PetSmart Earnings Call Nuggets: Merchandise Margins and Food Category

PetSmart Inc. (NASDAQ:PETM) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Merchandise Margins

Michael Baker – Deutsche Bank: Couple of questions. First on the gross margin on the 55 basis point decline in merchandise margins, is that mix, is that pricing pressure, could it be anything related to more online sales and the need to not make as much profit on shipping either because it’s pass-through, because it’s free. If you could dwell into that a little bit. Thanks.

David K. Lenhardt – CEO: It’s David. To answer your last question, in terms of any online impact affecting our margins, we did not see any impact and it was not a result of that. It was driven by both margin and rate – mix and rate. On the mix side, what we saw during the quarter is our services business overperformed driven by grooming and at the same time, we saw our aquatics business, which has a higher gross margin rate, underperform. That was partially driven by live fish supply issues we had through the quarter and that resulted in stocks that were below our target inventory levels and in that business we know that live fish are the key driver of consumables and hardgoods attachment rates in that category. So, that was the mix side. And then on the rate side, we did run a number of traffic driving promotions in our cat consumables business during the quarter. Those did not have the impact we expected and we stopped those at that point.

Michael Baker – Deutsche Bank: A follow-up and then another question. Is that aquatics out of stock, is that coming back and then if I could ask just one more topic on your channel exclusive food, could you remind us what percent of your total food that is, total consumable, total food, total sales (where you want to) quantify for us?

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