UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission file number 0-21888

PETsMART, Inc.

(Exact name of registrant as specified in its charter)

19601 N. 27th Avenue

Phoenix, Arizona 85027

(Address of principal executive offices, including Zip Code)

Registrant’s telephone number, including area code:

(623) 580-6100

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.0001 par value

      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.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

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

      The aggregate market value of the common stock held by non-affiliates of the registrant, based on the closing sale price of the Registrant’s Common Stock on August 1, 2004, the last business day of the Registrant’s most recently completed second fiscal quarter, as reported on the NASDAQ National Market was approximately $4,437,934,000. This calculation excludes approximately 1,912,000 shares held by directors and executive officers of the Registrant. This calculation does not exclude shares held by such organizations whose ownership exceeds 5% of the Registrant’s outstanding Common Stock as of December 31, 2004 that have represented to the Registrant that they are registered investment advisers or investment companies registered under section 8 of the Investment Company Act of 1940.

      The number of shares of the Registrants Common Stock outstanding as of March 28, 2005 was 143,698,839.

DOCUMENTS INCORPORATED BY REFERENCE

      Proxy Statement for the Annual Meeting of Stockholders to be held on June 23, 2005, to be filed by May 9, 2005.

TABLE OF CONTENTS

PART I

      This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology including: “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Business Risks” contained in Part I of this Annual Report that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

      Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Our expectations are as of the date this Annual Report on Form 10-K is filed, and we do not intend to update any of the forward-looking statements after the date this Annual Report on Form 10-K is filed to conform these statements to actual results, unless required by law.

      Our fiscal year consists of the 52 or 53 weeks ending on the Sunday nearest January 31 of the following year. Unless otherwise specified, all references in this Annual Report on Form 10-K to years are to fiscal years. The 2004, 2003 and 2002 fiscal years were 52-week years.

General

      PETsMART was incorporated in Delaware on August 11, 1986, and we opened our first two stores in March 1987. In fiscal 2004, we generated sales of $3.4 billion, making PETsMART the leading provider of products, services and solutions for the lifetime needs of pets in North America. We opened 83 net new stores in fiscal 2004 and, as of January 30, 2005, operated 726 retail stores in North America. Our stores typically range in size from 19,000 to 27,000 square feet. Our stores carry a broad and deep selection of high quality pet supplies at everyday low prices. We offer more than 12,900 distinct items, including nationally recognized brand names, as well as an extensive selection of private brands across a range of product categories.

      We complement our extensive product assortment with a selection of value-added pet services, including grooming, pet training, boarding and day camp. Virtually all our stores offer complete pet training services and feature pet styling salons that provide high-quality grooming services. Through our strategic relationship with Banfield, The Pet Hospital, operating under the registered trademark of Banfield, we make full-service veterinary care available in approximately 430 of our stores.

      We also reach customers through our direct marketing channels, including PETsMART.com, one of the Internet’s most popular pet e-commerce sites, as well as an e-commerce site dedicated to equine products and two major branded catalogs.

      We have identified a large group of pet owners we call “pet parents,” who are passionately committed to their pets and consider their pets family members. Our strategy is to attract and keep these customers by becoming the preferred provider of Total Lifetime Care^sm for pets. As part of this strategy, we focus on driving efficiencies in our stores, on our processes and our systems, on growing our pet services business and on delighting our customers by providing a superior store environment, a superior shopping experience and superior service. We have improved our distribution capabilities, implemented new management information systems, focused on developing our pet services business and worked to develop a culture of customer service. In fiscal 2003, we completed the reformatting of our stores to create a specialty store environment by organizing the store by pet species, placing a greater emphasis on pet services and eliminating most of the high steel shelving, resulting in a brighter and more open store. Our store format, combined with our enhanced distribution and information systems capabilities, has reduced inventories, made the store easier to shop and

allowed our associates to spend more time serving customers. We believe these strategic initiatives will continue to drive enhanced comparable store sales growth, profitability and return on investment.

The Pet Food and Pet Supply Industry

      The pet product industry serves a large and growing market. The American Pet Products Manufacturers Association or APPMA, estimated the 2004 market at approximately $34.4 billion, an increase of over 100% since 1994. Based on the 2005/2006 APPMA National Pet Owners Survey, more than 69 million households in the United States own a pet. This translates to approximately 91 million cats and 74 million dogs. The APPMA also estimates 63% of United States’ households own a pet and 45% of those households own more than one type of pet.

      The pet product industry can be divided into the following categories: food, supplies/medicines, veterinary care, pet services (such as grooming or boarding) and purchases of pets. The APPMA estimates dog food, cat food and treats are the largest volume categories of pet-related products and in 2004 approximated $14.2 billion, or more than 40% of the market. Many premium pet food brands, which offer higher levels of nutrition than non-premium brands, are not currently sold through supermarkets, warehouse clubs and mass merchandisers due to manufacturers restrictions, but are sold primarily through superstores, specialty pet stores, veterinarians and farm and feed stores.

      Pet supplies and medicine sales account for approximately 24%, or $8.1 billion, of the market. These sales include dog and cat toys, collars and leashes, cages and habitats, books, vitamins and supplements, shampoos, flea and tick control and aquatic supplies. Veterinary care, pet services and purchases of pets represent approximately 23%, 7% and 5%, respectively, of the market.

Competition

      Based on total sales, we are the largest specialty retailer of pet food, supplies and services in North America. The pet food and pet supply retail industry is highly competitive and can be categorized into five different segments:

      We believe the principal competitive factors influencing our business are product selection and quality, convenience of store locations, store environment, customer service, price and availability of pet services. Many of the products we offer are not currently available in supermarkets, warehouse clubs or other mass and retail merchandisers. We believe we compete effectively within our various markets; however, some of our mass and retail merchandise competitors are larger in terms of overall sales volume and have access to greater capital.

      We are currently the only major specialty pet retailer that markets to customers through stores, catalogs and the internet, and we believe this gives us a competitive advantage. In addition, we believe our pet services business, which supermarkets, warehouse clubs and other mass and retail merchandisers cannot easily duplicate, is a competitive advantage.

Our Strategy

      Our strategy is to be the preferred provider for the lifetime needs of pets. Our primary initiatives include:

      Add stores in existing multi-store, new multi-store and new single-store markets. Our expansion strategy includes increasing our share in the top 60 existing multi-store markets, penetrating new multi-store and single-store markets and achieving operating efficiencies and economies of scale in distribution, procurement,

marketing and store operations. During 2004, we opened 83 net new stores, and in 2005, we expect to open approximately 100 net new stores primarily in multi-store markets. Approximately 35% of those store openings are planned in markets in the Northeast and California where we are significantly under-represented. We believe there is a potential for at least 1,400 PETsMART stores in North America.

      Provide the right store format to meet the needs of our customers. We completed the conversion of our store base to our new specialty store format in fiscal 2003. We believe our reformatted stores, combined with our other strategic initiatives, contribute to higher comparable store sales growth, profitability and return on investment. We continually evaluate our store format to ensure we are meeting the needs and expectations of our customers, while providing a return on investment to our shareholders. In fiscal 2004, we completed the roll out of an upgraded sign package to better serve the needs of our customers.

      Expand our pet services business. Based on sales, we are the leading provider of pet services, which includes professional grooming, pet training, boarding and day camp. Pet services are an integral part of our strategy, and we are focused on driving profitable growth in our services business. We believe services differentiate us from our competitors, drive traffic and repeat visits to our stores, provide cross-selling opportunities, allow us to forge a strong relationship with our customers, increase transaction size and enhance operating margins. Through our strategic relationship with Banfield, The Pet Hospital, operating under the registered trademark of Banfield, we make full-service veterinary care available in approximately 430 of our stores.

      Pet services revenue, which includes grooming, pet training, PETsHOTEL and Doggie Day Camp, grew by 24%, 25% and 29% in 2004, 2003 and 2002, respectively. We are confident in our ability to continue to expand the pet services portion of our business.

      Offer superior customer service. Our emphasis on the customer is an on going cultural shift designed to provide our customers with an unparalleled shopping experience every time they visit our stores. Using a detailed curriculum and role-playing techniques, we educate store associates to identify customer needs and provide solutions. We measure their success in every store, and a portion of the annual incentive program for managers, from the store level to the executive team, is linked to key customer service metrics. By providing pet parents with expertise and solutions, we believe we are strengthening our relationships with customers, building loyalty and enhancing our leading market position.

      Differentiate ourselves through effective brand management. We are focused on developing and strengthening our brand identity. We are creating tools to effectively communicate our unique value proposition and vision of providing Total Lifetime Care for pets, and to build enduring relationships with our customers. We continue to roll out our customer loyalty program, the PetPerks® savings card. As of January 30, 2005, PetPerks was available in over 315 stores and 22 markets, and by the third quarter of fiscal 2005, we intend to make the PetPerks card available in every PETsMART store capturing 70% to 80% of transactions and 75% to 85% of sales. We will continue using a centralized customer database that allows us to track and analyze customer shopping patterns. We intend to use this information to customize direct marketing and promotional materials and to more effectively communicate with customers across all channels.

Our Stores

      Our stores are generally located in sites co-anchored by strong destination superstores and typically are in or near major regional shopping centers. We are engaged in an ongoing expansion program, opening new stores in both new and existing markets and relocating existing stores. Store activity for fiscal 2004, 2003 and 2002 is as follows:

      In its first full year, we expect a new store to generate approximately $3.0 million in sales. We expect new stores to generate comparable store sales growth in the range of 19% to 21% in year two, 11% to 13% in year three, 7% to 8% in year four and 5% to 6% in year five. We believe there is a potential for a total of at least 1,400 PETsMART stores in North America. We expect to open approximately 100 net new stores in fiscal 2005.

Distribution

      We currently employ a hybrid distribution system including full truckload shipments to individual stores and the splitting of full truckloads among several closely located stores and distribution centers. Our forward distribution centers handle products that require rapid replenishment. Our improved distribution network, combined with improved and integrated information systems, drives reduced store inventory, more efficient use of store labor, improved in-stock positions and better distribution center productivity. Our suppliers generally ship our merchandise to one of our distribution centers or forward distribution centers, which receive and allocate merchandise to our stores. We contract the transportation of merchandise from our distribution centers to stores through third party vendors, and we do not own any trailers. We operate the following distribution centers:

      In September 2004, we entered into an agreement to lease approximately 1.0 million square feet in Ottawa, Illinois to be used as a distribution center. We anticipate opening this distribution center in the Fall of 2005.

Information Systems

      During fiscal 2004, we began deployment of an enhanced solution for the telephony needs in our new stores and certain existing stores. The new technology employs automatic call distribution features and wireless handsets that allow customer calls to be routed more efficiently to the proper area of the store. We believe this will enhance the customer experience in our stores.

      During fiscal 2004, we initiated a multi-year project to roll out pricing label and inventory control systems at our stores that will provide us with real time capabilities for inventory updates and better price control. This project will be completed in fiscal 2005.

      In addition, we implemented a voice recognition and new technology radio frequency solution for picking product in all but one of our distribution centers. The implementation of the remaining distribution center will occur in fiscal 2005. We believe this solution will contribute to increased speed and accuracy of this function and improve the capacity of our supply chain.

      Also during fiscal 2004, we completed the implementation of price optimization software to manage base prices and PetPerks prices. In addition, we completed the implementation of a new system to support our internet business, which we believe provides a solid foundation for future growth.

Merchandise

      Merchandise, which represented approximately 93% of our revenues in 2004 and 94% of our revenues in 2003 and 2002, generally falls into three main categories:

Pet Services

      Pet services, which include grooming, pet training, PETsHOTEL and Doggie Day Camp, represented approximately 7%, 6% and 6% of our revenues in 2004, 2003 and 2002, respectively. We offer full-service grooming and pet training services in virtually all our stores. We typically allocate an average of 779 square feet per store for high-quality, full-service grooming, including precision cuts, baths, toenail trimming and toothbrushing. Our pet stylists are trained through a 15-week program that teaches exceptional grooming skills using safe and gentle techniques. Pet training services range from puppy classes to advanced and private courses.

      PETsHOTEL provides boarding for dogs and cats, 24-hour supervision, an on-call veterinarian, temperature controlled rooms and suites, daily specialty treats and play time as well as day camp for dogs. During the third quarter of 2004, we decided to begin a national rollout of PETsHOTEL at selected locations in 2005. As of January 30, 2005, we operated 16 PETsHOTELs within our retail stores and one stand-alone location. In October 2004, we launched our test of the Doggie Day Camp concept, which is also available at our PETsHOTEL locations, at a retail store in Pasadena, California. We will continue to evaluate the results in fiscal 2005.

      Total revenues from pet grooming, pet training, boarding and day camp services grew approximately 24% from $193.5 million in 2003 to $240.7 million in 2004.

Veterinary Services

      The availability of comprehensive veterinary care in our stores further differentiates us and reflects our overall commitment to pet care. Full-service veterinary hospitals in approximately 430 of our stores offer routine examinations and vaccinations, dental care, a pharmacy and routine and complex surgical procedures. Substantially all these hospitals are operated by Medical Management International, Inc., or MMI, a third-party operator of veterinary hospitals, operating under the registered trade name of Banfield, The Pet Hospital. See Note 4 of the Notes to the Consolidated Financial Statements for a discussion of our ownership interest in MMI Holdings.

PETsMART Charities and Adoptions

      Through PETsMART Charities, Inc., an independent 501(c)(3) organization, we support the activities of animal welfare organizations in North America. PETsMART Charities creates and supports programs that intend to help find a lifelong loving home for every pet, by:

      Since 1994, PETsMART Charities has raised and donated more than $35 million to animal welfare programs and, through our in-store adoption programs, has saved the lives of more than 2 million pets.

Government Regulation

      We are subject to various federal, state, provincial and local laws and regulations governing, among other things: our relationships with employees, including minimum wage requirements, overtime, working conditions and citizenship requirements; veterinary practices, or the operation of veterinary hospitals in retail stores, that may impact our ability to operate veterinary hospitals in certain facilities; the transportation, handling and sale of small pets; environmental regulations with respect to generation, handling, storage, transportation and disposal of waste and biohazardous materials; the distribution, import/export and sale of products; the handling, security, protection and use of customer information; and the licensing and certification of services.

      While we seek to structure our operations to comply with all federal, state, provincial and local laws and regulations of each jurisdiction in which we operate, there can be no assurances that, given varying and uncertain interpretations of these laws and regulations and the fact that the laws and regulations are enforced by the courts and by regulatory authorities with broad discretion, we would be found to be in compliance in all jurisdictions. We also could be subject to costs, including fines, penalties or sanctions and third party claims as a result of violations of, or liabilities under, these laws and regulations.

Intellectual Property

      We have several service marks and trademarks registered with the United States Patent and Trademark Office (or USPTO), including PETsMART®, PETsMART.com®, PETsMART PETsHOTEL®, Where Pets Are Family® and All You Need For The Life Of Your Pet®, as well as many others. We also own several service mark and trademark applications that are pending with the USPTO and anticipate filing additional applications in the future. We also own numerous registered service marks, trademarks and pending applications in other countries, including Canada, as well as several trade names, domain names and copyrights for use in our business. We regard our intellectual property as having significant value and as an important component in our merchandising and marketing strategies.

Employees

      As of January 30, 2005, we employed approximately 30,300 associates, approximately 15,100 of whom were employed full time. We are not subject to any collective bargaining agreements and have not experienced any work stoppages. We consider our relationship with our associates to be good. Increases in the federal minimum wage in recent years have not had a material effect on our business.

Financial Information by Business Segment and Geographic Data

      As of February 2, 2004, we had three operating segments; PETsMART North America, which included all retail stores; PETsMART Direct, which included our equine catalog and equine Internet operations; and PETsMART.com, which included our pet catalog and pet Internet operations. As of January 30, 2005, we had two operating segments as a result of the integration of PETsMART Direct and PETsMART.com during the first quarter of fiscal 2004. We evaluated our segment reporting requirements under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” and determined that the reorganized

PETsMART Direct operating segment does not meet the quantitative thresholds for disclosure as a reportable operating segment.

      Net sales in the United States were approximately $3,275.8 million, $2,917.3 million and $2,632.5 million for 2004, 2003 and 2002, respectively. Net sales, denominated in US dollars, in Canada were approximately $87.7 million, $75.7 million and $62.7 million for 2004, 2003 and 2002, respectively.

Available Information

      We make available, free of charge through our internet web-site (www.petsmart.com), our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our current reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after we electronically file such material, or furnish it to the Securities and Exchange Commission.

      All PETsMART associates must act ethically at all times and in accordance with the policies which comprise PETsMART’s Code of Business Ethics and Policies. We require full compliance with this policy, and all designated associates including our Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer and such other individuals performing similar positions, have signed a certificate acknowledging that they have read, understand and will continue to comply with the policy. The policy is published and any amendments or waivers thereto will be published in the Corporate Governance section of the PETsMART website located at www.petm.com.

Business Risks

      In the normal course of business, our financial position is routinely subjected to a variety of risks, including market risks associated with store expansion, investments in information systems, international expansion, vendor reliability, competitive forces and government regulatory actions. You should carefully consider the risks and uncertainties described below in connection with those also discussed in Our Stores, Distribution, Information Systems, Competition and Government Regulation sections of this Annual Report on Form  10-K. Our actual results could differ materially from projected results due to some or all of the factors discussed below.

      Our continued revenue growth depends to a degree on our ability to increase sales at our stores. There can be no assurance that our stores will meet forecasted levels of sales and profitability.

      In addition, we expect to open approximately 100 net new stores in 2005. Our ability to open additional stores is dependent on various factors including:

      To the extent we are unable to accomplish any of the above, our ability to open new stores may be harmed. In addition, there can be no assurance that we will be able to operate our new stores profitably.

New stores may erode sales at existing stores and comparable store sales growth may decrease as stores grow older.

      We currently operate stores in most of the major market areas of the United States and Canada. Our plans for 2005 include opening 100 net new stores, primarily in existing multi-store markets. Approximately 35% of those store openings are planned in markets in the Northeast and California where we are significantly under-represented. It has been our experience that opening new stores may attract some customers away from other stores already operated by us in those markets and diminish their sales. Our comparable store sales increases were 6.3% and 7.0% for fiscal years 2004 and 2003, respectively. As a result of new store openings in existing markets, and because older stores will represent an increasing proportion of our store base over time, our comparable store sales increases may be lower or sales could decrease in future periods.

Our operating margins at new stores may be lower than those of existing stores.

      Preopening expenses and lower sales volumes associated with newly opened stores can impact operating margins. In addition, we expect certain operating costs, particularly those related to occupancy, to be higher in new stores than in the past in some newly entered geographic regions. As a result of our increasing number of net new stores and the impact of these rising costs, our total store contribution and operating margins may be lower in future periods than they have been in the past.

A disruption, malfunction, or increased costs in the operation or expansion of our distribution centers or our supply chain would impact our ability to deliver merchandise to our stores or increase our expenses, which could harm our sales and results of operations.

      Our suppliers generally ship our merchandise to one of our distribution centers, which receive and allocate merchandise to our stores. Any interruption or malfunction in our distribution operations, including, but not limited to, the loss of a key vendor that provides transportation of merchandise from our distribution centers to stores, could harm our sales and the results of our operations. We have two fish distribution centers that are operated by a third-party vendor, and an interruption or malfunction to their business could harm our sales and results of operations. In such an event, there can be no assurance that we could contract with another third party to operate the fish distribution centers on favorable terms, if at all, or that we could successfully operate the fish distribution centers ourselves. In addition, if we are unable to successfully expand our distribution centers, our sales or results of operations could be harmed.

If our information systems fail to perform as designed, our business could be harmed.

      The efficient operation of our business is dependent on our information systems. In particular, we rely on our information systems to effectively manage our sales, warehousing, distribution, merchandise planning and replenishment functions and to maintain our in-stock positions. We possess offsite recovery capabilities for our information systems. The failure of our information systems to perform as designed could disrupt our business and harm our sales and profitability.

      We continue to invest in our information systems. There can be no assurance that the costs of investments in our information systems will not exceed estimates or that they will be as beneficial as predicted. If we are unable to realize the benefits of improved systems, our results of operations could be harmed.

A decline in consumers’ discretionary spending could reduce our sales and harm our business.

      Our sales depend on consumer spending, which is influenced by factors beyond our control, including general economic conditions, the availability of discretionary income, weather, consumer confidence and unemployment levels. We may experience declines in sales during economic downturns. Any material decline in the amount of discretionary spending could reduce our sales and harm our business.

Our results may fluctuate due to seasonal changes associated with the pet food and pet supply retailing industry and the timing of expenses, new store openings and store closures.

      Our business is subject to seasonal fluctuation. We typically realize a higher portion of our net sales and operating profit during the fourth fiscal quarter. As a result of this seasonality, we believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance. Controllable expenses, such as advertising, could fluctuate from quarter-to-quarter within a fiscal year. Sales of certain products and services designed to address pet health needs are seasonal. Because our stores typically draw customers from a large trade area, sales may also be impacted by adverse weather or travel conditions, which are more prevalent during certain seasons of the year. Finally, as a result of our expansion plans, the timing of new store openings and related preopening expenses, the amount of revenue contributed by new and existing stores, and the timing and estimated obligations of store closures, our quarterly results of operations may fluctuate.

The pet food and pet supply retail industry is highly competitive, and continued competitive forces may reduce our sales and profitability.

      The pet food and pet supply retail industry is highly competitive. We compete with supermarkets, warehouse clubs and mass and other retail merchandisers, many of which are larger and have significantly greater resources than we have. We also compete with a number of pet supply warehouse or specialty stores, smaller pet store chains, catalog retailers, internet retailers and pet stores. The industry has become increasingly competitive due to the entrance of other specialty retailers into the pet food and pet supply market, some of which have developed store formats similar to ours, and due to the expansion of pet-related product offerings by certain supermarkets, warehouse clubs and mass and other retail merchandisers. There can be no assurance we will not face greater competition from these or other retailers in the future. In particular, if any of our major competitors seek to gain or retain market share by reducing prices, we would likely reduce our prices in order to remain competitive, which may result in a decrease in our sales and profitability and require a change in our operating strategies.

The loss of any of our key vendors, a decision by our vendors to make their products available in supermarkets or through warehouse clubs and mass merchandisers, or the inability of our vendors to provide products in a timely or cost-effective manner, could harm our business.

      We have no long-term supply commitments from our vendors. We buy from several hundred vendors worldwide and, together, our two largest vendors accounted for approximately 15.2% of our total sales for fiscal 2004. Sales of premium pet food for dogs and cats comprise a significant portion of our revenues. Currently, most major vendors of premium pet foods do not permit their products to be sold in supermarkets, warehouse clubs or through other mass merchandisers. If any premium pet food or pet supply vendors were to make their products available in supermarkets or through warehouse clubs and mass merchandisers, our business could be harmed. In addition, if the grocery brands currently available to such retailers were to gain market share at the expense of the premium brands sold only through specialty pet food and pet supply outlets, our business could be harmed.

      We purchase significant amounts of pet supplies from a number of vendors with limited supply capabilities. There can be no assurance that our current pet supply vendors will be able to accommodate our anticipated needs or comply with existing or any new regulatory requirements. In addition, we purchase significant amounts of pet supplies from vendors outside of the United States. There can be no assurance our overseas vendors will be able to satisfy our requirements including, but not limited to, timeliness of delivery, acceptable product quality, packaging and labeling requirements. Any inability of our existing vendors to provide products in a timely or cost-effective manner could harm our business. While we believe our vendor relationships are satisfactory, any vendor could discontinue selling to us at any time.

We depend on key personnel and may not be able to retain or replace these employees or recruit additional qualified personnel, which could harm our business.

      Our success is largely dependent on the efforts and abilities of our senior executive group. The loss of the services of one or more of our key executives could adversely impact our financial performance and our ability to execute our strategies. In addition, our future success will depend on our ability to attract highly skilled store managers and qualified services personnel such as pet trainers and groomers. There is a high level of competition for these employees, and our ability to operate our stores and expand these services depends on our ability to attract and retain these personnel. In addition, historically there has been a shortage of qualified veterinarians. If Banfield cannot attract and retain a sufficient number of veterinarians, Banfield’s ability to provide veterinary services in our stores and increase the number of stores in which Banfield provides veterinary services, may be impacted.

      We entered the Canadian market in 1996 and operated 25 stores in Canada as of January 30, 2005. As these operations grow, they may require greater management and financial resources. International operations require the integration of personnel with varying cultural and business backgrounds and an understanding of the relevant differences in the legal and regulatory environments. Our results may be increasingly affected by the risks of our international activities, including:

Our business may be harmed if the operation of veterinary hospitals at our stores is limited or fails to continue.

      We and MMI, the third party operator of Banfield, The Pet Hospital, are subject to laws governing the operation of veterinary hospitals. MMI Holdings, Inc., or MMIH, is the parent company of MMI. Statutes and regulations in various states and Canadian provinces regulating the ownership of veterinary practices, or the operation of veterinary hospitals in retail stores, may impact our ability and MMI’s ability to operate veterinary hospitals within our facilities. A determination that we or MMI are in violation of any of these applicable statutes and regulations could require us or MMI to restructure our operations to comply or render us or MMI unable to operate veterinary hospitals in a given location. We recorded $13.1 million and $10.5 million from MMI during 2004 and 2003, respectively, as a reduction of the retail stores’ occupancy costs. We record store occupancy costs as a component of cost of sales in our consolidated financial statements. If MMIH or MMI were to experience financial or other operating difficulties that would force it to limit its operations, or if MMIH were to cease operating the veterinary hospitals in our stores, our business may be harmed, both directly and due to a decrease in customer traffic. There can be no assurance that we could contract with another third party to operate the veterinary hospitals on favorable terms, if at all, or that we could successfully operate the veterinary hospitals ourselves. For a further discussion of our relationship with MMI, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Related Party Transactions.”

Our business would be harmed if we were unable to raise any needed additional capital on acceptable terms.

      We anticipate that our existing capital resources and cash flows from operations will enable us to maintain our currently planned operations for the foreseeable future. If, however, we are unable to generate and maintain positive operating cash flows and operating income in the future, we may need additional

funding. We may also choose to raise additional capital due to market conditions or strategic considerations even if we believe that we have sufficient funds for our current or future operating plans. Our current credit facility is secured by substantially all of our personal property assets, our subsidiaries and certain real property. This could limit our ability to obtain, or obtain on favorable terms, additional financing and may make additional debt financing outside our credit facility more costly. If additional capital were needed, an inability to raise capital on favorable terms would harm our business and financial condition. In addition, to the extent that we raise additional capital through the sale of equity or debt securities convertible into equity, the issuance of these securities could result in dilution to our stockholders.

A determination that we are in violation of any government regulations could require us to restructure our operations to comply in a given government jurisdiction and could harm our business.

      We are subject to various federal, state, provincial and local laws and regulations governing among other things: our relationships with employees, including minimum wage requirements, overtime, working conditions and citizenship requirements; veterinary practices, or the operation of veterinary hospitals in retail stores, that may impact our ability to operate veterinary hospitals in certain facilities; the transportation, handling and sale of small pets; environmental regulations with respect to the generation, handling, storage, transportation and disposal of waste and biohazardous materials; the distribution, import/export and sale of products; the handling, security, protection and use of customer information; and the licensing and certification of services.

      While we seek to structure our operations to comply with all federal, state, provincial and local laws and regulations of each jurisdiction in which we operate, there can be no assurances that, given varying and uncertain interpretations of these laws and regulations and the fact that the laws and regulations are enforced by the courts and by regulatory authorities with broad discretion, we would be found to be in compliance in all jurisdictions. We also could be subject to costs, including fines, penalties or sanctions and third party claims as a result of violations of, or liabilities under, the above referenced laws and regulations.

A determination by tax regulators on an issue may cause our provision for income and other taxes to be inadequate and may result in a material impact to our financial position.

      We operate in multiple tax jurisdictions and believe an adequate provision for income and other taxes has been made. If, however, a determination is made by tax regulators in these jurisdictions that a position that we have taken on an issue is inappropriate, this may result in a material impact to our financial position. The Internal Revenue Service is currently examining our tax returns for the 2002 tax year.

      We are occasionally subject to claims due to the injury or death of a pet in our stores or while under our care in connection with the pet services we provide. In addition, we sell certain small pets including fish, birds, reptiles and small rodents in our stores. Given the large number of small pets we sell, deaths or injuries of these small pets sometimes occur while they are within our care. As a result, we may be subject to claims that we do not properly care for these small pets. We may also be subject to claims resulting from the transfer of diseases from pets in our stores to other animals, associates and customers. In addition, from time to time, we have been subject to product liability claims for some of the products we sell. Any negative publicity or claims relating to any of the foregoing could harm our reputation and business, as well as expose us to litigation expenses and damages.

Pending legislation, weather, disease or other factors could disrupt the supply of the small pets and products we sell, which could harm our reputation and decrease sales.

      There is generally a significant amount of legislation pending at the federal, state, provincial and local levels regarding the handling of pets. This legislation may impair our ability to transport the small pets we sell in our stores. The small pets we sell in our stores are susceptible to diseases that can quickly decrease or destroy the supply of these pets. In addition, our supply of products may be negatively impacted by weather,

disease, contamination or trade barriers. Any disruption in the supply of products to our stores, due to legislation, weather, disease or any other factor, could harm our reputation and decrease our sales.

      Over the last several years, the market price of our common stock has been subject to significant fluctuations. The market price of our common stock may continue to be subject to significant fluctuations in response to operating results and other factors including, but not limited to:

      In addition, the stock market in recent years has experienced price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of companies. These fluctuations, as well as general economic and market conditions, including but not limited to fuel costs, may harm the market price of our common stock.

      Our restated certificate of incorporation and bylaws include provisions that may delay, defer or prevent a change in management or control that our stockholders may not believe is in their best interests. These provisions include:

      In addition, our restated certificate of incorporation requires a 66²/3% vote of stockholders to:

      In August 1997, our Board of Directors adopted a Stockholder Rights Plan, commonly referred to as a poison pill, under which one preferred share purchase right was distributed on August 29, 1997, for each share of common stock held on that date. We are also subject to the anti-takeover provisions of Section 203 of the

Delaware General Corporation Law, and the application of Section 203 could have the effect of delaying or preventing an acquisition of PETsMART.

Management

      Our executive officers and their ages and positions on April 1, 2005, are as follows:

      Philip L. Francis has been a director of PETsMART since 1989, and Chief Executive Officer since March 1998. In September 1999, he was also named Chairman of the Board, and from 1998 to 2001, he was President. From 1991 to 1998, he held various positions with Shaw’s Supermarkets, Inc., a subsidiary of J. Sainsbury plc., including Chief Executive Officer, Chief Operating Officer and President. Prior to that, he held several senior management positions for Roundy’s Inc., Cardinal Health and the Jewel Companies.

      Robert F. Moran was appointed President and Chief Operating Officer in December 2001. He joined PETsMART as President of North American Stores in July 1999. From 1998 to 1999, he was President of Toys ‘R’ Us, Ltd., Canada. Prior to 1991, for a total of 20 years, he was with Sears, Roebuck and Company in a variety of financial and merchandising positions, including President and Chief Executive Officer of Sears de Mexico. He was also Chief Financial Officer and Executive Vice President of Galerias Preciados of Madrid, Spain from 1991 through 1993.

      Timothy E. Kullman joined PETsMART as Senior Vice President and Chief Financial Officer in July 2002. In addition, Mr. Kullman currently oversees our information systems group. From 2001 to 2002, Mr. Kullman was the Executive Vice President and Chief Financial Officer for Hagemeyer North America Holdings, Inc., part of a global distribution company based in the Netherlands. From 1997 to 2001, Mr. Kullman served as Senior Vice President and Chief Financial Officer of Genuardi’s Family Markets, Inc., a regional grocery retailer. From 1994 to 1997, Mr. Kullman served as Senior Vice President, Chief Financial Officer, Treasurer and Secretary for Delchamps, Inc., a grocery retailer in the southeastern United States. Prior to that, he held various positions with Farm Fresh, Inc., Blue Cross Blue Shield of Michigan, and Deloitte Haskins & Sells, the predecessor to Deloitte & Touche LLP.

      Scott A. Crozier joined PETsMART as Senior Vice President and General Counsel in June 1999, and was appointed Secretary in June 2000 and Chief Compliance Officer in March 2005. From 1998 to 1999, Mr. Crozier was Chairman and Chief Executive Officer of Westpac Consulting, L.L.C., a real estate services company. From 1987 to 1998, Mr. Crozier served as Vice President and General Counsel for Phelps Dodge Corporation, a global mining and manufacturing company. Prior to that, he was Counsel for Talley Industries, Inc., and served as an enforcement attorney with the Securities Division of the Arizona Corporation

Commission and during that time, was also appointed as Special Assistant Attorney General with the Arizona Attorney General’s Office.

      Barbara A. Fitzgerald joined PETsMART as Senior Vice President of Store Operations in September 2000. Prior to joining PETsMART, Ms. Fitzgerald was President of Harmon AutoGlass, a leading provider of auto glass replacement and repair. From 1997 to 2000, Ms. Fitzgerald served in various positions at Toys ‘R’ Us, Inc., including, Vice President, General Manager of New York/ New Jersey and Vice President of People Development. Prior to that, Ms. Fitzgerald spent 24 years with Sears, Roebuck and Company in various capacities, including Vice President and General Manager of Sears Hardware Stores.

      Gerard J. “Rod” Geant was appointed Senior Vice President of Real Estate and Construction in March 2005. He joined PETsMART in May 2004 as Vice President of Real Estate and Construction. From 1993 to 2003, he owned a business that specialized in real estate for retailers. From 2003 to 2004, Mr. Geant was Vice President of Transaction Management for CB Richard Ellis. From 1982 to 1993, he held various senior real estate management positions with Hannaford Bros. Co. (now a division of Del Haze), including Senior Vice President, Corporate Development.

      Kenneth T. Hall was appointed Senior Vice President and Chief Marketing Officer in January 2003. He joined PETsMART as Vice President, Strategic Planning and Customer Relationships in October 2000. From 1999 to 2000, Mr. Hall worked as a consultant for Bain & Company, Inc., a global management consulting firm. Prior to this, Mr. Hall held various operational and financial positions at EXXON Company, U.S.A.

      David K. Lenhardt joined PETsMART as Senior Vice President of Services, Strategic Planning and Business Development in October 2000. From 1996 to 2000, Mr. Lenhardt was a manager with Bain & Company, Inc., where he led consulting teams for retail, technology, and e-commerce clients. Prior to that, he worked in the corporate finance and Latin American groups of Merrill Lynch & Co.’s investment banking division.

      Francesca M. Spinelli, joined PETsMART as Senior Vice President, People, in September 2003. From 1998 to 2003, she was with Radio Shack Corporation, where she served as Senior Vice President of People. Previously, Ms. Spinelli was with Wal-Mart Stores, Inc., where she held the positions of Corporate Vice President, Organizational Development and Vice President, Human Resources — McLane Company, Inc., a former division of Wal-Mart. Prior to 1993, Ms. Spinelli held human resources positions with Dillaashwa, Hawthorn and Company, P.C., and APS, Inc. In addition, Ms. Spinelli serves on the board of directors of Advance Auto Parts, Inc.

      Anthony N. Truesdale was appointed Senior Vice President of Merchandising and Supply Chain Management in September 2004. Mr. Truesdale joined PETsMART as Vice President of Hardgoods Merchandising in January 1999. He took on the import business for PETsMART in August 1999, and in October 1999, he was promoted to Senior Vice President of Merchandising for Hardgoods and Specialty. In April 2000, he was promoted to Senior Vice President Merchandising and Logistics and was appointed Senior Vice President of Merchandising in June 2000. From 1997 to 1999, he served as Senior Manager in Produce for J. Sainsbury, plc., in the United Kingdom. Prior to that, Mr. Truesdale spent 18 years in various operating and merchandising functions at Shaws Supermarkets, Inc., a subsidiary of J. Sainsbury plc., in New England.

      Mark D. Mumford was appointed Vice President, Chief Accounting Officer in March 2003. He joined PETsMART in August 2001 as Vice President of Finance and from March 2003 to May 2004, he served as PETsMART’s Controller. From 2000 to 2001, he was a Director in the Financial Advisory Services group at Price Waterhouse LLP, the predecessor of PricewaterhouseCoopers LLP. From 1990 to 2000, Mr. Mumford held various positions at MicroAge, Inc., including Senior Vice President of Operations, Vice President of Finance, Controller, and Chief Financial Officer and Chief Information Officer of Pinacor, Inc., a wholly owned subsidiary of MicroAge, Inc. In April 2000, MicroAge, Inc. filed for protection under Chapter 11 of the United States Bankruptcy Code. He started his career in public accounting with Deloitte & Touche LLP.

      Our stores are generally located in sites co-anchored by strong destination superstores and typically are in or near major regional shopping centers. The following table summarizes the locations of the stores by country and state at January 30, 2005: