PetSmart Reports Results for the Second Quarter 2007





    --  Earnings of $0.35 per Share

    --  Comp Sales Growth of 4 Percent

    --  Board Authorizes $300 Million Stock Purchase Plan and $225 Million
ASR

    PHOENIX, August 15 /CNW/ - PetSmart, Inc. (NASDAQ:   PETM), today reported
net income of $47.1 million, or $0.35 per diluted share, for the second fiscal
quarter of 2007. That compares with net income of $34.6 million, or $0.25 per
diluted share, for the second quarter of fiscal 2006.

    Included in the company's second quarter 2007 results was $2.2 million,
or approximately $0.01 per share, of net after tax expense to exit the State
Line Tack business. The net expense included accelerated depreciation of
assets and costs to remerchandise the equine sections of stores.

    Excluding those items, non-GAAP earnings per diluted share for the second
quarter of fiscal 2007 were $0.36. The company's earnings per diluted share
exceeded expectations due to a benefit related to the renegotiation of a
contract with MMI Holdings Inc., and favorable results in insurance expense
based on updated actuarial estimates. Non-GAAP earnings per diluted share were
$0.27 for the second quarter of 2006.

    "PetSmart has yet again demonstrated its resilience, our associates have
shown a continued ability to execute on our list of initiatives, and the pet
parent consumer is showing signs of strength," said Phil Francis, chairman and
CEO.

    Sales

    Net sales for the second quarter of 2007 were $1.1 billion, compared to
$1.0 billion for the same period in 2006, and comparable store sales - or
sales in stores open at least a year - grew 4.0 percent in the second quarter,
on top of 4.9 percent in the same period in 2006. Excluding the State Line
Tack business, comparable store sales for the core pet business for the second
quarter grew 5.0 percent.

    Pet services sales were $117.2 million, up 19.5 percent from the second
quarter last year.

    PetSmart opened 40 new stores, including the acquisition of stores in
Canada, and closed two locations during the second quarter of 2007, which
compares with 22 new stores and one closure during the second quarter of 2006.

    Gross margins and expense

    Gross margins were 31.0 percent in the second quarter of 2007, compared
with 29.9 percent in the same period in 2006.

    Non-GAAP gross margins in the second quarter of 2006 were 30.4 percent.

    Operating, general and administrative expenses were 23.4 percent of net
sales in the second quarter of 2007, compared with 23.8 percent in the second
quarter of 2006.

    Excluding the net expense from exiting the State Line Tack business,
operating, general and administrative expenses were 23.1 percent of net sales
in the second quarter of 2007. That compares with non-GAAP operating, general
and administrative expenses in the second quarter of 2006 of 23.5 percent.

    Dividend payments

    As previously announced, the company paid a dividend of $0.03 per share
on August 10, 2007, to shareholders of record at the close of business on July
27, 2007.

    Stock Purchase Program

    PetSmart purchased approximately 1.9 million of its shares at an average
price of $33.97 during the second quarter of 2007. At the end of the second
quarter, the company had used all its $250 million authorization.

    The Board of Directors has authorized a new program that allows the
company to purchase $300 million of stock over two years. PetSmart will use a
portion of the authorization immediately to execute an accelerated share
repurchase (ASR) program, with Lehman Brothers as the counterparty, for the
repurchase of $225 million of common stock no later than January 2008. The
exact number of repurchased shares will be determined at the conclusion of the
agreement. The majority of the impact of the ASR will be included in the
Company's share count by the end of September. Combined with the $89.9 million
of stock purchases to date, the company will purchase nearly $315 million of
stock in fiscal 2007.

    The company has replaced its existing $125 million credit facility with a
$350 million five-year revolving credit facility. The company will fund the
$225 million ASR program through cash and its credit facility. It expects to
use the remaining $75 million available under the new stock purchase
authorization opportunistically.

    "With our solid business model and the initiatives we have in place, we
remain confident in our future prospects, and our ability to generate
long-term shareholder value," Francis said. "In addition, we believe in
providing our shareholders with a tangible return in the form of dividends and
share repurchases."

    Outlook

    PetSmart projects comparable store sales growth in the low- to mid-single
digits for the third quarter of 2007 and for the full year.

    The company estimates earnings of $0.21 to $0.23 per share in the third
quarter, which includes an impact of $0.04 per share to exit the State Line
Tack business.

    For all of 2007, PetSmart expects earnings of $2.08 to $2.10 per share
which includes $0.47 per share from the sale of shares of MMI in the first
quarter of 2007. In addition the change to the equity method of accounting for
the investment in MMI should result in a $0.01 per share benefit. Also
included is a loss of approximately $0.08 per share related to exiting the
State Line Tack business, an estimated $0.08 per share benefit for a 53rd week
of sales in 2007, and about a $0.01 benefit from the ASR.

    Conference call information

    PetSmart management has scheduled a teleconference for 4:30 p.m. (EDT)
today to discuss results for the second quarter of 2007 as well as the current
outlook. This teleconference will be Web-cast live for all investors at
www.petm.com or www.streetevents.com. The Web-cast will be available until the
company announces results for the third quarter of 2007. In addition, you can
listen to the call live by dialing 800-709-7416 (within the United States and
Canada) or 706-679-5320 (for international callers), code 2204885. A phone
replay also will be available through August 29, 2007, at 800-642-1687 in the
United States and Canada, or at 706-645-9291 for international callers, code
2204885.

    About PetSmart

    PetSmart, Inc. is the largest specialty pet retailer of services and
solutions for the lifetime needs of pets. The company operates more than 966
pet stores in the United States and Canada, a growing number of in-store
PetsHotel cat and dog boarding facilities, and is a leading online provider of
pet supplies and pet care information (www.petsmart.com). PetSmart provides a
broad range of competitively priced pet food and pet products; and offers
complete pet training, pet grooming, pet boarding, doggie day camp and pet
adoption services. Since 1994, PetSmart Charities, Inc., an independent
501(c)(3) non-profit animal welfare organization, has donated more than $52
million to animal welfare programs and, through its in-store pet adoption
programs, has saved the lives of more than 3 million pets.

    Forward-looking statements

    This news release contains forward-looking statements including
statements relating to future revenue growth and goals, our expectations
regarding the exit from our State Line Tack product line, our expectations
with respect to our investment in MMI and future business opportunities that
involve substantial risks and uncertainties. Such risks and uncertainties
include, but are not limited to, general economic conditions, competitive
forces, our ability to successfully exit the State Line Tack product line and
our ability to manage our operations and growth. Actual results and
developments may therefore differ materially from those described in this
release. For more information about PetSmart, Inc., and risks arising when
investing in PetSmart, Inc., you are directed to the company's most recent
Annual Report on Form 10-K filed with the Securities and Exchange Commission.

    Statement of utility

    PetSmart continues to provide all information required in accordance with
Generally Accepted Accounting Principles (GAAP), but it believes that
evaluating its ongoing operating results may be difficult if an investor is
limited to reviewing only GAAP financial measures. Accordingly, PetSmart uses
non-GAAP financial measures of its performance internally to evaluate its
ongoing operations and to allocate resources within the organization.

    PetSmart's management does not itself, nor does it suggest that investors
should, consider such non-GAAP financial measures in isolation from, or as a
substitute for, financial information prepared in accordance with GAAP. The
non-GAAP financial measures used by PetSmart may not be consistent with the
presentation of similar companies in PetSmart's industry. However, PetSmart
presents such non-GAAP financial measures in reporting its financial results
to provide investors with an additional tool to evaluate PetSmart's operating
results in a manner that focuses on what it believes to be its ongoing
business operations.

    PetSmart's management believes it is useful for itself and investors to
review both GAAP information and non-GAAP measures of earnings per share, and
the related impacts on gross margins and operating, general and administrative
expenses as adjusted. For the second quarter of 2007, these non-GAAP measures
exclude the effect of net expense from the exit of the State Line Tack product
line. For the second quarter of 2006, the non-GAAP measures exclude the effect
of costs related to an acquisition the company chose not to pursue,
distribution costs for a re-racking project, a change in accounting practice
for early pay discounts and a tax benefit. PetSmart's management believes that
these measures allow investors to have a better understanding of the overall
performance of PetSmart's business and its ability to perform in subsequent
periods.

    Management believes the inclusion of these non-GAAP financial measures
provides consistency and comparability of financial results and better enables
investors to evaluate the ongoing operations and prospects of PetSmart by
providing better comparisons. Whenever PetSmart uses such a non-GAAP financial
measure, it strives where possible to provide a reconciliation of non-GAAP
financial measures to the most closely applicable GAAP financial measure.
Investors are encouraged to review the related GAAP financial measures and the
reconciliation of these non-GAAP financial measures to their most directly
comparable GAAP financial measure.

    
                       PetSmart, Inc. and Subsidiaries
               Condensed Consolidated Statements of Operations
               (in thousands, except per share and store data)
                                 (Unaudited)


                                      Thirteen Weeks     Thirteen Weeks
                                            Ended              Ended
                                     ------------------ ------------------
                                      July 29,  % of     July 30,  % of
                                         2007    Sales      2006    Sales
                                     ------------------ ------------------

    Net sales                        $1,116,681 100.00% $1,020,609 100.00%
    Cost of sales                       770,358  68.99%    715,762  70.13%
                                     ------------------ ------------------

    Gross profit                        346,323  31.01%    304,847  29.87%

    Operating, general and
     administrative expenses            261,587  23.43%    242,867  23.80%
                                     ------------------ ------------------

    Operating income                     84,736   7.59%     61,980   6.07%

    Gain on sale of investments               -   0.00%          -   0.00%
    Interest expense, net                (8,732) -0.78%     (9,320) -0.91%
                                     ------------------ ------------------

    Income before income tax expense
     and equity in income from
     investee                            76,004   6.81%     52,660   5.16%

    Income tax expense                  (29,435) -2.64%    (18,030) -1.77%

    Equity in income from investee,
     net of tax                             556   0.05%          -   0.00%
                                     ------------------ ------------------

    Net income                       $   47,125   4.22% $   34,630   3.39%
                                     ------------------ ------------------

    Basic earnings per share         $     0.36         $     0.25
                                     -----------        -----------
    Diluted earnings per share       $     0.35         $     0.25
                                     -----------        -----------

    Weighted average shares
     outstanding - basic                132,262            137,667
    Weighted average shares
     outstanding - diluted              135,514            141,237

    ----------------------------------------------------------------------
    Stores open at beginning of each
     period                                 928                842
    Stores opened during each period         40                 22
    Stores closed during each period         (2)                (1)
    Stores open at end of each
     period                                 966                863
    ----------------------------------------------------------------------


                                     Twenty-Six Weeks   Twenty-Six Weeks
                                            Ended              Ended
                                     ------------------ ------------------
                                      July 29,  % of     July 30,  % of
                                         2007    Sales      2006    Sales
                                     ------------------ ------------------

    Net sales                        $2,228,306 100.00% $2,032,138 100.00%
    Cost of sales                     1,543,505  69.27%  1,417,211  69.74%
                                     ------------------ ------------------

    Gross profit                        684,801  30.73%    614,927  30.26%

    Operating, general and
     administrative expenses            523,481  23.49%    478,268  23.54%
                                     ------------------ ------------------

    Operating income                    161,320   7.24%    136,659   6.72%

    Gain on sale of investments          95,363   4.28%          -   0.00%
    Interest expense, net               (17,556) -0.79%    (16,053) -0.79%
                                     ------------------ ------------------

    Income before income tax expense
     and equity in income from
     investee                           239,127  10.73%    120,606   5.93%

    Income tax expense                  (86,076) -3.86%    (44,212) -2.18%

    Equity in income from investee,
     net of tax                             781   0.04%          -   0.00%
                                     ------------------ ------------------

    Net income                       $  153,832   6.90% $   76,394   3.76%
                                     ------------------ ------------------

    Basic earnings per share         $     1.16         $     0.56
                                     -----------        -----------
    Diluted earnings per share       $     1.13         $     0.54
                                     -----------        -----------

    Weighted average shares
     outstanding - basic                132,789            137,558
    Weighted average shares
     outstanding - diluted              136,095            141,163

    ----------------------------------------------------------------------
    Stores open at beginning of each
     period                                 908                826
    Stores opened during each period         63                 42
    Stores closed during each period         (5)                (5)
    Stores open at end of each
     period                                 966                863
    ----------------------------------------------------------------------
    

    
                       PetSmart, Inc. and Subsidiaries
                 Reconciliation of non-GAAP to GAAP Measures
                    (In thousands, except per share data)
                                 (Unaudited)

                               Thirteen Weeks Ended July 29, 2007
                       ---------------------------------------------------

                                          Reconciling
                                              item
                                         --------------
                                             Equine
                                          product line
                       As Reported (GAAP)     exit          Non-GAAP
                       ------------------ ------------ -------------------

    Net sales          $1,116,681 100.00% $         -  $1,116,681  100.00%
    Cost of sales         770,358  68.99%         560     770,918   69.04%
                       ------------------ ------------ ----------- -------

    Gross profit          346,323  31.01%        (560)    345,763   30.96%

    Operating, general
     and
     administrative
     expenses             261,587  23.43%      (4,172)    257,415   23.05%
                       ------------------ ------------ ----------- -------

    Operating income       84,736   7.59%       3,612      88,348    7.91%

    Gain on sale of
     investments                -   0.00%           -           -    0.00%
    Interest expense,
     net                   (8,732) -0.78%           -      (8,732)  -0.78%
                       ------------------ ------------ ----------- -------

    Income before
     income tax
     expense and
     equity in income
     from investee         76,004   6.81%       3,612      79,616    7.13%

    Income tax expense    (29,435) -2.64%      (1,364)    (30,799)  -2.76%

    Equity in income
     from investee,
     net of tax               556   0.05%           -         556    0.05%
                       ------------------ ------------ ----------- -------

    Net income         $   47,125   4.22% $     2,248  $   49,373    4.42%
                       ------------------ ------------ ----------- -------

    Basic earnings per
     share             $     0.36                      $     0.37
    Diluted earnings
     per share         $     0.35                      $     0.36

    Weighted average
     shares
     outstanding -
     basic                132,262                         132,262
    Weighted average
     shares
     outstanding -
     diluted              135,514                         135,514
    

    
                             Twenty-Six Weeks Ended July 29, 2007
                    ------------------------------------------------------


                                                      Reconciling items
                                                   -----------------------
                                                      Equine
                                                   product line  Sale of
                                As Reported (GAAP)     exit     MMIH Stock
                                ------------------ ------------ ----------

    Net sales                   $2,228,306 100.00%     $     -   $      -
    Cost of sales                1,543,505  69.27%      (1,510)         -
                                ------------------ ------------ ----------

    Gross profit                   684,801  30.73%       1,510          -

    Operating, general and
     administrative expenses       523,481  23.49%      (8,406)         -
                                ------------------ ------------ ----------

    Operating income               161,320   7.24%       9,916          -

    Gain on sale of investments     95,363   4.28%           -    (95,363)
    Interest expense, net          (17,556) -0.79%           -          -
                                ------------------ ------------ ----------

    Income before income tax
     expense and equity in
     income from investee          239,127  10.73%       9,916    (95,363)

    Income tax expense             (86,076) -3.86%      (3,863)    31,026

    Equity in income from
     investee, net of tax              781   0.04%           -          -
                                ------------------ ------------ ----------

    Net income                  $  153,832   6.90%     $ 6,053   $(64,337)
                                ------------------ ------------ ----------

    Basic earnings per share    $     1.16
    Diluted earnings per share  $     1.13

    Weighted average shares
     outstanding - basic           132,789
    Weighted average shares
     outstanding - diluted         136,095



                                                          Non-GAAP
                                                   -----------------------

    Net sales                                        $2,228,306    100.00%
    Cost of sales                                     1,541,995     69.20%
                                                   -----------------------

    Gross profit                                        686,311     30.80%

    Operating, general and administrative expenses      515,075     23.12%
                                                   -----------------------

    Operating income                                    171,236      7.68%

    Gain on sale of investments                               -      0.00%
    Interest expense, net                               (17,556)    -0.79%
                                                   -----------------------

    Income before income tax expense and equity in
     income from investee                               153,680      6.90%

    Income tax expense                                  (58,913)    -2.64%

    Equity in income from investee, net of tax              781      0.04%
                                                   -----------------------

    Net income                                       $   95,548      4.29%
                                                   -----------------------

    Basic earnings per share                         $     0.72
    Diluted earnings per share                       $     0.70

    Weighted average shares outstanding - basic         132,789
    Weighted average shares outstanding - diluted       136,095
    

    
                       PetSmart, Inc. and Subsidiaries
                 Reconciliation of non-GAAP to GAAP Measures
                    (In thousands, except per share data)
                                 (Unaudited)

                              Thirteen Weeks Ended July 30, 2006
                    ------------------------------------------------------


                                                        Reconciling items
                                                        ------------------
                                                        Early pay
                                                         discount   Tax
                                    As Reported (GAAP)    change   benefit
                                    ------------------- --------- --------

    Net sales                       $1,020,609  100.00%  $     -  $     -
    Cost of sales                      715,762   70.13%   (3,922)       -
                                    ------------------- --------- --------

    Gross profit                       304,847   29.87%    3,922        -

    Operating, general and
     administrative expenses           242,867   23.80%        -        -
                                    ------------------- --------- --------

    Operating income                    61,980    6.07%    3,922        -

    Interest expense, net               (9,320)  -0.91%        -        -
                                    ------------------- --------- --------

    Income before income tax
     expense                            52,660    5.16%    3,922        -

    Income tax expense                 (18,030)  -1.77%   (1,506)  (2,518)
                                    ------------------- --------- --------

    Net income                      $   34,630    3.39%  $ 2,416  $(2,518)
                                    ------------------- --------- --------

    Basic earnings per share        $     0.25
    Diluted earnings per share      $     0.25

    Weighted average shares
     outstanding - basic               137,667
    Weighted average shares
     outstanding - diluted             141,237


                                 Reconciling items
                             -------------------------
                                         Costs related
                                              to
                             Acquisition  distribution
                               review      center re-
                               expenses     racking         Non-GAAP
                             ----------- ------------- -------------------

    Net sales                   $     -       $     -  $1,020,609  100.00%
    Cost of sales                     -        (1,792)    710,048   69.57%
                             ----------- ------------- -------------------

    Gross profit                      -         1,792     310,561   30.43%

    Operating, general and
     administrative expenses     (2,939)            -     239,928   23.51%
                             ----------- ------------- -------------------

    Operating income              2,939         1,792      70,633    6.92%

    Interest expense, net             -             -      (9,320)  -0.91%
                             ----------- ------------- -------------------

    Income before income tax
     expense                      2,939         1,792      61,313    6.01%

    Income tax expense           (1,129)         (688)    (23,871)  -2.34%
                             ----------- ------------- -------------------

    Net income                  $ 1,810       $ 1,104  $   37,442    3.67%
                             ----------- ------------- -------------------

    Basic earnings per share                           $     0.27
    Diluted earnings per
     share                                             $     0.27

    Weighted average shares
     outstanding - basic                                  137,667
    Weighted average shares
     outstanding - diluted                                141,237
    

    
                             Twenty-Six Weeks Ended July 30, 2006
                    ------------------------------------------------------


                                                        Reconciling items
                                                        ------------------
                                                        Early pay
                                                         discount   Tax
                                    As Reported (GAAP)    change   benefit
                                    ------------------- --------- --------

    Net sales                       $2,032,138  100.00%  $     -  $     -
    Cost of sales                    1,417,211   69.74%   (3,922)       -
                                    ------------------- --------- --------

    Gross profit                       614,927   30.26%    3,922        -

    Operating, general and
     administrative expenses           478,268   23.54%        -        -
                                    ------------------- --------- --------

    Operating income                   136,659    6.72%    3,922        -

    Interest expense, net              (16,053)  -0.79%        -        -
                                    ------------------- --------- --------

    Income before income tax
     expense                           120,606    5.93%    3,922        -

    Income tax expense                 (44,212)  -2.18%   (1,506)  (2,518)
                                    ------------------- --------- --------

    Net income                      $   76,394    3.76%  $ 2,416  $(2,518)
                                    ------------------- --------- --------

    Basic earnings per share        $     0.56
    Diluted earnings per share      $     0.54

    Weighted average shares
     outstanding - basic               137,558
    Weighted average shares
     outstanding - diluted             141,163


                                 Reconciling items
                             -------------------------
                                         Costs related
                                              to
                             Acquisition  distribution
                               review      center re-
                               expenses     racking         Non-GAAP
                             ----------- ------------- -------------------

    Net sales                   $     -       $     -  $2,032,138  100.00%
    Cost of sales                     -        (1,792)  1,411,497   69.46%
                             ----------- ------------- -------------------

    Gross profit                      -         1,792     620,641   30.54%

    Operating, general and
     administrative expenses     (2,939)            -     475,329   23.39%
                             ----------- ------------- -------------------

    Operating income              2,939         1,792     145,312    7.15%

    Interest expense, net             -             -     (16,053)  -0.79%
                             ----------- ------------- -------------------

    Income before income tax
     expense                      2,939         1,792     129,259    6.36%

    Income tax expense           (1,129)         (688)    (50,053)  -2.46%
                             ----------- ------------- -------------------

    Net income                  $ 1,810       $ 1,104  $   79,206    3.90%
                             ----------- ------------- -------------------

    Basic earnings per share                           $     0.58
    Diluted earnings per
     share                                             $     0.56

    Weighted average shares
     outstanding - basic                                  137,558
    Weighted average shares
     outstanding - diluted                                141,163
    

    
                       PetSmart, Inc. and Subsidiaries
                    Condensed Consolidated Balance Sheets
                                (in thousands)
                                 (Unaudited)


                                                     July 29,  January 28,
                                                       2007        2007
                                                    ---------- -----------

    Assets
     Cash and cash equivalents                      $  136,765  $  148,799
     Short-term investments                             28,350      19,200
     Restricted cash and short-term investments         80,000      60,700
     Receivables, net                                   36,116      36,541
     Merchandise inventories                           470,991     487,400
     Other current assets                              103,493      90,629
                                                    ---------- -----------

      Total current assets                             855,715     843,269

     Property and equipment, net                     1,122,072   1,032,421
     Deferred income taxes                              89,690      97,648
     Other noncurrent assets                            94,229      80,139
                                                    ---------- -----------

      Total assets                                  $2,161,706  $2,053,477
                                                    ---------- -----------

    Liabilities and Stockholders' Equity
     Accounts payable and bank overdraft            $  175,909  $  179,638
     Other current liabilities                         297,433     321,077
     Current maturities of capital lease
      obligations                                       20,603      17,667
                                                    ---------- -----------

      Total current liabilities                        493,945     518,382

     Capital lease obligations                         463,517     431,334
     Deferred rents and other noncurrent
      liabilities                                      120,327     102,867
                                                    ---------- -----------

      Total liabilities                              1,077,789   1,052,583

     Stockholders' equity                            1,083,917   1,000,894
                                                    ---------- -----------

      Total liabilities and stockholders' equity    $2,161,706  $2,053,477
                                                    ---------- -----------
    




For further information:

For further information: PetSmart, Inc., Phoenix Tawni Adams,
623-587-2686 PetSmart Media Line, 623-587-2177

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PETSMART, INC.

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