========================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended May 4, 1996
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: 0-23574
PETCO ANIMAL SUPPLIES, INC.
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Delaware 33-0479906
9125 Rehco Road
San Diego, CA 92121
(619) 453-7845
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. Yes X No ____
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Date Outstanding
Common Stock, $.0001 Par Value June 14, 1996 15,670,998
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at February 3, 1996 and May 4, 1996
PETCO ANIMAL SUPPLIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares)
February 3, May 4,
1996 1996
--------- ---------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 9,460 $ 57,076
Receivables 4,343 2,761
Inventories 42,818 50,412
Other 626 1,052
--------- ---------
Total current assets 57,247 111,301
Fixed assets, net 56,509 61,373
Goodwill 31,767 38,981
Deferred tax assets 10,521 10,487
Other assets 1,163 1,143
--------- ---------
$157,207 $223,285
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,948 $ 21,034
Accrued expenses 11,123 8,869
Accrued salaries and employee benefits 5,186 5,386
Revolving credit facility --- ---
Current portion of capital lease and other obligations 2,280 2,210
Current portion of accrued store closing costs 1,116 1,665
--------- ---------
Total current liabilities 42,653 39,164
Capital lease and other obligations, excluding current 10,337 11,667
Accrued store closing costs, excluding current portion 4,804 1,493
Deferred rent 3,027 3,363
Stockholders equity:
Preferred stock, $.0001 par value, 2,000,000 shares
authorized, no shares issued and outstanding --- ---
Common stock, $.0001 par value, 20,000,000 shares
authorized, 12,736,120 and 15,333,998 shares issued
and outstanding, respectively 1 2
Additional paid-in capital 131,214 201,093
Accumulated deficit (34,829) (33,497)
--------- ---------
Total stockholders equity 96,386 167,598
Commitments and contingencies
--------- ---------
$157,207 $223,285
========= =========
.
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Operations for the thirteen weeks ended May 4, 1996
and April 29, 1995
PETCO ANIMAL SUPPLIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share data)
Thirteen Weeks Ended
----------------------
April 29, May 4,
1995 1996
--------- ---------
Net sales $ 54,060 $ 86,956
Cost of sales and occupancy costs 41,203 65,441
--------- ---------
Gross profit 12,857 21,515
Selling, general and administrative expenses 11,355 18,950
--------- ---------
Operating income 1,502 2,565
Interest expense 214 327
--------- ---------
Earnings before income taxes 1,288 2,238
Income taxes 386 906
--------- ---------
Net earnings $ 902 $ 1,332
========= =========
<PAGE>
Consolidated Statement of Stockholders' Equity for the thirteen weeks ended
May 4, 1996
PETCO ANIMAL SUPPLIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(unaudited, in thousands, except share data)
Common Stock
-----------------------------
Total
Additional Stock-
Paid-in Accumulated holders'
Shares Amount Capital Deficit Equity
------------ ------ --------- --------- ---------
Balances at February 3, 1996 12,736,120 $ 1 $131,214 $(34,829) $ 96,386
Sale of Common Stock 2,557,758 1 69,468 --- 69,469
Exercise of options 40,289 --- 416 --- 416
Retirement of stock (169) --- (5) --- (5)
Net earnings --- --- --- 1,332 1,332
----------- ------ --------- --------- ---------
Balances at May 4, 1996 15,333,998 $ 2 $201,093 $(33,497) $167,598
============ ====== ========= ========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows for the thirteen weeks ended April 29,
1995 and May 4, 1996
PETCO ANIMAL SUPPLIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Thirteen Weeks Ended
----------------------
April 29, May 4,
1995 1996
--------- --------
Cash flows from operating activities:
Net earnings $ 902 $ 1,332
Depreciation and amortization 1,517 2,897
Deferred taxes ---- 34
Other 12 4
Changes in assets and liabilities:
Receivables (237) 1,582
Inventories (1,562) (7,594)
Other current assets (148) (426)
Accounts payable (1,594) (1,914)
Accrued expenses (1,691) (2,255)
Accrued salaries and employee benefits (1,873) 200
Deferred rent 150 336
Accrued store closing costs (78) (2,762)
--------- --------
Net cash used in operating activities (4,602) (8,566)
--------- --------
Cash flows from investing activities:
Additions to fixed assets (4,826) (5,340)
Net cash invested in acquisitions of businesses (2,314) (7,788)
--------- --------
Net cash used in investing activities (7,140) 13,128)
--------- --------
Cash flows from financing activities:
Net borrowings under revolving agreements 5,447 ----
Repayment of capital lease and other obligations (196) (570)
Proceeds from the issuance of Common Stock 52 69,880
--------- --------
Net cash provided by financing activities 5,303 69,310
--------- --------
Net increase (decrease) in cash and cash equivalents (6,439) 47,616
Cash and cash equivalents at beginning of year 6,956 9,460
--------- --------
Cash and cash equivalents at end of period $ 517 $57,076
========= ========
See accompanying notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
PETCO ANIMAL SUPPLIES, INC.
Notes to Consolidated Financial Statements
Note 1 - General
In the opinion of management of Petco Animal Supplies, Inc. ("the Company"), the
unaudited consolidated financial statements contain all adjustments, consisting
of normal recurring adjustments, necessary to present the financial position,
results of operations and cash flows as of and for the period ended May 4, 1996.
Because of the seasonal nature of the Company's business, the results of
operations for the thirteen weeks ended April 29, 1995 and May 4, 1996, are not
necessarily indicative of the results to be expected for the full year. For
further information, refer to the consolidated financial statements and
footnotes thereto for the fiscal year ended February 3, 1996 included in the
Company's Form 10-K Annual Report (File No. 0-23574) filed with the Securities
and Exchange Commission on April 27, 1996.
Note 2 - Net Earnings Per Share
Net earnings per common and common equivalent share are computed by dividing net
earnings by the weighted average number of common and common equivalent shares
outstanding during the period.
For the thirteen weeks ended April 29, 1995 and May 4, 1996, common share
equivalents were not included as their effects would not be materially dilutive.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
***
General
The Company currently utilizes both superstore and traditional store formats and
follows a strategy of converting and expanding its store base from a traditional
store format to a superstore format. As a result of this strategy, the Company
has opened and acquired superstores, has expanded, remodeled, and relocated
traditional stores into superstores, collectively referred to as conversions,
and has closed underperforming stores. At May 4, 1996, the Company operated 265
stores, including 194 superstores, in fifteen states and the District of
Columbia. At April 29, 1995, the Company operated 218 stores, of which 119 were
superstores.
In March 1996, the Company assumed lease obligations and purchased all tangible
personal property and inventory used in connection with eight pet food and
supply stores located in Maryland and Virginia and operated under the trade name
P.T. Moran.
As a result of the Company's plans to open approximately 40 to 50 stores this
year, including conversions of existing traditional stores into superstore
formats, the Company anticipates certain costs to increase as a percentage of
sales in the near term. In addition, 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 expects continued downward pressure on its gross profit
as a percentage of sales from higher store occupancy costs in new stores and
increased competitive pressures in certain market areas. This trend will be
partially offset, however, by increased sales from maturing stores and the
benefit of expanded merchandise assortments in existing stores. Increased
payroll, advertising and other store level expenses as a percentage of sales in
new stores will also contribute to lower store operating margins. In addition,
the Company charges preopening costs associated with each new superstore to
earnings as incurred. Therefore, the Company expects that the opening of a large
number of new superstores in a given quarter may adversely impact its quarterly
results of operations for that quarter.
The Company's business is also subject to some seasonal fluctuations.
Historically, the Company has realized a higher portion of its net sales during
the month of December and a lower portion of its net sales in other winter
months and fall than during the other months of the year.
<PAGE>
Results of Operations
First Quarter 1996 Compared to First Quarter 1995
Net sales increased 60.8% to $87.0 million for the thirteen weeks ended May 4,
1996, ("first quarter 1996") from $54.1 million for the thirteen weeks ended
April 29, 1995, ("first quarter 1995"). The increase in net sales in first
quarter 1996 resulted primarily from the addition of 18 superstores, including
the conversion of seven traditional stores into superstores, partially offset by
the closing of three stores, and a comparable store net sales increase of 18.2%.
The comparable store net sales increase was attributable to maturing
superstores, more effective marketing efforts and expanded merchandise
assortments in existing stores. The net increase in the Company's store base
accounted for approximately $23.3 million, or 70.8% of the net sales increase,
and $9.6 million, or 29.2% of the net sales increase, was attributable to the
increase in comparable store net sales.
Gross profit, defined as net sales less cost of sales including occupancy costs,
increased $8.6 million or 66.7% to $21.5 million in first quarter 1996 from
$12.9 million in first quarter 1995. Gross profit as a percentage of net sales
increased to 24.7% in first quarter 1996 from 23.8% in first quarter 1995
primarily due to lower distribution expenses related to the more efficient
operation of the Company's central distribution facility during the current year
period.
Selling, general and administrative expenses increased $7.6 million, or 66.7%,
to $19.0 million for the quarter compared to $11.4 million in first quarter
1995. Selling, general and administrative expenses increased primarily as a
result of higher personnel and related costs associated with new store openings.
As a percentage of net sales, these expenses increased to 21.8% in first quarter
1996 from 21.0% in first quarter 1995 primarily due to increased amortization of
goodwill.
Operating income increased 73.3% to $2.6 million in first quarter 1996 from $1.5
million in first quarter 1995 and increased as a percentage of net sales to 2.9%
in first quarter 1996 from 2.8% in first quarter 1995.
Interest expense increased $0.1 million to $0.3 million in first quarter 1996
from $0.2 million in first quarter
1995.
Income taxes were $0.9 million in first quarter 1996 compared to $0.4 million in
first quarter 1995.
As a result of the foregoing, net earnings increased to $1.3 million in first
quarter 1996 from $0.9 million in first quarter 1995.
Liquidity and Capital Resources
The Company has financed its operations and expansion program through internal
cash flow, external borrowings and the sale of equity securities. At May 4,
1996, total assets were $223.3 million, of which $111.3 million were current
assets. Net cash used in operating activities was $8.6 million in first quarter
1996 and $4.6 million in first quarter 1995. The Company's sales are
substantially on a cash basis, therefore cash flow generated from operating
stores provides a source of liquidity to the Company. The principal use of
operating cash is for the purchase of merchandise inventories. A portion of the
Company's inventory purchases is financed through vendor credit terms.
The Company uses cash in investing activities to acquire stores, purchase fixed
assets for new and converted stores and, to a lesser extent, to purchase
warehouse and office fixtures, equipment and computer hardware and software in
support of its distribution and administrative functions. Cash used in investing
activities was $13.1 million in first quarter 1996 and $7.1 million in first
quarter 1995.
The Company also finances some of its purchases of equipment and fixtures
through capital leases and other obligations. Purchases of $1.8 million and $1.6
million of fixed assets were financed in this manner during first quarter 1996
and first quarter 1995, respectively. The Company believes that additional
sources of capital lease and other financing are available on a cost-effective
basis and plans to use them, as necessary, in connection with its expansion
program.
During first quarter 1996, the Company acquired one retailer of pet food and
supplies and during first quarter 1995, acquired two retailers of pet food and
supplies with $7.8 million and $2.3 million, respectively, invested in the
acquisitions of businesses.
<PAGE>
The Company's primary long-term capital requirement is funding for the opening
or acquisition of superstores and the conversion of traditional stores into
superstores. In first quarter 1996, net proceeds of $69.5 million were obtained
from a public offering of Common Stock to provide funds for the Company's
expansion program, the acquisition of related businesses and for working capital
requirements.
The Company has a revolving credit facility with a commitment of up to $25.0
million that expires June 2, 1997. Borrowings under this facility are unsecured
and bear interest, at the Company's option, at either the bank's reference rate
or LIBOR plus 1.0%. The revolving credit facility contains certain affirmative
and negative covenants related to working capital, net worth, leverage,
profitability, capital expenditures and payment of cash dividends.
As of February 3, 1996, the Company had available net operating loss
carryforwards of $8.5 million for federal income tax purposes, which begin
expiring in 2004, and $1.8 million for California income tax purposes, which
begin expiring in 1996.
The Company anticipates that available cash and cash equivalents as well as
funds available under the revolving credit facility, funds generated by
operations, currently available vendor financing, and capital lease and other
financing will be sufficient to finance its continued operations and planned
store openings for at least the next twelve months.
Certain Cautionary Statements
Certain statements in this Quarterly Report on Form 10-Q that are not historical
fact constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results of the Company to be materially different from historical
results or from any results expressed or implied by such forward-looking
statements. These factors are discussed under the caption "Certain Cautionary
Statements" in the Company's Annual Report on Form 10-K for the year ended
February 3, 1996.
Part II. Other Information
Item 1. Legal Proceedings
(a) None
Item 6. Exhibits and Reports on Form 8-K
1. Exhibits
(a) 27.1 Financial Data Schedule.
2. Reports on Form 8-k
(a) The Company filed no reports on Form 8-K during the thirteen weeks
ended May 4, 1996.
<PAGE>
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.
PETCO ANIMAL SUPPLIES, INC.
By : /s/ RICHARD ST. PETER
Richard St. Peter
Executive Vice President and
Chief Financial Officer
Date: June 17, 1996
By : /s/ JAMES M. MYERS
James M. Myers
Vice President Finance and
Chief Accounting Officer
Date: June 17, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS ADN CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
Appendix A to Item 601(c) of Regulation S-K Commercial and Industrial Companies
Article 5 of Registration S-X (in thousands except share data)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> MAY-04-1996
<CASH> 57,076
<SECURITIES> 0
<RECEIVABLES> 2,761
<ALLOWANCES> 0
<INVENTORY> 50,412
<CURRENT-ASSETS> 111,301
<PP&E> 61,373
<DEPRECIATION> 0
<TOTAL-ASSETS> 223,285
<CURRENT-LIABILITIES> 39,164
<BONDS> 11,667
0
0
<COMMON> 2
<OTHER-SE> 167,596
<TOTAL-LIABILITY-AND-EQUITY> 223,285
<SALES> 86,956
<TOTAL-REVENUES> 86,956
<CGS> 65,441
<TOTAL-COSTS> 65,441
<OTHER-EXPENSES> 18,950
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 327
<INCOME-PRETAX> 2,238
<INCOME-TAX> 906
<INCOME-CONTINUING> 1,332
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,332
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
