PetSmart Reports Results for the Third Quarter 2005

-- Earnings of $0.21 per Share

-- 9.8 Percent Top Line Growth

-- Services Sales Up 23.9 Percent

PetSmart, Inc. today reported net income of $31.1 million, or$0.21 per diluted share, for the third quarter of fiscal 2005.Excluding the benefit of tax adjustments during the quarter, thecompany earned $0.19 per share. That compares with net income of $31.5million, or $0.21 per diluted share, for the third quarter of fiscal2004.

As previously disclosed in the company's Annual Report on Form10-K, results for 2004 have been restated to address a correction inlease accounting policies. In addition, PetSmart has restated 2004 toretroactively apply the adoption of SFAS 123R, which requires that allstock-based compensation be expensed and accounted for using afair-value-based method. All 2004 results discussed in this releasereflect these restatements.

Sales

PetSmart generated net sales of $907.7 million in the thirdquarter, up 9.8 percent from $826.8 million during the same period in2004. Comparable store sales - or sales in stores open at least a year- grew 2.4 percent in the third quarter, compared with 6.7 percent inthe third quarter of fiscal 2004.

"During the third quarter of 2005, PetSmart continued to performand, after some softness throughout much of the quarter, we've seenour business begin to stabilize and gain momentum in October," saidPhil Francis, chairman and chief executive officer. "Those resultsreflect the fundamental strength of our business, the power of ourstrategic initiatives and the fact that we're uniquely positioned tocapture the opportunities inherent in the pet sector and continue togain market share."

During the third quarter, pet services sales were $71.5 million,up 23.9 percent from the same period last year.

The company opened 35 new stores and closed one location duringthe third quarter of 2005, which compares with 26 new stores and twoclosures during the third quarter of 2004. At the end of the thirdquarter of 2005, the company operated 791 stores.

Gross margins and expense

Gross margins were 29.1 percent in the third quarter of 2005,compared with 30.3 percent in the same period in 2004.

Operating, general and administrative expenses were 23.5 percentof net sales in the third quarter of 2005, essentially flat comparedto the third quarter of last year.

Pre-tax income

PetSmart generated pre-tax income of 5.0 percent in the thirdquarter. That compares with 6.3 percent during the same period lastyear.

Share purchases and dividend payments

PetSmart purchased approximately 3.7 million of its shares at anaverage price of $25.22 during the third quarter of 2005 as part of a$270 million authorization through the end of fiscal 2006.

As previously announced, the company will pay a dividend of $0.03per share on November 18, 2005, to stockholders of record as ofOctober 31, 2005.

Outlook

PetSmart projects comparable store sales at 2 to 4 percent in thefourth quarter and estimates comparable store sales for all of 2005 at3 to 4 percent. It estimates earnings at approximately $0.44 to $0.47per share in the fourth quarter and $1.19 to $1.23 per share for thefull year, including the benefit of the tax adjustments in the thirdquarter and a $0.035 gain from a first-quarter legal settlement.

"While we remain cautious about the prospects for the overalleconomy and the outlook for retail during the remainder of the year,we continue to feel very positive about this business and itspotential," said Francis. "Our fundamental business model is strongand puts us in a unique position to capture a large share of thiscompelling market. We believe we have the right strategies in place,we're committed to investing in the initiatives that can fuel ourongoing growth, and we firmly believe that this company can continueto thrive, to gain share and generate meaningful returns for ourshareholders over the long term."

Conference call information

PetSmart management has scheduled a teleconference for 4:30 p.m.(EST) today to discuss results for the third quarter of 2005 as wellas the current outlook. This teleconference will be Web-cast live forall investors at www.petm.com or www.streetevents.com. In addition,you can listen to the call live by dialing 800-709-7416 (within theUnited States and Canada) or 706-679-5320 (for international callers),code 7195212. A phone replay will also be available through Dec. 2,2005, at 800-642-1687 in the United States and Canada, or at706-645-9291 for international callers, code 7195212.

About PetSmart

PetSmart, Inc., (NASDAQ: PETM) is the largest specialty retailerof services and solutions for the lifetime needs of pets. The companyoperates more than 790 pet stores in the United States and Canada, agrowing number of PetsHotels, as well as the Internet's leading onlineprovider of pet products and information (www.PetSmart.com). PetSmartprovides a broad range of competitively priced pet food and supplies,and offers complete pet training, grooming and adoption services.Since 1994, PetSmart Charities, an independent 501(c)3 organization,has donated more than $35 million to animal welfare programs and,through its in-store adoption programs, has saved the lives of morethan two million pets.

Forward-looking statements

This news release contains forward-looking statements includingstatements relating to future revenue growth and goals and futurebusiness opportunities that involve substantial risks anduncertainties. Such risks and uncertainties include, but are notlimited to, general economic conditions, competitive forces and ourability to manage our operations and growth. Actual results anddevelopments may therefore differ materially from those described inthis release. For more information about PetSmart, Inc., and risksarising when investing in PetSmart, Inc., you are directed to thecompany's most recent Annual Report on Form 10-K filed with theSecurities and Exchange Commission.

Statement of utility

PetSmart continues to provide all information required inaccordance with GAAP, but it believes that evaluating its ongoingoperating results may be difficult if an investor is limited toreviewing only GAAP financial measures. Accordingly, PetSmart usesnon-GAAP financial measures of its performance internally to evaluateits ongoing operations and to allocate resources within theorganization.

PetSmart's management does not itself, nor does it suggest thatinvestors should, consider such non-GAAP financial measures inisolation from, or as a substitute for, financial information preparedin accordance with GAAP. The non-GAAP financial measures used byPetSmart may not be consistent with the presentation of similarcompanies in PetSmart's industry. However, PetSmart presents suchnon-GAAP financial measures in reporting its financial results toprovide investors with an additional tool to evaluate PetSmart'soperating results in a manner that focuses on what it believes to beits ongoing business operations.

PetSmart's management believes it is useful for itself andinvestors to review both GAAP information and the non-GAAP measure ofearnings per share excluding tax adjustments in the third quarter of2005, to have a better understanding of the overall performance ofPetSmart's business and its ability to perform in subsequent periods.

Management believes that the inclusion of these non-GAAP financialmeasures provides consistency and comparability with past reports offinancial results and better enables investors to evaluate the ongoingoperations and prospects of PetSmart by providing a better comparisonto prior periods. Whenever PetSmart uses such a non-GAAP financialmeasure, it strives where possible to provide a reconciliation ofnon-GAAP financial measures to the most closely applicable GAAPfinancial measure. Investors are encouraged to review the related GAAPfinancial measures and the reconciliation of these non-GAAP financialmeasures 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 Ended Thirteen Weeks Ended
-------------------- ---------------------
October 30, % of October 31, % of
2005 Sales 2004 (1) Sales
-------------------- ---------------------

Net sales $907,663 100.00% $826,843 100.00%
Cost of sales 643,385 70.88% 576,743 69.75%
-------------------- ---------------------

Gross profit 264,278 29.12% 250,100 30.25%

Operating, general and
administrative expenses 213,639 23.54% 194,021 23.47%
-------------------- ---------------------

Operating income 50,639 5.58% 56,079 6.78%

Interest expense, net 5,745 0.63% 4,082 0.49%
-------------------- ---------------------

Income before income tax
expense 44,894 4.95% 51,997 6.29%

Income tax expense 13,761 1.52% 20,539 2.48%
-------------------- ---------------------

Net income $31,133 3.43% $31,458 3.80%
==================== =====================

Basic earnings per share $0.22 $0.22
=========== ===========
Diluted earnings per
share $0.21 $0.21
=========== ===========

Weighted average shares
outstanding - basic 140,525 144,231
Weighted average shares
outstanding - diluted 144,842 149,780

----------------------------------------------------------------------
Stores open at beginning
of each period 757 678
Stores opened during
each period 35 26
Stores closed during
each period (1) (2)
Stores open at end of
each period 791 702
----------------------------------------------------------------------


Thirty-Nine Weeks Thirty-Nine Weeks
Ended Ended
--------------------- ---------------------
October 30, % of October 31, % of
2005 Sales 2004 (1) Sales
--------------------- ---------------------

Net sales $2,709,910 100.00% $2,429,148 100.00%
Cost of sales 1,883,313 69.50% 1,695,592 69.80%
--------------------- ---------------------

Gross profit 826,597 30.50% 733,556 30.20%

Operating, general and
administrative expenses 637,027 23.51% 582,458 23.98%
--------------------- ---------------------

Operating income 189,570 7.00% 151,098 6.22%

Interest expense, net 15,839 0.58% 11,851 0.49%
--------------------- ---------------------

Income before income tax
expense 173,731 6.41% 139,247 5.73%

Income tax expense 62,144 2.29% 46,786 1.93%
--------------------- ---------------------

Net income $111,587 4.12% $92,461 3.81%
===================== =====================

Basic earnings per share $0.79 $0.64
=========== ===========
Diluted earnings per
share $0.76 $0.62
=========== ===========

Weighted average shares
outstanding - basic 141,684 143,642
Weighted average shares
outstanding - diluted 146,636 149,583

----------------------------------------------------------------------
Stores open at beginning
of each period 726 643
Stores opened during
each period 71 68
Stores closed during
each period (6) (9)
Stores open at end of
each period 791 702
----------------------------------------------------------------------

(1) The financial information has been restated to reflect the
adoption of SFAS No. 123(R) and the correction of the Company's
lease accounting policies.
PetSmart, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)

October 30, January 30,
2005 2005
----------- -----------

Assets
Cash and cash equivalents $97,200 $87,032
Short-term investments 201,700 313,575
Receivables, net 28,629 27,123
Merchandise inventories 458,224 337,281
Other current assets 100,740 63,839
----------- -----------

Total current assets 886,493 828,850

Property and equipment, net 824,178 699,262
Deferred income taxes 72,696 81,863
Other noncurrent assets 72,433 68,432
----------- -----------

Total assets $1,855,800 $1,678,407
=========== ===========

Liabilities and Stockholders' Equity
Accounts payable $218,778 $130,320
Other current liabilities 263,783 214,016
Current portion capital lease obligations 11,201 6,585
----------- -----------

Total current liabilities 493,762 350,921

Capital lease obligations 335,539 244,150
Other noncurrent liabilities 108,485 109,389
----------- -----------

Total liabilities 937,786 704,460

Stockholders' equity 918,014 973,947
----------- -----------

Total liabilities and stockholders'
equity $1,855,800 $1,678,407
=========== ===========