factors, some of which are beyond the Company's control.
16
<PAGE>
SEASONALITY AND INFLATION
The Company's business is subject to some seasonal fluctuation and it typically
realizes a higher portion of its net sales and operating profits during the
fourth fiscal quarter. In addition, sales of certain of the Company's products
and services designed to address pet health needs, such as flea and tick
problems, have been and may continue to be negatively impacted by the
introduction of alternative treatments, as well as by variations in weather
conditions. In addition, because PETsMART's superstores typically draw
customers from a large trade area, sales may be impacted by adverse weather or
travel conditions.
The Company's results of operations and financial position are presented based
upon historical cost. Although the Company cannot accurately anticipate the
effect of inflation on its operations, it does not believe inflation is likely
to have a material adverse effect on its net sales or results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income," which will be effective for the Company's fiscal year ending January
31, 1999. Under SFAS 130, companies are required to report comprehensive income
as a measure of overall performance. Comprehensive income includes all changes
in equity during a period except those resulting from investments by owners and
distributions to owners. The Company will be required to report net income
(loss) and foreign currency translation adjustments as the components of
comprehensive income. The Company has not yet completed its analysis of how it
will comply with this pronouncement.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information," which will be effective for fiscal
years beginning after December 15, 1997. SFAS 131 redefines how operating
segments are determined and requires expanded quantitative and qualitative
disclosures relating to an entity's operating segments. The Company has not yet
completed its analysis of how it will comply with this pronouncement.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings. However, a former
Pet City affiliate has retained counsel in the United States and made
allegations claiming that the Company misled the shareholders of Pet City at the
time of the acquisition of Pet City concerning PETsMART's business. On
September 30, 1997, shortly after the receipt of the allegations by PETsMART,
Richard Northcott, the former Chairman of Pet City, resigned as a director of
the Company. No litigation has been filed with respect to this matter, and the
Company believes that the allegations are without merit. Nevertheless, there
can be no assurance that one or more former Pet City affiliates will not
initiate litigation seeking monetary damages or an equitable remedy.
ITEM 2. CHANGES IN SECURITIES
On November 4, 1997, the Company sold $175,000,000 aggregate principal amount of
6 3/4% Convertible Subordinated Notes due 2004 (the "Notes"), of which
$174,250,000 aggregate principal amount (the "Rule 144A Notes") were sold in
reliance upon Rule 144A under the Securities Act of 1933, as amended (the
"Act"). The remaining $750,000 was sold pursuant to Regulation S as disclosed
in the Company's Current Report on Form 8-K dated October 27, 1997 and filed on
or about November 13, 1997. On November 13, 1997, the Company sold an
additional $25,000,000 of Rule 144A Notes. The Notes were sold initially to
Donaldson, Lufkin & Jenrette Securities Corporation and NationsBanc Montgomery
Securities, Inc. (the "Initial Purchasers"). The Initial Purchasers received a
discount of 3.0% of the principal amount of Rule 144A Notes purchased, or
$5,977,500. Net proceeds to the Company for the Rule 144A Notes, before
deducting offering expenses, were $193,272,500.
The offering of the Rule 144A Notes was made in reliance on Rule 144A
promulgated under the Act, based on the fact that the securities were offered or
sold in the United States only to qualified institutional buyers (as defined in
Rule 144A) and the Notes were not, at the time of issuance, of the same class as
securities listed on a national securities exchange, as "securities of the same
class" is defined for purposes of Rule 144A.
The initial conversion price of $8.75 per share (equivalent to a conversion rate
of approximately 114.2857 shares per $1,000 principal amount of Notes), is
subject to adjustment in certain events, including: (i) the issuance of Common
Stock as a dividend or distribution on the Common Stock; (ii) the subdivision,
combination or reclassification of the outstanding Common Stock; (iii) the
issuance to all holders of Common Stock of rights or warrants to purchase Common
Stock at a price per share less than the current market price per share
(determined as set forth in the Indenture dated as of November 7, 1997 between
the Company and Norwest Bank of Minnesota, N.A., as Trustee (the "Indenture"));
(iv) the distribution of shares of capital stock of the Company (other than
Common Stock), evidences of indebtedness or other assets (excluding dividends
payable exclusively in cash) to all holders of Common Stock; (v) the issuance of
Common Stock for
18
<PAGE>
a price per share less than the current market price per share (determined as
set forth in the Indenture) on the date the Company fixes the offering
price of such additional shares (other than issuances of Common Stock under
certain employee benefit plans of the Company and certain other issuances
described in the Indenture and other than issuances of shares in connection with
any acquisition by the Company with an aggregate purchase price of $15 million
or less); (iv) the distribution, by dividend or otherwise, of cash (excluding
any cash portion of a distribution resulting in an adjustment pursuant to clause
(iv) above)to all holders of common Stock in an aggregate amount that, combined
together with (A) all other distributions of cash that did not trigger a
conversion price adjustment to all holders of Common Stock within the 12 months
preceding the date fixed for determining the shareholders entitled to such
distribution plus (B) any cash and the fair market value of consideration that
did not trigger a conversion price adjustment payable in respect of any tender
offer by the Company or any of its subsidiaries for Common Stock (as described
in clause (vii) below) consummated within the 12 months preceding the date
fixed for determining the shareholders entitled to such distribution, exceeds
15% of the product of the current market price per share (determined as set
forth in the Indenture) on the date fixed for the determination of shareholders
entitled to receive such distribution multiplied by the number of shares of
Common Stock outstanding on such date; and (vii) the completion of a tender
offer made by the Company or any of its subsidiaries for Common Stock involving
an aggregate consideration that, together with (A) any cash and the fair market
value of any consideration that did not trigger a conversion price adjustment
paid or payable in respect of any previous tender offer by the Company or any of
its subsidiaries for Common stock consummated within the 12 months preceding the
consummation of such tender offer plus (B) the aggregate amount of any
distribution of cash that did not trigger a conversion price adjustment (as
described in clause (vi) above) to all holders of Common Stock within the 12
months preceding the consummation of such tender offer, exceeds 15% of the
current market price per share (determined as set forth in the
Indenture)immediately prior to the expiration of such offer times the number of
shares of Common Stock outstanding at the expiration of such offer. In the
event of a distribution of all or substantially all holders of Common Stock of
rights to subscribe for additional shares of the Company's capital stock (other
than those referred to in clause (iii) above), the Company may, instead of
making an adjustment in the conversion price, make proper provisions so that
each holder of a Note who converts such Notes after the record date for such
distribution and prior to the expiration or redemption of such rights shall be
entitled to receive upon such conversion, in addition to shares of Common Stock,
an appropriate number of such rights. No adjustment of the conversion price
will be made until cumulative adjustments amount to one percent of more of the
conversion price as last adjusted.
The Company, from time to time and to the extent permitted by law, may reduce
the conversion price by any amount for any period of at least 20 business days,
in which case the Company shall give at least 15 days notice of such reduction,
if the Board of Directors of the Company has made a determination that such
reduction would be in the best interests of the Company, which determination
shall be conclusive. The Company may, at its option, make such reductions in
the conversion price, in addition to those set forth above, as the Board of
Directors of the Company deems advisable to avoid or diminish any income tax to
holders of Common Stock resulting from any dividend or distribution of stock (or
rights to acquire stock) or
19
<PAGE>
from any event treated as such for United States federal income tax purposes.
In case of any consolidation or merger of the Company with or into any other
corporation, or in the case of any consolidation or merger of another
corporation into the Company in which the Company is the surviving corporation,
involving in either case a reclassification, conversion, exchange or
cancellation of shares of Common Stock, or any sale or transfer of all or
substantially all of the assets of the Company, the Holder of each Note shall,
after such consolidation, merger sale or transfer, have the right to convert
such Note into the kind and amount of securities or other property, which may
include cash, which such Holder would have been entitled to receive upon such
consolidation, merger, sale or transfer if such Holder had held the Common Stock
issuable upon conversion of such Note immediately prior to the effective date of
such consolidation, merger, sale or transfer.
20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.15 Second Amendment, Dated as of October 29, 1997, to
the Third Amended and Restated Credit Agreement,
Among PETsMART, Inc., Certain Lenders and
NationsBank of Texas, N.A. as Administrative Lender,
Dated as of April 18, 1997. (1)
Exhibit 11.1 Statement of Computation of Common and Common
Equivalent Shares and Earnings Per Share.
Exhibit 27.1 Financial Data Schedule - EDGAR only.
(1) Incorporated by reference to identically-numbered exhibit to
PETsMART's Registration Statement on Form S-3, File No. 333-41111,
filed November 26, 1997.
(b) Reports on Form 8-K
During the thirteen weeks ended November 2, 1997, the Company filed the
following report on Form 8-K:
- Report on Form 8-K dated August 4, 1997, and filed on August 21, 1997,
announcing the adoption of a Share Purchase Rights Plan.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on December 16, 1997.
PETSMART, INC.
(Registrant)
/s/ C. Donald Dorsey /s/ Kenneth A. Conway
---------------- -----------------
C. Donald Dorsey Kenneth A. Conway
Executive Vice President Vice President and Controller
(Principal Financial Officer) (Principal Accounting Officer)
22
<PAGE>
PETSMART, INC.
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
10.15 Second Amendment, Dated as of October 29, 1997, to the Third
Amended and Restated Credit Agreement, Among PETsMART, Inc.,
Certain Lenders and NationsBank of Texas, N.A. as Administrative
Lender, Dated as of April 18, 1997. (1)
11.1 Computation of Per Share Earnings.
27.1 Financial Data Schedule - EDGAR only.
(1) Incorporated by reference to identically-numbered exhibit to
PETsMART's Registration Statement on Form S-3, File No.
333-41111, filed November 26, 1997.
23
<PAGE>
<TABLE>
<CAPTION>
PETsMART, Inc. and Subsidiaries
Statement of Computation of Common
and Common Equivalent Shares and
Earnings per Share
(in thousands, except per share data)
For the 13 Weeks Ended For the 39 Weeks Ended
November 2, October 27, November 2, October 27,
PRIMARY (1) 1997 1996 1997 1996
- ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 115,225 113,139 114,642 111,867
Incremental common equivalents from options and warrants 628 5,804 - 5,562
-------- -------- -------- --------
Weighted average shares outstanding 115,853 118,943 114,642 117,429
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) $ 180 $ 10,433 $(36,282) $ 13,006
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per share $ 0.00 $ 0.09 $ (0.32) $ 0.11
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
- -------------------------
(1) Primary and Fully Diluted earnings per share are the same for all periods
presented.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR TO DATE AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1998
<PERIOD-START> FEB-03-1997
<PERIOD-END> NOV-02-1997
<CASH> 42,353
<SECURITIES> 0
<RECEIVABLES> 55,754
<ALLOWANCES> 0
<INVENTORY> 322,988
<CURRENT-ASSETS> 457,780
<PP&E> 314,907
<DEPRECIATION> 105,542
<TOTAL-ASSETS> 743,695
<CURRENT-LIABILITIES> 332,050
<BONDS> 58,027
0
0
<COMMON> 11
<OTHER-SE> 335,509
<TOTAL-LIABILITY-AND-EQUITY> 743,695
<SALES> 1,279,970
<TOTAL-REVENUES> 1,279,970
<CGS> 977,764<F1>
<TOTAL-COSTS> 977,764
<OTHER-EXPENSES> 349,609<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,608
<INCOME-PRETAX> (56,829)
<INCOME-TAX> (20,547)
<INCOME-CONTINUING> (36,282)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (36,282)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
<FN>
<F1>Includes merger and restructuring costs and other charges of $9,450.
<F2>Includes merger and restructuring costs and other charges of $62,688.
</FN>
</TABLE>
