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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 29, 2005

Commission File Number: 000-23574

PETCO ANIMAL SUPPLIES, INC.

(Exact Name of Registrant As Specified In Its Charter)

9125 Rehco Road, San Diego, California 92121

(Address, Including Zip Code, of Principal Executive Offices)

(858) 453-7845

Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act: None

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

Common Stock, $0.001 par value

(Title of Class)

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  ¨    No  x

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 the 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.  ¨

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

As of May 31, 2005, there were outstanding 57,765,653 shares of the registrant’s Common Stock, $0.001 par value. As of July 31, 2004, the last day of the registrant’s second fiscal quarter of fiscal 2004, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $1.389 billion, based on the last reported sale price on the preceding business day. Shares of common stock held by each executive officer and director and by each person or group who owns 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

DOCUMENTS INCORPORATED BY REFERENCE: None

TABLE OF CONTENTS

PART I

ITEM 1. BUSINESS

We are a leading specialty retailer of premium pet food, supplies and services with 716 stores in 47 states and the District of Columbia. Our pet-related products include food, supplies, grooming products, toys, novelty items, vitamins, small pets such as fish, birds and other small animals (excluding cats and dogs), and veterinary supplies. Our strategy is to offer our customers a complete assortment of pet-related products and services at competitive prices, with superior levels of customer service at convenient locations and through our e-commerce site www.petco.com.

Our stores offer the broad merchandise selection, convenient location and knowledgeable customer service of a neighborhood pet supply store. We believe that this combination differentiates our stores and provides us with a competitive advantage. Our principal format is a 12,000 to 15,000 square foot store, conveniently located near local neighborhood shopping destinations, including supermarkets, bookstores, coffee shops, dry cleaners and video stores, where our target “pet parent” customer makes regular weekly shopping trips. We believe that our stores are well positioned, both in terms of product offerings and location, to benefit from favorable long-term demographic trends, a growing pet population and an increasing willingness of pet owners to spend on their pets. Since the middle of 2001, all new stores have been opened in our newer formats, which incorporate a more dramatic presentation of our companion animals and emphasize higher-margin supplies categories.

Unless otherwise indicated, all references in this Annual Report to a fiscal year refer to the fiscal year ending on the Saturday closest to January 31 of the following year. For example, references to fiscal 2004 refer to the fiscal year beginning on February 1, 2004 and ended on January 29, 2005.

In this annual report, “PETCO,” “Company,” “we,” “our,” and “us” refer to PETCO Animal Supplies, Inc. and its subsidiaries, unless the context requires otherwise.

The Pet Food, Supplies and Services Industry

General. We believe the pet food, supplies and services industry is benefiting from a number of favorable demographic trends that are continuing to support a steadily growing pet population. The U.S. pet population has now reached 378 million companion animals, including 143 million cats and dogs, with an estimated 62% of all U.S. households owning at least one pet, and three quarters of those households owning two or more pets. We believe the trend to more pets and more pet-owning households will continue, driven by an increasing number of children under 18 and a growing number of empty nesters whose pets have become their new “children.” We estimate that U.S. retail sales of pet food, supplies, small animals (excluding cats and dogs) and services increased to approximately $30 billion in 2003. We believe we are well positioned to benefit from several key growth trends within the industry.

Pet Food. Packaged Facts, an independent provider of market research reports, estimates that dog and cat food sales, which represent the vast majority of all pet food sales, accounted for approximately $11.4 billion in sales for 2003. Sales of premium dog and cat food represented approximately 37.9% of the total dog and cat food market in 2003 and are expected to increase to approximately 41.2% of the total dog and cat food market by 2008. Sales of dog and cat food accounted for $565 million, or 30%, of our fiscal 2004 net sales, of which $523 million, or 93%, was generated from premium dog and cat food sales.

Historically, the pet food industry has been dominated by national supermarket brands such as Alpo, Kal Kan and Purina, which are primarily sold through grocery stores, supermarkets, convenience stores and mass merchants. In recent years, supermarkets’ share of total pet food sales has steadily decreased as a result of competition from warehouse clubs, mass merchants and specialty pet store chains as well as the growing proportion of premium pet food sales. Premium pet foods, such as Science Diet, Nutro and Eukanuba, currently are not sold through supermarkets, warehouse clubs or mass merchants due to manufacturers’ restrictions but are sold primarily through specialty retailers like PETCO, veterinarians and farm and feed stores.

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The growth of the premium pet food market is attributable to both the marketing of premium brands by vendors and a heightened nutritional awareness among pet owners. In recent years, premium pet food manufacturers have launched numerous new specialty food products, such as all-natural products and products for pets with sensitive skin and stomachs, as well as oral care products. Management expects expanded product offerings by premium pet food manufacturers to continue, and that distribution of these products primarily through specialty retailers will continue to draw customers away from supermarkets and mass merchants.

Pet Supplies and Small Animals. Based on reports from Packaged Facts, sales of pet supplies and small animals (excluding cats and dogs) accounted for approximately $8.1 billion in sales for 2003 and will grow at a compound annual growth rate, or CAGR, of 8.2% over the next few years. Sales of pet supplies and small animals (excluding cats and dogs) accounted for $1.2 billion, or 65%, of our fiscal 2004 net sales.

The market for pet supplies consists of items such as collars and leashes, cages and habitats, toys, treats, aquatic supplies, pet carriers, vitamins and supplements, and grooming and veterinary products. The channels of distribution for pet supplies are highly fragmented with products sold by many types of retailers, including supermarkets, warehouse clubs and other discounters, mass merchants, specialty pet store chains, direct mail and veterinarians. Specialty retailers such as PETCO, with wide assortments of pet supplies and higher levels of customer service, represent a growing channel for sales of pet supplies.

The market for small animals (other than cats and dogs) includes sales of fish, birds, reptiles, rabbits, hamsters, mice and other small pets. Because of the overpopulation of cats and dogs and the controversial practices of some breeders, we have elected to limit our selection of animals to birds, fish, reptiles and other small animals. We do, however, participate in pet adoption programs for cats, dogs and other animals, which are administered through local animal welfare programs.

Pet Services. Pet services are estimated to account for the remaining $10.5 billion of the overall $30 billion market projected by management for 2003. The market for pet services includes grooming, obedience training, day care and overnight boarding, and vaccinations and other veterinary services. We offer obedience training in most of our stores, grooming in the majority of our stores and limited veterinary services, such as routine vaccinations, at a number of stores. In fiscal 2004, we opened our first “Doggie Day Camp” to service our customers’ day care needs. Although services represented only 4.5% of our fiscal 2004 net sales, services represent an increasing portion of our net sales, and we believe that offering selected pet services better serves our customers and increases traffic flow to our stores. For fiscal 2004, services sales increased 19% from fiscal 2003.

Distribution Channels. Our industry is highly fragmented, with an estimated 9,000 independent pet supply stores operating in the United States. PETCO is one of only two national specialty retailers of pet food, supplies and services. Between 1991 and 2003, the last year for which data is available, specialty pet store chains such as PETCO experienced significant market share gains in the pet food and supplies categories, largely at the expense of supermarkets. We believe that this shift primarily results from (1) the enhanced merchandising effort and product mix offered by specialty pet store chains and (2) the growing demand for premium pet food as nutritional awareness among the general population extends to pet owners and their pets.

Business Strategy

Our strategy is to strengthen our position as a leading specialty retailer of premium pet food, supplies and services by offering our customers a complete assortment of pet-related products and services at competitive prices with superior levels of customer service at convenient locations. We intend to continue to pursue the following elements of our strategy:

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Purchasing and Distribution

We currently operate three central and five regional distribution centers. The central distribution centers are located in Mira Loma, California; Monroe, New Jersey; and Joliet, Illinois. Bulk items for all stores are either shipped to regional distribution centers for redistribution or are sent directly to store locations. Manufacturers ship non-bulk supplies to the central distribution facilities, which we then distribute either to regional centers or directly to store locations. We also provide order fulfillment services for our Internet customers through our three central distribution centers.

Marketing and Advertising

Our marketing department creates and implements a wide variety of national, regional and local advertising, direct marketing and sales promotion programs. These television, radio, circular and direct mail programs are designed to increase sales and consumer awareness of the PETCO brand name.

Our P.A.L.S. database is integrated with our point of sale (POS) system, allowing us to track the purchasing activity and shopping habits of our P.A.L.S. cardholders. This allows us to effectively target customers with personalized direct mail or e-mail messages, to provide promotional offers directly related to past purchases and to adjust our products and services mix to more effectively cater to our customers’ needs. The breadth of understanding of customer behavior we have accumulated and continue to accumulate has impacted our marketing, our merchandising and our vendor relationships, and allows us to enhance customer retention and heighten customer satisfaction. Our P.A.L.S. strategy is highly integrated and fully complementary with our high-low pricing strategy, and the integration of these strategies allows us to reward our best customers with competitive retail prices while optimizing our overall operating margins.

Local store marketing activities are conducted on a regular basis in most stores. These marketing activities include store grand opening events, in-store pet adoptions, informational seminars, school field trips, pet photos, product demonstrations, pet fairs and a variety of other local contests or cross-promotion events.

We are the naming rights sponsor for PETCO Park, a baseball stadium in San Diego, California, which is the home of the San Diego Padres major league baseball team. As part of this arrangement, we also receive certain other promotional benefits from the San Diego Padres.

Competition

The pet food, supplies and services business is highly competitive. This competition can be categorized into three different segments: (1) supermarkets, warehouse clubs and mass merchants; (2) specialty pet store chains; and (3) traditional pet stores and independent service providers. We believe that the principal competitive factors

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influencing our business are product selection and quality, convenient store locations, customer service and price. We believe that we compete effectively within our various geographic areas. However, some of our competitors are much larger in terms of sales volume and have access to greater capital and management resources than we do.

Suppliers and Vendors

We purchase most of our merchandise directly from specialty suppliers and manufacturers of national brands. We purchase the majority of our pet food products from three vendors: Hill’s Pet Products, Inc. (which produces Science Diet), Nutro Products, Inc. and The Iams Company. Supplies of products from these vendors accounted for approximately 8%, 8% and 7%, respectively, of our net sales in fiscal 2004 and approximately 9%, 8% and 8%, respectively, of our net sales in fiscal 2003. While we do not maintain long-term supply contracts with any of our vendors, we believe that we enjoy a favorable and stable relationship with each of these vendors.

Many of the premium pet food brands we offer, such as Science Diet, Nutro and Eukanuba, are not presently available to supermarkets, warehouse clubs or mass merchants due to manufacturers’ restrictions. One of our pet food vendors, The Iams Company, distributes its Iams brand of pet food to supermarkets, warehouse clubs and mass merchants across the country. The Eukanuba brand of premium pet food, which is also manufactured by The Iams Company, continues to be sold exclusively by specialty channels such as PETCO.

Information Systems

Our integrated information systems provide our management team with timely information on sales trends, inventory tracking and operational data at the individual store level. These systems empower regional, district and store managers to increase sales, control inventory and enhance customer satisfaction. Our in-store POS system tracks all sales by stockkeeping unit (SKU) using bar codes and allows management to compare current performance against historical performance and current year’s budget on a daily basis. The information gathered by this system supports automatic replenishment of in-store inventory from our regional and central distribution centers and is integrated into product buying decisions. Store labor planning and visual presentation levels are also supported by sales management information systems. We use Electronic Data Interchange (EDI) with a majority of suppliers for efficient transmittal of purchase orders, shipping notices and invoices. Management believes that the systems we have developed enable us to continue to improve customer service, operational efficiency and management’s ability to monitor critical performance indicators. We continue to invest in supply chain technologies, human resources management, financial planning tools and continued improvement to the POS systems located in all stores.

Internet Operations

We operate the e-commerce site www.petco.com, which complements our retail stores, increases brand awareness of our products and provides our customers with pet-related content and community. The information contained or incorporated in our web site is not a part of this Annual Report.

Trademarks and Licenses

We have registered numerous service marks and trademarks with the United States Patent and Trademark Office. We believe the PETCO trademark has become an important component in our merchandising and marketing strategy. We believe we have all licenses necessary to conduct our business.

Employees

As of January 29, 2005, we employed approximately 16,900 associates, of whom approximately 9,000 were employed full-time. Approximately 92% of our employees were employed in stores or in direct field supervision, approximately 4% in distribution centers and approximately 4% in our national support center in San Diego. We are not party to any collective bargaining arrangements, and we believe our labor relations are generally good.

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Regulation

The transportation and sale of small animals is governed by various state and local regulations. To date, these regulations have not had a material effect on our business or operations. Prior to the opening of each store, we review the regulations of the relevant state and local governments. We then ensure ongoing compliance by keeping apprised of industry publications and maintaining contacts with our aquatics and small animal suppliers and the appropriate regulatory agency within each relevant state and local government.

Available Information

Our Internet address is www.petco.com. We make available free of charge through our Internet web site our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Certain Cautionary Statements

Market data used throughout this Annual Report, including information relating to our relative position in the pet food, supplies and services retailing industry, is based on the good faith estimates of management, which estimates are based upon their review of internal surveys, independent industry publications and other publicly available information, including Packaged Facts reports and information prepared by the American Pet Products Manufacturers Association and Business Communications Company, Inc. Although we believe that these sources are reliable, we do not guarantee the accuracy or completeness of this information, and we have not independently verified this information.

Some of the statements in this Annual Report, including, but not limited to, “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. These statements are therefore entitled to the protection of the safe harbor provisions of these laws. We generally identify forward-looking statements in this Annual Report using words like “believe,” “intend,” “target,” “expect,” “estimate,” “may,” “should,” “plan,” “project,” “contemplate,” “anticipate,” “predict” or similar expressions. You can also identify forward-looking statements by discussions of strategy, plans or intentions. These statements involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s 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. Such risks, uncertainties and other factors include, but are not limited to, the following:

If we are unable to profitably open and operate new stores, maintain the profitability of our existing stores and successfully complete our store remodel program, our business, financial condition and results of operations may be harmed.

One of our strategies is to open new stores by focusing on both existing markets and by targeting new geographic markets. We have opened between 40 and 81 stores per year (not including closures of existing stores) between fiscal 1999 and fiscal 2004. We plan to increase our aggregate store square footage by approximately 10% per year on a long-term basis, both by focusing on existing markets and by targeting one or two new geographic markets per year. Our year-over-year increase in square footage in fiscal 2004 was 12.2%, and our total store square footage at January 29, 2005 was approximately 10.1 million square feet. We plan to open approximately 90 new stores in fiscal 2005, or approximately 70 stores net of relocations and closings.

There can be no assurance that we will be able to open stores at this rate. The rate of our expansion will depend on several factors, including general economic and business conditions affecting consumer confidence

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and spending, the availability of desirable locations, the negotiation of acceptable lease terms, the availability of qualified personnel and our ability to manage the operational aspects of our growth. The rate of our expansion will also depend on the availability of adequate capital, which in turn will depend in large part on cash flow generated by our business and the availability of equity and debt capital. There can be no assurance that we will be able to obtain equity or debt capital on acceptable terms or at all. Moreover, our senior credit facility and the indenture governing our senior subordinated notes contain provisions that restrict the amount of debt we may incur in the future. If we are not successful in obtaining sufficient capital, we may be unable to open additional stores as planned, which may adversely affect our results of operations.

Our continued growth also depends, to a significant degree, on our ability to increase sales in our new and existing stores. Our comparable store net sales increased by 8.0%, 5.6% and 6.2% for fiscal 2002, 2003 and 2004, respectively. As a result of new store openings in existing markets and because mature stores will represent an increasing proportion of our store base over time, our comparable store net sales increases in future periods may be lower than historical levels or our comparable store net sales may not increase at all.

There also can be no assurance that our existing stores will maintain their current levels of sales and profitability or that new stores will generate sales levels necessary to achieve store-level profitability, much less profitability comparable to that of existing stores. New stores that we open in our existing markets may draw customers from our existing stores and may have lower sales growth relative to stores opened in new markets. New stores also may face greater competition and have lower anticipated sales volumes relative to previously opened stores during their comparable years of operations. These factors, together with increased pre-opening expenses at our new stores, may reduce our average store contribution and operating margins. In addition, we are opening new stores in, and are remodeling some of our existing stores into, our latest format, which incorporates our most recent merchandising strategies. There can be no assurance that our latest formats will be as or more profitable than our existing stores, and may be less profitable than historical levels for our other stores. If we are unable to profitably open and operate new stores and maintain the profitability of our existing stores, our business, financial condition and results of operations may be harmed.

We may be unable to successfully execute our expansion strategy or manage and sustain our growth and, as a result, our business may be harmed.

Our ability to open new stores depends on a number of factors, including:

Our senior credit facility and the indenture governing our senior subordinated notes also contain covenants that may restrict or impair our growth plans. We currently expect to finance our store expansion plans from cash flow from operations, lease financing and capacity under our senior credit facility. To the extent that we are unable to obtain adequate financing for new store growth on acceptable terms, our ability to open new stores will be negatively impacted. As a result, there can be no assurance that we will be able to achieve our current plans for the opening of new stores. In addition, our failure to expand our distribution facilities or other internal systems or procedures in accordance with our growth plans, or difficulties we may incur in operating our distribution facilities, could adversely affect our ability to deliver merchandise to our stores in a timely fashion. As a result, our ability to support our planned new store growth may be harmed.

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In addition, we routinely evaluate our strategic alternatives with respect to each of our stores and our other operating assets and investments. In connection with this evaluation, we may elect to close stores or to sell or otherwise dispose of selected assets or investments. Excluding store relocations, we closed six stores in fiscal 2002, two stores in fiscal 2003 and one store in fiscal 2004. There can be no assurance that any future sale or disposition would be achieved on terms favorable to us because we incur closing costs or may lose sales to our competitors as a result.

Our level of debt may limit the cash flow available for our operations and place us at a competitive disadvantage.

As of January 29, 2005, our debt consisted primarily of (1) $85.0 million outstanding under our senior revolving credit facility (total available revolving credit of $200.0 million (reduced by the outstanding amount of letters of credit of $24.9 million at January 29, 2005) with an option to increase the available credit by an additional $125.0 million, subject to certain conditions) and (2) $104.0 million in principal amount of our senior subordinated notes. Our level of indebtedness has important consequences. For example, our level of indebtedness may:

The agreements governing our debt impose restrictions on our business.

The agreement governing our senior credit facility and the indenture governing our senior subordinated notes contain a number of covenants imposing significant restrictions on our business. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. These covenants place restrictions on our ability to, among other things:

If compliance with our debt obligations materially hinders our ability to operate our business and adapt to changing industry conditions, we may lose market share, our revenue may decline and our operating results may suffer.

Our failure to satisfy covenants in our debt instruments would cause a default under those instruments.

In addition to imposing restrictions on our business and operations, our debt instruments include a number of covenants relating to financial ratios and tests. Our ability to comply with these covenants may be affected by

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events beyond our control, including prevailing economic, financial and industry conditions. The breach of any of these covenants would result in a default under these instruments. An event of default would permit our lenders to declare all amounts borrowed from them to be due and payable, together with accrued and unpaid interest. Moreover, the lenders under our senior credit facility would have the option to terminate any obligation to make further extensions of credit under our senior credit facility. If we are unable to repay debt to our senior lenders, these lenders could proceed directly against our assets.

The loss of any of our three key vendors, or of our exclusive distribution arrangements with our vendors, would negatively impact our business.

We purchase significant amounts of products from three key vendors: Hill’s Pet Products, Inc. (which produces Science Diet), Nutro Products, Inc. and The Iams Company. Supplies of products from these vendors accounted for approximately 8%, 8% and 7%, respectively, of our net sales in fiscal 2004 and approximately 9%, 8% and 8%, respectively, of our net sales of fiscal 2003. We do not maintain long-term supply contracts with any of our vendors. While we believe that our vendor relationships are satisfactory, any vendor could discontinue selling to us at any time. The loss of any of our three key vendors or any other significant vendors of premium pet food or pet supplies offered by us would have a negative impact on our business, financial condition and results of operations.

In addition, a change in how our key products are distributed could have a material adverse effect on our business. It could materially adversely affect our business if any premium pet food manufacturers were to make premium pet food products widely available in supermarkets or through mass merchants, or if the premium brands currently available to supermarkets and mass merchants were to increase their market share at the expense of the premium brands sold only through specialty pet food and supplies retailers.

None of the premium pet food brands that we purchase from Hill’s Pet Products, Inc. and Nutro Products, Inc. is widely available in supermarkets, warehouse clubs or mass merchants. One of our pet food vendors, The Iams Company, distributes its Iams brand of pet food to supermarkets, warehouse clubs and mass merchants across the country. The Eukanuba brand of premium pet food, which is also manufactured by The Iams Company, continues to be sold exclusively through specialty channels such as PETCO.

Our principal vendors also currently provide us with certain incentives such as volume purchasing, trade discounts, cooperative advertising and market development funds. A reduction or discontinuance of these incentives would increase our costs and could reduce our profitability.

We also 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 growth and expansion of our stores. We continually seek to expand our base of pet supply vendors and to identify new pet-related products. An inability of our existing vendors to provide products in a timely or cost-effective manner could impair our business, financial condition and results of operations.

Competition in the markets in which we operate is strong and if we are unable to compete effectively, our ability to generate sales may suffer and our operating income and net earnings would decline.

The pet food and supplies retailing industry is highly competitive. We compete with a number of specialty pet store chains and traditional pet stores. We also compete with supermarkets, warehouse clubs and mass merchants. Many of these competitors are larger and have access to greater capital and management resources than we do.

There can be no assurance that in the future we will not face greater competition from national, regional and local retailers. In particular, if any of our major competitors seeks to gain or retain market share by reducing prices or by introducing additional products, we may be required to reduce prices on our key products in order to remain competitive, which may negatively impact our profitability.

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A prolonged economic downturn could result in reduced sales and lower revenues and profitability.

Purchases of pet-related supplies may be affected by prolonged, negative trends in the general economy that adversely affect consumer spending. Any reduction in consumer confidence or disposable income in general may affect companies in pet-related and other retail industries more significantly than companies in industries that rely less on discretionary consumer spending. In addition, due to our level of debt we are more susceptible to some of these adverse economic effects than are some of our competitors that have greater financial and other resources than we do.

Our operating results could be harmed if we are unable to integrate acquired companies into our operations.

The pet food and supplies retailing industry is highly fragmented. We may pursue expansion and acquisition opportunities in the future, and we must efficiently integrate and combine operations of acquired companies to realize the anticipated benefits of acquisitions. To be successful, the integration process requires us to achieve the benefits of combining the companies, including generating operating efficiencies and synergies and eliminating or reducing redundant costs. Since we often have limited prior knowledge of acquired companies, there can be no assurance that the anticipated benefits of these acquisitions will be fully realized without incurring unanticipated costs or diverting management’s attention from our core operations. Our operating results could be harmed if we are unable to efficiently integrate newly acquired companies into our operations. Any future acquisitions also could result in potentially dilutive issuances of equity securities, or the incurrence of additional debt or the assumption of contingent liabilities.

We have made investments in the past and may make investments in the future without being able to achieve an adequate return, if any, on our investment.

In the past we have made, and in the future we may make, investments in strategic ventures or other complementary businesses in an effort to expand internationally or to otherwise grow our business. These investments typically involve many of the same risks posed by acquisitions, particularly those risks associated with the diversion of our resources, the inability of the new venture to generate sufficient revenues, the management of relationships with third parties and potential expenses. Strategic ventures have the added risk that the other strategic venture partners may have economic, business or legal interests or objectives that are inconsistent with our interests and objectives. Although we have no present plans to make any such investment, there can be no assurance that any investment we make in the future would achieve an adequate return, if any. In addition, in the past we have terminated, and in the future we may terminate, our relationship in a strategic venture after we have made substantial investments in that strategic venture.

If we are required to restructure our operations to comply with regulations governing our business, it could have a material effect on our business and operations.

The transportation and sale of small animals is governed by various state and local regulations. These laws vary from state to state and are enforced by the courts and by regulatory authorities with broad discretion. While we seek to structure our operations to comply with the laws and regulations of each state in which we operate, there can be no assurance that, given varying and uncertain interpretations of these laws, we would be found to be in compliance in all states. A determination that we are in violation of applicable laws in any state in which we operate could require us to restructure our operations to comply with the requirements of that state, which could have a material adverse effect on our business and operations.

Negative publicity arising from claims that we do not properly care for animals we sell could adversely affect how we are perceived by the public and reduce our revenues and profitability.

From time to time, we are subject to claims or complaints that we do not care properly for some of the animals we sell. For example, allegations were made in a complaint filed in June 2002 in the San Francisco

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Superior Court by the San Francisco City Attorney’s office to the effect that certain associates did not properly care for companion animals for sale in our two San Francisco stores. The complaint, which was subsequently transferred to the Santa Clara Superior Court, sought damages, penalties and an injunction against the sale of companion animals in our San Francisco stores. The complaint and related news reports caused negative publicity. We take seriously any allegations regarding the proper care of companion animals and have taken steps to reiterate to all our associates the importance of proper care for all companion animals in all our stores. Without admitting any of the allegations of the City of San Francisco’s complaint, we reached a settlement of the matter in May 2004, pursuant to which the City of San Francisco agreed to drop its claims in consideration of a $50,000 payment and our agreement to conduct or continue certain training and animal care practices currently implemented in our San Francisco stores. We recorded accruals for estimated losses related to this matter at January 31, 2004 and May 1, 2004, which were paid during fiscal 2004 and which did not have a material impact on our results of operations or financial condition. However, any similar allegations or actions which could be filed in the future could cause negative publicity which could have a material adverse effect on our results of operations.

We depend on key personnel, and if we lose the services of any of our principal executive officers, including Mr. Devine, our Chairman, Mr. Myers, our Chief Executive Officer, and Mr. Hall, our President and Chief Operating Officer, we may not be able to run our business effectively.

We are dependent upon the efforts of our principal executive officers. In particular, we are dependent upon the management and leadership of Brian K. Devine, our Chairman, James M. Myers, our Chief Executive Officer, and Bruce C. Hall, our President and Chief Operating Officer. The loss of Mr. Devine, Mr. Myers, Mr. Hall or certain of our other principal executive officers could affect our ability to run our business effectively.

Our success will depend on our ability to retain our current management and to attract and retain qualified personnel in the future. Competition for senior management personnel is intense and there can be no assurance that we can retain our personnel. The loss of a member of senior management requires the remaining executive officers to divert immediate and substantial attention to seeking a replacement. The inability to fill vacancies in our senior executive positions on a timely basis could adversely affect our ability to implement our business strategy, which would negatively impact our results of operations.

Our management has determined that there was a material weakness in our system of internal control over financial reporting and as a result concluded that our internal control over financial reporting was not effective as of January 29, 2005. If we are unable to correct the deficiency that resulted in this material weakness, we may not be able to accurately report our future financial results, which could cause investors to lose confidence in our reported financial information and result in a decline in the market price of our common stock.

Our management assessed the effectiveness of our internal control over financial reporting as of January 29, 2005, and this assessment identified a material weakness in our internal control over financial reporting. As a result our management concluded that our internal control over financial reporting was not effective as of January 29, 2005. For a discussion of this material weakness and our responsive measures, please see “Item 9A. Controls and Procedures” of this report. Although we have taken steps to correct the internal control deficiency that resulted in this material weakness, the efficacy of the steps we have taken are subject to continuing management review supported by confirmation and testing. We cannot be certain that these measures will ensure that we will be able to implement and maintain adequate internal control over our financial reporting processes in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could prevent us from accurately reporting our financial results or cause us to fail to meet our reporting obligations in the future. Also, internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. As a result, insufficient internal control over financial reporting could cause investors to lose confidence in our reported financial information, which could result in a decline in the market price of our common stock.

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We have been named as a party to several class action and derivative action lawsuits, and we may be named in additional litigation, all of which could require time and attention from certain members of management and result in significant legal expenses. An unfavorable outcome in one or more of these lawsuits could have a material adverse effect on our business, financial condition, results of operations and cash flows.

After we announced on April 15, 2005 that we discovered instances of errors within our Distribution Operation in which certain expenses were under-accrued, several separate complaints purporting to be securities class actions or shareholder derivative actions were filed in federal and state court, respectively, alleging that we and some of our officers and directors violated provisions of the Securities Exchange Act of 1934 and California law. While we have tendered these matters to our insurance carriers, the expense of defending such litigation may be costly and divert attention by certain members of management from the day-to-day operations of our business, which could adversely affect our business, results of operations and cash flows, resulting in a decline in the market price of our common stock. In addition, though we believe that any damages, if any, would be covered by our insurance, there can be no assurance that an unfavorable outcome in such litigation would not have a material adverse effect on our business, results of operations and cash flows, resulting in a decline in the market price of our common stock.

Terrorism and the uncertainty of war may have a material adverse effect on our operating results.

Terrorist attacks, such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, and other acts of violence or war may affect the operations of the United States securities markets, the markets in which we operate and our operations and profitability. Further terrorist attacks against the United States or U.S. businesses may occur. The potential near-term and long-term effect these attacks may have for our customers, the markets for our services and the U.S. economy are uncertain. The consequences of any terrorist attacks, or any armed conflicts which may result, are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business.

Future sales of shares of our common stock in the public market may depress our stock price.

If our existing stockholders sell substantial amounts of our common stock in the public market or if there is a perception that these sales may occur, the market price of our common stock could decline. As of May 31, 2005, we had 57,765,653 shares of common stock outstanding. Substantially all of these shares are freely tradable in the public market without restriction or further registration under the Securities Act, unless the shares are held by “affiliates” of ours as such term is defined in Rule 144 of the Securities Act.

We also have 5,054,519 shares of common stock reserved for issuance under our stock option and incentive plans, of which 4,119,400 shares were subject to outstanding options as of May 31, 2005. In March 2002, we filed a registration statement on Form S-8 to register all of the shares of common stock which could be purchased upon the exercise of stock options outstanding on that date and all other shares of common stock reserved for future issuance under our stock option and incentive plans. Accordingly, shares issued upon exercise of such options are freely tradable by holders who are not our affiliates and, subject to the volume and other limitations of Rule 144, by holders who are affiliates.

The price of our common stock may be volatile.

Since our initial public offering in February 2002, the price at which our common stock has traded has been subject to significant fluctuation. The market price for our common stock in the future may continue to be volatile. In addition, the stock market periodically experiences significant price and volume fluctuations that in many instances have been unrelated or disproportionate to the operating performance of specific companies. In the past, following periods of volatility in the market price of a particular company’s securities, securities class-action litigation has often been brought against that company. If similar litigation were instituted against us, it could result in substantial costs and divert management’s attention and resources from our core business.

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Our stock price may be adversely affected because our results of operations may fluctuate from quarter to quarter.

The timing of new store openings, related pre-opening expenses and the amount of revenue contributed by new and existing stores may cause our quarterly results of operations to fluctuate. Our business is also subject to seasonal fluctuation. Historically, we have realized a higher portion of our net sales during the month of December than during the other months of the year. If our quarterly revenue and operating results fall below the expectations of securities analysts and investors, the market price of our common stock could fall substantially.

Operating results also may vary depending on a number of factors, many of which are outside our control, including:

Takeover defense provisions may adversely affect the market price of our common stock.

Various provisions of the Delaware general corporation law, or the DGCL, and of our corporate governance documents may inhibit changes in control not approved by our board of directors and may have the effect of depriving our stockholders of an opportunity to receive a premium over the prevailing market price of our common stock in the event of an attempted hostile takeover. In addition, the existence of these provisions may adversely affect the market price of our common stock. These provisions include:

You are cautioned not to place undue reliance on forward-looking statements, which reflect management’s view only as of the date of this Annual Report. Except as required by applicable law, including the securities laws of the United States, and the rules and regulations of the Securities and Exchange Commission, we do not plan to publicly update or revise any forward-looking statements after the date of this Annual Report, whether as a result of any new information, future events or otherwise.

ITEM 2. PROPERTIES

We lease all of our store and distribution center locations. The original lease terms for our stores generally range from ten to fifteen years, with many of these leases containing renewal options. Leases on 161 stores expire within the next three years. Of these leases, 125 contain renewal options.

Our headquarters, located in San Diego, California, consists of three owned facilities comprising a total of 156,000 square feet. One of the San Diego facilities is financed under an obligation that expires in February 2006. We also lease three central and five regional distribution centers. Our three central distribution centers

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collectively occupy approximately 950,000 square feet of space in Monroe, New Jersey; Joliet, Illinois; and Mira Loma, California under leases that expire in May 2018, March 2010 and September 2005, respectively. Our five regional distribution centers collectively occupy approximately 240,000 square feet of space in Stockton, California; Portland, Oregon; New Hope, Minnesota; Mansfield, Massachusetts; and Garland, Texas under leases that expire in April 2009, February 2007, September 2007, December 2008 and October 2009, respectively. Except with respect to the leases for our Monroe, New Jersey; Stockton, California; Portland, Oregon; and Mansfield, Massachusetts facilities, all of our distribution center leases contain a renewal option.

Below is a table listing, for our 716 stores at January 29, 2005, the number of stores by state:

Number of PETCO Stores

as of January 29, 2005