PetSmart Analyst Day. October 17, 2013

Transcription

1 PetSmart Analyst Day October 17, 2013

2 Agenda Strategic Update David Lenhardt Chief Executive Officer Deepening Customer Relationships John Alpaugh Senior Vice President and Chief Marketing Officer Executing our Growth Initiatives Joe O Leary President and Chief Operating Officer Merchandising Innovation Matt McAdam Senior Vice President of Merchandising Saving Pets Lives Jan Wilkins Executive Director of PetSmart Charities Driving Shareholder Value Carrie Teffner Senior Vice President & Chief Financial Officer Services Innovation Differentiated Customer Experience Closing Remarks David Lenhardt Chief Executive Officer Bruce Thorn Senior Vice President of Store Operations & Services 2

3 Safe Harbor This presentation contains forward-looking statements within the meaning of the U.S. federal securities laws. Any statements made in this presentation that are not statements of historical fact, including statements relating to projected future revenue, earnings, expenditures, investments and other financial performance and operating goals, industry growth, operating strategies and plans, new products and services, stockholder returns and future business opportunities, are forward-looking statements. These "forward-looking statements" are based on currently available information, operating plans and projections about future events and trends. They involve inherent risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements. Such risks and uncertainties include, but are not limited to: changes in general economic conditions; conditions affecting customer traffic, transactions and average ticket including, but not limited to, adverse changes in consumer sentiment, weather conditions or other seasonal events; our ability to compete effectively; disruption of our supply chain; our ability to effectively manage our growth and operations; changes in our cost structure; and changes in the legal or regulatory environment. For additional information on these and other risk factors that could cause our actual results to differ from the results predicted in these forward-looking statements, please see our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K (including the disclosures under the section entitled Risk Factors ) and subsequent reports on Forms 10-Q and 8-K. Investors should not place undue reliance on such forward-looking statements as they speak only as of the date hereof. We undertake no obligation to update any forward-looking statements to reflect new information, subsequent events or circumstances or otherwise, except as may be required by law. This presentation includes non-gaap financial measures, which are included to help facilitate comparison of company operating performance across periods. Reconciliations of historical non-gaap measures in this presentation to the most comparable GAAP measures are included in the Appendix and are available on our website at 3

4 Strategic Update David Lenhardt Chief Executive Officer

5 Overview Leading pet specialty retailer Expected annual sales of $7 billion in 2013 Pet services leader Expected annual services sales of $760 million in 2013 Productive North American store network Industry-leading assortment ~ 1,335 stores expected at the end of 2013 Over 11,000 products including a growing assortment of exclusive and proprietary brands Financial flexibility Strong balance sheet and solid generator of cash 5

6 Millions of Households Industry Growth Drivers Pet Ownership Humanization of Pets Number of U.S. Households Owning a Pet (1) % of Pet Owners Who (2) Consider pet part of family Allow pet to sleep with me Bought pet a birthday present Cook for pet Dress pet in clothing Industry growth projected to be 3-5% over next 3 years (1) (1) Source: Census Bureau; Ipsos Pet Ownership Screener (2) Source: 2012 Harris Interactive, Question: How often have you done any of the following? Percent of pet owners who frequently or occasionally engage in activity. 6

7 Market Share Pet Products (1) Services (2) $33 Billion $4 Billion 3% 11% 17% 16% 23% 46% 84% PetSmart Mass Grocery Online All Other PetSmart Other (1) Source: Share numbers Nielsen 2012 Homescan Customer Panel Data and internal data (2) Source: American Pet Products Association National Pet Owner Survey which excludes training 7

8 The Core PetSmart Customer Female, average age 46 Affluent, income 12% higher than average pet owner * Spends 2.1 times more than the average pet owner * Likely to be a channel exclusive foods shopper, new pet owner, and/or services customer Believes her pets make her a better person *PetSmart analysis based in part on data reported by Nielsen Homescan 52 week period ending 2/2/13 8

9 The trick is to do it over and over without repeating ourselves. Red Auerbach, Former Boston Celtics Coach NBA Champions

10 Total Lifetime CARE OUR PILLARS Care For Our Customers Care For Our Associates OUR STRATEGIES Developing innovative products and services Engaging with our customers in an authentic and personal way Building strong leaders Strengthening our unique culture Care For Our Communities Saving pets lives Enriching people s lives through the power of pets 10

11 11

12 Executing our Growth Initiatives Joe O Leary President and Chief Operating Officer

13 My Role Strategy Execution 13

14 Ensuring Strategies Can Be Delivered Successfully Aligned Strategies Engaged Associates Processes & Technology 14

15 Empowering Leaders and Associates in our Stores Deliver, Drive, Execute Evolution Inspire, Lead, Own! 15

16 Mobilizing the Organization 1 Aligning Strategy and Execution 2 Ensuring strategies can be delivered successfully 3 Empowering leaders and associates in our stores 16

17 Merchandising Innovation Matt McAdam Senior Vice President of Merchandising

18 Merchandising Strategy Leverage & build strong channelexclusive brands & assortments Increase penetration of PetSmart exclusive brands Solve pet problems with the broadest assortment Drive sales & margin productivity Drive growth through innovation & differentiation Grow the basket 18

19 How We Think About Consumables Food Treats Litter Natural Science Prescription Widely distributed [ ] Channel-exclusive 19

20 Consumables Focus Accelerate channel exclusive brands in Cat Grow PetSmart proprietary & exclusive assortments Expand natural in Dog Drive growth with innovative and differentiated products Discover & expand on emerging trends 20

21 2014 Consumables Reset Expanded space for natural brands Biggest expansion ever of channel-exclusive foods Dog Cat Expansion of channel-exclusive brands Litter & Treats Fresh / Raw Expanding fresh and introducing raw Litter: Treats: 21

22 How We Think About Hardgoods Fun / Fashion Problem / Solution Toys Apparel Flea & Tick Containment Beds Collars & Leads Supplements Grooming / Beauty 22

23 Hardgoods Focus Develop PetSmart unique assortments in channel exclusive brands Drive excitement with buzz worthy brands Grow existing PetSmart proprietary & exclusive brands Drive growth with innovative & differentiated products Develop a PetSmart exclusive innovation pipeline 23

24 2013 Dog Hardgoods Reset Improved space and adjacencies New assortments of existing brands BEFORE: AFTER: Drive-Aisle Drive-Aisle New fixtures and signage New category relevant brands 24

25 How We Think About Specialty Live Animals Consumables Hardgoods Fish Small animals Small birds Reptiles Food Bedding Hay Treats Filtration Aquariums & Terrariums Lighting/heating Plants Decor 25

26 Specialty Focus Drive new pet acquisition Improve the pet parent shopping experience Differentiate through channel exclusive & proprietary assortments Drive growth with innovative & differentiated products 26

27 2014 National Geographic Brand Launch An exclusive line of product that leverages National Geographic brand awareness to drive differentiation, innovation & growth. TM 27

28 Proprietary & Exclusive Brands Focus Better Good Best Drive growth with proprietary & exclusive brands 28

29 Strengthening Proprietary & Exclusive Brands Good Better Best Consumables Hardgoods Specialty Increased penetration of proprietary and exclusive brands drives customer loyalty 29

30 Pipeline of Merchandising Capabilities Price Optimization Space Optimization Inventory Planning Optimization Drive consistency and productivity Assortment Optimization 30

31 Services Innovation Bruce Thorn Senior Vice President of Store Operations & Services

32 Services Strategy Meaningful vendor partnerships Building advanced capabilities with new technologies Innovative packages & promotions Drive growth through innovation & differentiation Strong partnership with Banfield, The Pet Hospital 32

33 Services Offerings Grooming PetsHotel / Day Camp In all stores In 196 stores In all stores In 823 stores Training Banfield, The Pet Hospital 33

34 Grooming Bath & brush Complete grooming services Nails, paws, teeth & ears packages Flea & tick application Unique & exclusive packages Customizable packages Seasonal packages Basics Add-ons Creative grooming Leveraging capabilities & technology Innovation Grooming Guarantee Satisfaction guarantee with national marketing 34

35 Creative Grooming 35

36 PetsHotel/Day Camp 24/7 supervised facility with all of the comforts of home Overnight accommodations including suites Day play Snacks & treats Individual or group playtime 1:1 personal training classes Nail trim, exit bath Basics Add-ons Innovation Centralized reservation center Leveraging capabilities & technology Customized meal programs Holiday packages 36

37 Banfield, The Pet Hospital 37

38 Differentiated Customer Experience Bruce Thorn Senior Vice President of Store Operations & Services

39 Differentiated Customer Experience Strategy Innovative and Differentiated Services Knowledgeable and caring associates Innovative and Exclusive Merchandise Differentiated Customer Experience Authentic customer engagement 39

40 Associate Engagement Inspire, Lead, Own! 40

41 Customer Engagement Associate engagement drives customer satisfaction 41

42 Deepening Customer Relationships John Alpaugh Senior Vice President and Chief Marketing Officer

43 Our Marketing Approach Inspire Connect Convert Inspire current and prospective pet parents to connect with our brand Connect pet parents to personally relevant experiences by leveraging customer data and analytics Convert pet parents to loyal customers by using our omnichannel strategy to simplify the path to purchase Deepening Customer Relationships 43

44 Hardgoods Reset Marketing Support 8M+ Facebook impressions 5M+ earned media impressions 200M+ TV impressions 75M+ display impressions Associate stories videos PR/Social Video/ Display 5M+ impressions 30% higher click-thru CRM Stores and PetSmart.com All new in-store signage Associate education 100K+ infinity wall visitors 44

45 Hardgoods Commercial 45

46 Personalized Connections PetSmart.com Stores 3M+ Connections/Wk 1.5M+ Connections/Wk Pet Perks 6M+ Connections/Wk Customer and Pet Data 46

47 Personalization with CRM Over 35M active trackable customers 90% of sales and 80% of transactions linked to trackable customers Deal Alerts: Customized Offer Notifications Personalized Product Recommendations Local Store Events Regionally relevant product information 47

48 Omni-Channel einfluence converting in store #1 visited pet supplies website Strong conversion rate from website to store Over 25 site enhancements leading to increased user satisfaction Launched in-store inventory availability for Consumables ecommerce converting on-line Profitably growing faster than the market One-third of sales from extended aisle Launched on-line pharmacy Reduced ship times through west coast order fulfillment Customer Insights and Research 48

49 Building a Pipeline of Capabilities Technology enabled associates New website platform Enhanced consumer mobile experience Leverage technology to enhance the customer experience Order online, pick-up in store 49

50 Omni-Channel Video 50

51 Saving Pets Lives Jan Wilkins Executive Director

52 History Original founders had a bold idea and created PetSmart Charities in 1994 PetSmart Charities is the largest animal welfare funder in North America Grant out more than $23 million per year Partner with more than 3,000 animal welfare organizations 52

53 Clarity of Intent: Our Strategic Pillars Provide a Strong Filter for Focus Vision A life-long, loving home for every pet Fundraising Preventing Unplanned Litters Pin Pad Optimization Sponsorships Co-Ventures Major Gifts Fund Spay/Neuter Surgeries Increase Early Age Veterinarian Base Require Spay/Neuter Prior to Adoption Adoptions In-Store Adoptions Events Everyday Adoption Centers Rescue Waggin Emergency Relief 53

54 Adoption Program 1 in 10 adoptions happens through PetSmart Charities Inc. adoption centers inside PetSmart stores More than 400,000 adoptions each year 5,446,000 to date 4 National Adoption events each year 54

55 Adoption Events Jacksonville, FL Phoenix, AZ 6 PetSmart Stores and 12 Adoption Partners make a difference for N. Florida homeless pets PetSmart Charities, ABC15 and 8 Valley Agencies help homeless pets in our own community 1,875 Adoptions in 5 Days 55

56 Rescue Waggin Transports puppies and dogs from areas with high euthanasia rates to areas where they will find homes (south to north) More than 60,000 puppies and dogs have been moved and adopted Provide support for source shelter operations and communities Reduce intake in source communities through spay/neuter programs 56

57 Rescue Waggin Video 57

58 Emergency Relief Providing support for disaster recovery both natural and man-made Only animal charity to work alongside Red Cross providing food for pets while handing out food to people Work with local law enforcement agencies in hoarding and puppy mill situations Helped more than 9,000 pets this year 58

59 Driving Shareholder Value Carrie Teffner Senior Vice President & Chief Financial Officer

60 Shareholder Value Strategy Deliver EBT growth Drive organic growth Return cash to our shareholders Shareholder Value 60

61 Evolving the Store Format Net New Stores ~ % 3% % 70% 80% 70% 97% 70% 30% 20% 10% E 18K 12K Micro 61

62 Earnings Growth Gross Margin OG&A EBT 29.5% 30.5% 21.6% 21.5% 21.3% 5.8% 6.5% 7.3% 8.8% 28.5% 29.1% 20.9% (1) (1) (1) (1) Includes the benefit of the 53rd week 62

63 Returning Cash to Our Shareholders $657 M $518 M $442 M 66% $310 M 60% 65% 53% 13% 12% 12% 10% 36% 28% 23% 21% Cap Ex Dividend Repurchase (1) (1) Includes the benefit of the 53rd week 63

64 Improving Returns Earnings Per Share Return On Invested Capital $1.59 $2.01 $2.55 $ % 21.0% 26.3% 33.2% (1) (2) (1) Excludes $0.17 in EPS related to the benefit of the 53rd week (2) Excludes the benefit of the 53rd week 64

65 Shareholder Value Framework 2-4% Comps 2-3% Sq. Ft. ~60-80 Net New Stores 4-6% Sales Growth Stable to Expanding Gross Margins OG&A Costs Growth 3-4% Increasing Operating Cash Flow ~$650M (1) Cap Ex $150-$170M ~2-2.25% of sales 7-12% EBT $ Growth ~20% Dividend as a % of Free Cash Flow (2) ~80% Share Repurchase as a % of Free Cash Flow 13-18% Total Yield Updated Free Cash Flow ~$500M+ (1) Represents cash flows from operating activities, not adjusted for capital leases (2) Target 20% dividend as a % of free cash flow by

66 Third Quarter and Fiscal Year 2013 Guidance Q3 At August 21, 2013 At October 17, 2013 Comp Sales Growth 3% to 4% 2.2% to 2.5% EBT Margin 30 to 40 bps 30 to 40 bps EPS $0.83 to $0.87 $0.83 to $0.87 FY Comp Sales Growth 3% to 4% 3% to 4% Total Sales Growth 3% to 4% 3% to 4% EBT Margin 20 to 40 bps 20 to 40 bps EPS $3.88 to $3.98 $3.88 to $

67 Closing Remarks David Lenhardt, Chief Executive Officer

68 Q&A

69 Appendix Regulation G non-gaap Reconciliations

70 Reconciliation of non-gaap to GAAP Measures Fiscal Year Ended February 4,2013 (in millions, except per share amounts) GAAP Income before income tax expense and equity in income from Banfield $ Equine product line exit Gain on sale of Banfield stock rd week (29.9) Adjusted income before income tax expense and equity in income from Banfield $567.0 GAAP Diluted earnings per share $ 3.55 Equine product line exit Gain on sale of Banfield stock rd week (0.17) Adjusted Diluted earnings per share $

71 Reconciliation of non-gaap to GAAP Measures Fiscal Year 2009 Fiscal Year 2010 Fiscal Year 2011 (in millions, except Return on invested capital %) Fiscal Year 2012 (1) Operating income $ $ $ $ Income taxes Adjusted income $ $ $ $ Stockholders' equity $ 1,172.7 $ 1,170.6 $ 1,153.8 $ 1, Debt (short- and long-term debt including capital lease obligations) - Cash & cash equivalents, short-term investments and restricted cash Invested capital $ 1,387.7 $ 1,374.3 $ 1,279.9 $ 1,233.6 Return on invested capital (%) 18.1% 21.0% 26.3% 33.2% (1) Operating income and income taxes excludes the benefit of the 53 rd week 71