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FORM 10-Q

(Mark One)

OR

Commission file number: 0-21888

PETsMART, INC.

Delaware				94-3024325
(State or other jurisdiction of				(I.R.S. Employer
incorporation or organization)				Identification No.)

19601 N. 27th Avenue
Phoenix, Arizona 85027
(Address of principal executive offices, including Zip Code)

(623) 580-6100
(Registrant’s telephone number, including area code)

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.

     Indicate by check mark whether registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes [X]   No [ ]

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date:

Common Stock, $.0001 Par Value, 142,827,095 Shares at August 29, 2003

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PETsMART, Inc.
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INDEPENDENT ACCOUNTANTS’ REPORT

Board of Directors and Stockholders
PETsMART, Inc.
Phoenix, Arizona

We have reviewed the accompanying consolidated balance sheet of PETsMART, Inc. and subsidiaries as of August 3, 2003, and the related consolidated statements of operations and cash flows for the 13 week and 26 week periods ended August 3, 2003 and August 4, 2002. These financial statements are the responsibility of the Corporation’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of PETsMART, Inc. and subsidiaries as of February 2, 2003, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 4, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of February 2, 2003 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Deloitte & Touche, LLP
Phoenix, Arizona
August 26, 2003

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PETsMART, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)

The accompanying notes are an integral part of these consolidated financial statements.

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PETsMART, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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PETsMART, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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PETsMART, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Unaudited)

NOTE 1 — GENERAL:

     PETsMART, Inc., including subsidiaries (the “Company” or “PETsMART”), is North America’s leading provider of food, supplies, accessories and professional services for the lifetime needs of pets, and offers fish, birds, reptiles and small animals. As of August 3, 2003, the Company operated 612 retail stores. The Company offers a broad line of products for all the life stages of pets and is the nation’s largest provider of high-quality grooming and pet training services. Through its strategic relationship with Banfield, The Pet Hospital^TM, PETsMART makes full-service veterinary care available in more than half its stores. Through its direct marketing channels, PETsMART is a leading mail order catalog and e-commerce retailer of pet and equine products and supplies.

     PETsMART’s accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, such financial statements do not include all the information and footnotes required by generally accepted accounting principles for annual financial statements. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (which are of a normal recurring nature), necessary for a fair statement of the results of the interim periods presented.

     Because of the seasonal nature of the Company’s business, the results of operations for the thirteen and twenty-six weeks ended August 3, 2003, are not necessarily indicative of the results to be expected for the full year. The Company’s fiscal year ends on the Sunday nearest January 31.

     For further information, refer to the financial statements and related footnotes for the fiscal year ended February 2, 2003, included in the Company’s Form 10-K (File No. 0-21888), filed with the Securities and Exchange Commission on April 18, 2003.

NOTE 2 — INTANGIBLE ASSETS:

     Intangible assets consisted solely of trademarks that have an estimated useful life of 15 years. Changes in the carrying amount for the twenty-six weeks ended August 3, 2003, were as follows (in thousands):

     Amortization expense for intangible assets was $159,000 during the twenty-six weeks ended August 3, 2003. The Company estimates the amortization expense to be approximately $159,000 for the remainder of the year. For fiscal years 2004 through 2008, the Company estimates the amortization expense to be approximately $284,000 each year.

NOTE 3 — RESERVE FOR CLOSED STORES:

     The Company continuously evaluates the performance of its retail stores and periodically closes those that are under-performing. Reserves for future rental payments on closed stores and terminated subleases are established in the period that the store is closed, in accordance with Financial Accounting Standards Board (“FASB”), Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The costs for future rental payments associated with closed stores are calculated by using the net present value method, at a risk-free interest rate, over the remaining life of the lease, net of expected sublease income. The activity related to the closed store reserve, recorded in deferred rents and other liabilities, is as follows (in thousands):

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PETsMART, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

     In 1996, the Company recorded a restructuring charge associated with closing certain stores and administrative offices and restructuring PETsMART Direct and PETsMART.com. The remaining liability associated with that restructuring charge at August 3, 2003 approximated $1.6 million and was related to future lease costs. Due to the immateriality of the remaining balance, the Company has combined that reserve with its other store closing reserves for purposes of the reconciliation.

NOTE 4 — COMPREHENSIVE INCOME:

     The income tax expense related to the foreign currency translation adjustment was approximately $346,000 and $1,254,000 for the thirteen and twenty-six weeks ended August 3, 2003, respectively. The income tax (benefit) expense related to the foreign currency translation adjustment was approximately ($15,000) and $97,000 for the thirteen and twenty-six weeks ended August 4, 2002, respectively.

NOTE 5 — STOCK INCENTIVE PLANS:

     During the twenty-six weeks ended August 3, 2003, the Company issued certain executives shares of restricted stock pursuant to the provisions of the PETsMART, Inc. 1997 Equity Incentive Plan. The Company awarded approximately 560,000 shares under the PETsMART, Inc. 1997 Equity Incentive Plan. The Company recorded deferred compensation of approximately $8,326,000 with an offsetting credit to additional paid-in capital. Deferred compensation was based on the fair market value of the shares on the date of grant. Such deferred compensation will be amortized ratably over the four-year term. As of August 3, 2003, approximately 551,000 shares were outstanding, which will vest on the fourth year anniversary of the date of the award, provided the executive is continuously employed through such anniversary.

     At the 2003 Annual Meeting of Stockholders, held on June 26, 2003, the 1995 Equity Incentive Plan was amended and restated, and renamed the 2003 Equity Inventive Plan. The amendments to the 2003 Equity Incentive Plan include an increase in share of common stock authorized for issuance by 7,000,0000 shares, extension of the term to August 31, 2007, and a minimum exercise price for all options granted be equivalent to the fair market value on the date of the grant. The Company may grant under its 1997 Equity Incentive Plan and 2003 Equity Incentive Plan either incentive stock options, nonstatutory options or other stock awards to purchase up to 29,083,314 shares of common stock to employees, including officers, consultants or directors of the Company, at fair value at the date of the grant.

     As permitted by SFAS No. 123, “Accounting for Stock-based Compensation” (“SFAS 123”), the Company applies the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations, in recording compensation expense for grants of equity instruments to employees.

     The Company has equity and stock option incentive plans and an employee stock purchase plan. The Company accounts for those plans under APB 25, and related interpretations. No compensation cost is reflected in net income for the stock options, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The Company records deferred compensation expense for the restricted stock ratably over the four-year term. The following table illustrates the effect on net income and net income per common share if the Company had applied the fair-value-based method of SFAS 123 to record compensation expense for stock options, restricted stock, and employee stock purchases (in thousands, except per share data).