Operator: Good afternoon, ladies and gentlemen and welcome to PetSmart's Fourth Quarter and Fiscal Year 2012 Analyst Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will be given at that time. As a reminder, this conference call is being recorded.
I would now like to introduce your host for today's conference Ms. April Lenhard, Director of Investor Relations.
April Lenhard - IR: Good afternoon and welcome to PetSmart's conference call to announce our results for the fourth quarter and for all of fiscal 2012. With me on the call today are Chairman and Chief Executive Officer, Bob Moran; President and Chief Operating Officer, David Lenhardt; as well as Chip Molloy, Executive Vice President and Chief Financial Officer.
Bob will kick off the call with an overview of our results and then Chip will take you through the financial review, as well as our earnings guidance. David will review the operations of the business and provide insights into our upcoming year and finally, we'll take your questions.
Please keep in mind, everything we cover during today's call, including the question-and-answer session, is subject to the Safe Harbor statement for forward-looking information you'll find in today's news release.
Thanks and I'll now turn the call over to Bob.
Robert F. Moran - Chairman and CEO: Thanks, April, and good afternoon, everyone. We're pleased to report another quarter of solid earnings growth. As a reminder, fiscal year 2012 was a 53-week year. The fourth quarter and the year included an extra week. For the fourth quarter, earnings per share were $1.24, up 36% when compared to $0.91 for the fourth quarter last year. Comparable store sales or sales in stores open at least a year, grew 4.6% and comp transactions, which we use as a proxy for traffic, were up 1.2%.
Our performance in the fourth quarter was solid across all three merchandising categories; consumables, hardgoods and live goods, as well as across services. As the industry leader, we continue to evolve the customer experience for our pet parents by providing highly differentiated services including professional grooming, training, boarding and day camp and full-service veterinary care all under one roof, as well as a full assortment of solutions for the lifetime needs of pets.
We are privileged to have the most passionate associates in the industry who engage with our pet parent customers to offer solutions throughout all the pet's life stages, empowering them to help their pets live long, healthy and happy lives. Our unique portfolio of solutions centered around her merchandising and service offerings is further strengthened by our culture of innovation and differentiation and truly sets us apart from the competition.
Through our partnership with PetSmart Charities, the largest funder of animal welfare efforts in all of North America, we are proud that nearly 1,100 homeless pets are saved each day in our stores, and thanks to the strong vendor support from partners like Nestle Pro Plan, with the national adoption event weekends, like the one held last month, where the lives of nearly 18,000 pets were saved, we can continue to make a real impact, because when you adopt, you not only save a pets life, you enrich your own.
And this year, we extended our exclusive Luv-A-Pet product line, including plush dog and cat toys with heart designs and apparel beyond the holiday season and into the month of March. We are proud to be able to donate 10% of the sales price from this exclusive line to PetSmart Charities.
As a side note, last week I became Chairman of the Board of PetSmart Charities. I look forward to the continued partnership between these two companies that has made a real difference in the lives of millions of pets and their pet parent families. PetSmart brand is strong and it resonates with our customers. The strength of our results is really a testament to the strength of our management team.
Our seasoned management team is strategically aligned across the Company, and I am confident in their abilities to execute on our strategic priorities. We recently announced some plan management succession that will be effective June 14, 2013, following the Annual Meeting of stockholders.
David Lenhardt, our President and Chief Operating Officer will be assuming the role of Chief Executive Officer and will be appointed to the Board of Directors, at which time, I will be appointed Executive Chairman. David has made so many contributions to PetSmart since joining the Company 12 years ago. Under David's leadership, our services business, one of our key differentiators has grown from annual sales of $90 million to more than $740 million today. From a store operations perspective, we've developed scalable and effective processes and disciplines to drive results and we've evolved our customer experience dramatically increasing overall customer satisfaction scores.
And throughout the last year David has expanded his focus on the entire enterprise leading us and strengthening the integration across our functions, enhancing our culture and helping ensure we continue on our path to become a best-in-class retailer. David has a deep understanding of our business as well as our culture, and I'm proud that he will be taking the helm of this great Company.
Joe O’Leary, Executive Vice President of Merchandising, Marketing, Supply Chain and Strategic Planning will be named President and Chief Operating Officer in June. Joe has made many significant contributions since joining PetSmart six years ago, helping to develop and deliver many strategies that have been a cornerstone to our recent success, including the development of exclusive brands like Martha Stewart, GNC and Bret Michaels, the growth of our proprietary brands, the introduction of flea and tick products and the formation and development of our new strategic planning function to position us for future success.
Joe has proven to be a strategic leader with the right balance of creativity and foresight to help us maintain our momentum I'm excited about the future of PetSmart under the leadership of our incredibly experienced motivated and talented team. As we look ahead to 2013, this plan management succession will allow us to remain focused on executing the strategies that have been a key to our success over the past several years and continuing to drive top quartile shareholder return.
And with that, I will now turn the call over the Chip.
Chip Molloy - EVP and CFO: Thanks Bob, and good afternoon everyone. Today I will be reviewing our fourth quarter and full-year results for fiscal year 2012 and providing 2013 guidance for both the full year and first quarter. As Bob mentioned, fiscal 2012 consisted of 53-weeks, resulting in a 14-week fourth quarter that ended on February 3, 2013. Comparable store sales and comp transactions are calculated on an equivalent basis and are versus the 14 and 53-weeks ended February 5, 2012. I will initially provide results on a GAAP basis for both the quarter and the year and then provide details relating to the extra week.
Earnings for the quarter were $1.24 per share. Comparable store sales growth was 4.6%, and comp transactions were positive for the 11th consecutive quarter at 1.2%. Total sales for the quarter were $1.9 billion, up 15%. The increase in total sales included a favorable impact from foregin currency fluctuations of $3 million. Services sales which are included in total sales increased 15% to $194 million. Other revenue which is also included in total sales was $10 million, representing reimbursements from Banfield for the space they utilize in our stores.
The sales mix for the quarter included consumables at 53.5%, hardgoods at 34.2%, services at 10.3%, live pets at 1.5%, and other revenue at 0.5%. Gross margins for the fourth quarter were up 120 basis points to 31.6%. Within the gross margin line, merchandise margins were 40.3% of total sales, while services were 2.8%. Store occupancy and warehouse and distribution costs were 7.8% and 3.7% of total sales, respectively.
Operating general and administrative expenses were 19.8%. Net interest expense for the quarter totaled $13.3 million and our overall earning before tax increased to $208 million or 11.1% of sales. The tax rate for the quarter was 37.7%.
Now, for the full year 53-week results; earnings per share were $3.55, up 39% compared to $2.55 last year. Comparable store sales growth was 6.3% and comp transactions were up 2.4%. Total sales were $6.8 billion up 11%. The increase in total sales included in unfavorable impact from foreign currency fluctuations of $2 million. Services sales which are included in total sales increased 10% to $740 million.
Gross margins for the year improved to 100 basis points to 30.5%. Within the gross margin line merchandise margins were 39.9% of total sales; services margins were 3.1% of total sales; rent and occupancy costs totaled 8.6%; and our warehouse and distribution cost were 3.8% of sales. OG&A expense for the full year was 20.9%. For the year, earnings before tax increased to $597 million or 8.8% of sales and the tax rate was 37.4%.
Now, I'd like to outline the impact of the extra week, bear in mind the extra week includes sales, margin dollars and variable costs associated with those sales. It does not include any fixed costs. Total sales for the extra week were $126 million. The total sales included $130 million in merchandise sales, and $13 million in services sales. Within the gross margin line, the week added $50 million in merch margin dollars, $3.5 million in services margin dollars, $1.5 million in rent and occupancy costs and $5 million in warehouse and distribution cost. The OG&A cost for the week totaled $18 million, while interest expense was zero. The combination of margin and cost produced an extra $30 million of earnings before tax and $0.17 of EPS.
Excluding all the impact of the extra week, the Company still produced rate improvements in all four buckets of gross margin during the quarter, resulting in continued EBITDA expansion. During the year, we opened 60 new stores and closed 14, which included 11 new store openings and two closings during the fourth quarter. We also opened five pets hotels and closed one, including one opening in the fourth quarter, bringing our year-end totals to 1,278 and 196 hotels.
We ended the quarter with average inventory per store of $531,000 up 1.5% compared to the end of last year. During the year, we generated $696 million in operating cash flow and spent $138 million on capital expenditures. In addition, we distributed $84 million in dividends with $35 million being paid in the fourth quarter. We repurchased $457 million of PetSmart stock during the year, with $175 million repurchased during the fourth quarter.
Our weighted average share count for the full year was 110 million shares, and for the fourth quarter it was 108 million. Depreciation and amortization expense was $238 million for the full year. We ended the year with $407 million in cash, cash equivalents and restricted cash and zero borrowings on our credit facility.
Although the macroeconomic environment remains challenging, we are confident in our ability to influence those things within our control, to continue to deliver on our commitment of driving strong operating results, while maintaining healthy balance sheet.
Guidance for 2013 will also be on a GAAP basis. Therefore, all comparisons will be 52 weeks for 2013 versus 53 weeks for 2012. For 2013, we anticipate comp store sales growth of 2% to 4%, total sales growth of 2% to 4%, and earnings per share from $3.76 to $3.92. We expect gross margins to be flat to slightly up, OG&A to grow in dollars approximately 3%, interest expense to be down a bit from a dollar perspective, and EBT margin to expand slightly. We anticipate the tax rate to be around 38% and expect the equity income from our Banfield investment to grow approximately 10%.
The guidance also assumes that we utilize the $347 million remaining on our current share repurchase authorization, which should reduce our weighted average share count to approximately 105 million shares for the year.
Our 2013 capital expenditures are expected to be between $140 million and $150 million. We plan to use approximately 25% of that CapEx to open 45 to 50 net new stores over 12,000 and 18,000 prototypes. We will also be testing 12 micro stores this year, ranging from 6,000 to 7,500 square feet which David will speak to a bit later. We also expect to open three new PetsHotels.
The remaining 75% of our CapEx will be spent on store remodel type projects, supply chain, IT, maintenance and other infrastructure improvements. We continue to fund our needs with our cash flows from operations and currently have no plans to borrow against our revolving credit facility.
Our free cash flow defined as our operating cash flow less our capital lease obligations and capital expenditures is expected to be between $430 million and $450 million for 2013. Operating cash flow is expected to be between $640 million and $660 million and capital lease obligations are expected to be approximately $70 million.
For the first quarter of 2013, we are expecting comparable store sales growth of 2% to 4% and earnings per share of $0.92 to $0.98. EBT margin is expected to improve 25 to 35 basis points when compared to the first quarter of last year.
The improvement should come from gross margin expansion, while OG&A cost grow 5% to 6% when compared to the first quarter of last year. The tax rate is expected to be approximately 36%. We remain committed to our long-term guidance of delivering 11% to 17% EPS growth and believe we have a 2013 operating plan that can deliver on those goals.
With that, I would like to turn it over to David Lenhardt, who will highlight our 2012 operational activities and provide insights into our 2013 priorities.
David K. Lenhardt - President and COO: Thanks, Chip, and good afternoon, everyone. As Bob mentioned, our fourth quarter performance was solid across all of our merchandising categories, consumables hardgoods, and live goods, as well as services. 2012 was another year of innovation and differentiation as we continue to make strides on our journey to becoming a best-in-class retailer.
Within consumables, we continue to see strength in the super premium natural category, following our consumables reset in the first quarter, our penetration of channel exclusive foods sold only in pets specialty stores or through vets is now more than 75% of our food sales. In hardgoods and specialty, we've added a lot of innovation through resets most recently with the Toy Chest reset in the dog toy aisle and the aquatics and small animal resets this year. We've also expanded our offerings of exclusive and proprietary brands and increased our penetration to 24% including Martha Stewart Pets, KONG, GNC Pets, Toys R Us Pets and the Bret Michaels Pets Rock collection as well as our own proprietary brands including Top Paw, Grreat Choice, Top Fin, Authority and Simply Nourish. These highly differentiated brands represent innovation, quality and value and really resonate with our pet parents.
The key customer insights and strong vendor partnerships that we've developed allow us to maximize the potential of our key brands which we showcased through our fully integrated and compelling marketing campaigns. In services, our quality of care and grooming continues to drive sales with the grooming Look Great Guarantee and we continue to strength in PetsHotel.
This year we rolled out our PetsHotel call center to all of our hotels just in time for our peak holiday season. And I'm pleased to report that we achieved a milestone this year of overall profitability in our PetsHotel business. We've shown our customers how we are different from the competition and how we offer the best choice, but we are not done.
Looking ahead to 2013, we are very excited about our robust pipeline of innovation to drive even further differentiation. In the first quarter, we will continue to support the growth in the super premium natural aisle by optimizing assortment within categories and brands. We will be expanding the space dedicated to Blue Buffalo as well as to own proprietary super premium brand Simply Nourish and will be introducing new formulations in both dog and cat across top channel exclusive brands.
As the humanization of pet trends continues, novel new proteins like bison and venison and new meatloaf and casserole inspired wet formulas are further expanding the grain-free and high-protein offerings in both wet and dry food across breeds and life stages. We will also see some relaunches during the first quarter from top channel exclusive brands like Hills, Purina and Nutro with updated formulations and packaging. By expanding our grain-free limited ingredient in high-protein options for our pet parents we continue to strengthen our position as a leading provider for the pro-active care of well pets, by providing the right breadth and depth of solutions for all of the pets' health and nutritional needs.
In hardgoods, we continue to innovate and differentiate our assortment and we just announced the newest addition to our portfolio or exclusive brands with an exclusive partnership with Disney to introduce a new line of pet apparel and toys, including well-known characters like Donald Duck, Tinker Bell, Kermit the Frog, Tigger and Mickey Mouse. These Disney characters have a special place in many pet parents' hearts and we're proud to be able to partner with Disney to create this exclusive collection which allows our pet parents the ability to share the magic of Disney with their pets in a fun and fashionable way.
Further innovation in this category will continue this year within our existing brands as well, including the ongoing fresh, new assortment in the Martha Stewart pets collection and newness in the Bret Michaels Pets Rock collection. In the second quarter of this year we will reset Reptile, the fastest-growing species in the specialty category, with improved adjacencies and layout, brand launches and improved educational signage with clear, good, better, best brand positioning. We will continue to differentiate with an innovative assortment and our focus on solutions driven by our extensive customer research to drive an easier customer shopping experience.
In services this year, we have new initiatives to drop improved productivity, efficiency and new offerings, including better integration with the core store and fully leveraging synergies between grooming, training and PetsHotel. In grooming, we'll continue to brand exclusive products and services in our salon that have strong customer connections in our core business, like our Bret Michaels Top Dog Grooming Package that includes a Bret Michaels bandanna and cologne and our Top Dog Spa package that includes (G&C par) cream and Very Berry facial wash. And our newest offering K9 Advantix II flea and tick services allows pet parents to purchase the product in our stores with the added convenience of having the product applied right there in the salon.
In PetsHotel's we will continue to leverage our PetsHotel call center to drive efficiency and increase hotel sales and add-ons. Delivering authentic customer connections is that the core of our customer experience. We will continue to evolve this experience in our stores through investments in our associates with training and development so that they can continue to engage with our pet parents in an authentic and genuine way.
Our customer-centric focus is also the foundation of our three-pillar omnichannel strategy, which includes e-commerce, e-influence and building new capabilities. PetSmart.com has been and continues to be the number one most traffic website in the pet supplies category. In 2012, we outperformed the industry in sales growth and grew our dotcom customer base, including strong growth in channel exclusive foods.
We added over 7,000 extended aisle SKUs, grew our e-influence sales and launched 21 site and mobile enhancements to improve the overall user site experience. We continue to remain focused on this important area of our business in 2013, with a number of initiatives that are grounded in the three pillars of our strategy around e-commerce, e-influence and building new capabilities.
The customer benefits of these initiatives will include a better web experience with simplified navigation, enhanced search optimization, product comparison, products, watches and zoom images, as well as proactive product recommendations. We will also be laying the foundation this year for building even more omnichannel capabilities centered around the core goal of simplifying the shopping experience for our customers, whenever and wherever they choose to engage with us. The last area that I want to talk to you about, as Chip mentioned, is our store prototype. We continue to innovate around the size of our prototype store, while still retaining the essence of our brand. This year, we're going to be testing 12, 6,000 to 7,500 square foot micro stores which are scheduled to open in the first half of the year. all of the initiatives that we have planned for 2013 will not be possible without the integration and alignment across merchandising, marketing, supply chain and store operations. It is the strength of this alignment that will allow us to continue to navigate our way on our journey to becoming a best in class retailer. With a culture of innovation and differentiation across the Company, strong vendor partnerships and support from integrated marketing campaigns that highlight our exclusive and innovative assortments.
We will continue to challenge ourselves to improve on the key strategies that define our brand. While we expect a macro economy will continue to hold continue to hold challenges in 2013. We believe that the strength of our seasoned management team, coupled with our focus on the strategic and operational priorities will allow us to continue to navigate through these uncertain economic times.
Looking forward, we will continue to build on the solid performance of 2012, with an unwavering focus on our strategic priorities and we're intent on executing them at every level of the business to deliver top quartile shareholder returns in 2013 and beyond.
With that, we would like to take your questions.
Operator: Gary Balter, Credit Suisse.
Gary Balter - Credit Suisse: I am sorry. I was muted. First of all, Bob, congratulations. I'm probably speaking to you before you leave. Congratulations on everything you've done for this Company.
Robert F. Moran - Chairman and CEO: Thank you and I won't be leaving for a while. So, I just want to make sure that's clear.
Gary Balter - Credit Suisse: Can we talk – two questions and they are both related to numbers. One is, (backlog) kind of the comps in this quarter, it's not a terrible number by any means at 4.6%, but I think it was a little below than some (indiscernible) looking for. Then the second question is, you guided to the foreign, you guided essentially where it works out to be about 13.6 average increase of this year which is right in your waterfall and was there something in that 2% to 4%? Is that just following kind of your slide or is there something that says, hey, things are going to be a little bit a slower that we're going to be more conservative in 2013.
Chip Molloy - EVP and CFO: Gary, it's Chip. If you think about at the beginning of the quarter we said we were going to have a mid-single-digit, so came out at 4.6%. One could argue we were off a little bit, 40 bps, but pretty much in line with what we thought. I think for the quarter, we were just a hair lighter on sales, little bit better on – right in line with the gross margin, a little bit better on the cost side, a little bit better on tax and had a slightly better quarter, (saw it) on the earnings side. As it relates to the comp guidance, it's not just following the Fishbone. It is – we're now coming up on our third year. It's (indiscernible) type of comp and as we go into the year, we feel comfortable in that range for now and we'll see how the year plays out.
Gary Balter - Credit Suisse: When you think about inflation, because that helped a little bit in past years and what are your thoughts on – what the inflation impact is going to be?
Chip Molloy - EVP and CFO: Yeah. This year, it was almost 200 basis points this year. It will be slight – as we see the world today, it will be slightly less than that for the upcoming year, not dramatic, but slightly less.
Gary Balter - Credit Suisse: So, then if you got let's say 1 point and 1.5 point and you talked about in some on these – that sounds like pretty exciting products, introductions in some of the resets (indiscernible) has been a little bit on the conservative side?
Chip Molloy - EVP and CFO: Well, we are comfortable with it for now Gary. We'll see how the year plays out.
Operator: Peter Benedict, Robert W. Baird.
Peter Benedict - Robert W. Baird: Hey guys a couple of questions. First just when you think back to the fourth quarter, was there any measurable impact from Sandy in that 4.6% comp and then as you think about how this year has started off, I know you had the spring break early last year that helped flee and tick sales. Just talk to us about maybe what's going on so for here in the first quarter?
Chip Molloy - EVP and CFO: Yeah. Peter, its Chip. So, we don't typically talk about the inter-quarter, but I think it was a little volatile over the quarter. So, it's worth speaking to for now. The quarter started off slow primarily because of Sandy. We spoke to you guys on the call. We were at a point where we can talk about that and started out slow. It came back as expected, really comfortable through most of the quarter and then right towards the end of the quarter, it sort of wind up a little bit and that float into the beginning of this quarter, so traffic is not as strong as it was. However, we are encouraged. Just of recent, sequentially this quarter has gotten better each week and we're encouraged just the recent performance has improved.
Peter Benedict - Robert W. Baird: That sounds very familiar to actually a number of retailers. So, thanks for that color. I guess turning to the micro stores, can you may be help us understand how the offering is going to added in those versus the core box with house services etcetera?
David K. Lenhardt - President and COO: Peter its David. As we talked about – our intent here is we continue to innovate around our store prototype, one of the things we're going to be testing this year is 12 stores. We're going to open them all in Q1 and Q2. There are going to be 6,000 to 7,500 square feet and the intent here is to keep our brand essence with a broad assortment in services and to reach new pet parents. Now, having said that, it is 6,000 to 7,500 square foot, what you will see less SKUs in certain areas, but again the intent is broad assortment and retain our services in terms of grooming, pet training, having adoptions.
Operator: Christopher Horvers, JPMorgan.
Christopher Horvers - JPMorgan: Can you talk about and Chip you quoted the merchandise margin components as a percentage of sales this year, can you restate those and talk about what the change was versus last year in the fourth quarter?
Chip Molloy - EVP and CFO: Yeah, I would do that on a 53-week basis. So, I'll do that for now and then you will just have to back into it. I was trying to give the dollar, so you guys can get there and be very specific, so hold on just a second. So, on a 53 versus – or a 14 versus a 13, year-over-year we're looking for Q4 on the margin side, you're down – the gross margin is down about 30 bps, you're looking at merch margin essentially flat, you're looking at DC or warehouse and distribution flat – I'm sorry take that totally away – never mind. But did it make any sense, did it?
Christopher Horvers - JPMorgan: No. Sorry about that.
David K. Lenhardt - President and COO: It's started to hunt with me. So, on the gross side, we're up almost 120 basis points, merch margin was up call it 15, services margin was up call it 5, store occupancy was up call it 90, and DC was up about 10 and that's 53 versus 52.
Christopher Horvers - JPMorgan: So, as we think about the year ahead and how you're contemplating gross margin, do you expect growth rate in the dollars in something like occupancy and DC, do you think that occupancy grows in line with footage or does this smaller store base and smaller store sizes that you're opening have a mitigating factor one way or the other?
David K. Lenhardt - President and COO: I'm looking at if you assume the midpoint of our guidance on topline I think that you're going to be looking at a little bit of leverage on a 52 to 52, you're going to be looking at a teeny bit of leverage on the store occupancy side and I'd call it a push on the warehouse and distribution side, and you're going to get some improvement – slight improvements on the merch margin side and call it a push on services.
Christopher Horvers - JPMorgan: Then in terms of the category performance, can you talk about how the different components of the food category performed between the super-premium and bridge and premium in grocery?
Robert F. Moran - Chairman and CEO: It's a continuation of the same, our super premium and especially our super premium or what we call natural now in the house is continuing to be really strong, very strong double-digit comps in those spaces. The premium miles is, okay, and then on the lower-end foods, not so good, and that's been I guess that's been hey, going on now for a significant amount of time and that's both in dog and cat.
Christopher Horvers - JPMorgan: Then one final one. Can you talk about the average unit retail growth store in the quarter what drove that and how you think about that in 2013?
Robert F. Moran - Chairman and CEO: So on average, if you take the components, we have traffic of 1.2, so call it traffic was up slightly. Units in the basket was essentially flat, was just a hair down. Overall units were up a bit and then AUR was pretty decent. I won't give it specifically, but about a third of the AUR increase was driven by inflation and the other two thirds is really mix and it's all the higher-end things that we talked about.
Operator: Matt Fassler, Goldman Sachs.
Matthew Fassler - Goldman Sachs & Co.: I want to talk about your decision to re-up with GSI for an Internet business. I guess when you initially signed your deal with them, I'm not sure when it started, the online business was extremely small and I know it's still a small business for you today. Clearly the focus on this business both by you and by your competition has increased to some degree. There are some retailers that view our control over distribution and other facets of online is very critical although GSI obviously has other customers. So, how did you make this decision to your – around the choices here?
David K. Lenhardt - President and COO: We've been really focusing more on the omnichannel over the past year and really focusing on those three pillars of e-Commerce. Influence the idea of drive traffic into our stores and then building omnichannel capabilities, and as we look at our website as the key foundation for that, and as you said, we've been working with GSI for a period of time. I would say that one of the things we're very excited about in working with GSI, that is different from when we first started working with them, is the fact that they were acquired by eBay, and as we have continued to partner with GSI, but also with eBay. We've been very impressed with the capabilities that eBay can bring to bear in addition to GSI, again, against all three of those, both the e-commerce side and the distribution side, but also from a website perspective and again building omnichannel capabilities for the future. So all of that let us to the decision to continue to work with GSI.
Matthew Fassler - Goldman Sachs & Co.: Then, second question if I could, David, you're set to take over as CEO, imminently if you could talk perhaps about some of the vision that might be different from Bob. Obviously you've worked together for a long time, but what changes might we expect as a result of this transition?
David K. Lenhardt - President and COO: I would start by saying I would characterize if probably as an evolution. I think as a Company we've been very focused and I think very appropriately so on innovation differentiation coupled with very strong financial disciplines and I would expect that we will continue on that focus and I would anticipate probably sometime post June, I'll elaborate a little more on how I think about that evolution, but I would highlight that evolution would be the key word, because I think we've got a strategy that works and I think we are having success in the marketplace and we plan on continuing to grow and build upon that strategy.
Operator: Michael Baker, Deutsche Bank.
Michael Baker - Deutsche Bank: So, a couple of follow-ups from some topics that have already come up. (Somewhat this channel) exclusive if I could. So, I think you said, it's 75% of the food now. Can you compare that to where it might have been last year or a couple of years ago and more importantly, I guess, what's in that ultimately get to. In some point I assume you're not going to be a 10% channel exclusive but where do you think it pops out.
David K. Lenhardt - President and COO: Mike, it's David. Of the top of my head I don't know what it was a couple years ago, I would tell you, it was less. I think in terms of the question of where can it go. Hard to put a number on that, but I think that, as Chip said, we're continuing to see very attractive growth in that space and I think as we've talked about before, the ongoing trend of humanization of pets is really continuing to drive this business and you're seeing that play out from a consumer perspective. And so, as we think about 2013 as an example, some of the things that I think give us confidence that that's going to continue to grow is we are going to be expanding the space. You'll see us expand space for Blue Buffalo and like you are going to see us introduce around Blue Buffalo are new proteins like bison and venison. You are going to see us expand Simply Nourish with new grain free new high protein. On the cat side, you will see us expand our Simply Nourish cat and cat treats and you are going to see us introduce new meatloaf and casserole inspired wet formulas. When you think about some of the descriptions I just gave you, these are some human trends you're seeing us continue to be able to bring into the pet marketplace and I think that that trend continues and I think we continue our merchant team to innovate both with our proprietary brands, but also the partner with our consumable vendors and that pipeline looks very strong to us going forward.
Michael Baker - Deutsche Bank: So, in terms of square footage for the food aisles, is it – I assume it's a smaller percent (on the net 75%) I imagine it was higher ticket and higher turnover, is that right and so what percent of the food aisles is it now and what kind of goes through just in terms of the square footage?
Chip Molloy - EVP and CFO: Michael, it's Chip. I would say, I don't know where it was, don't even actually know where it is without going digging – someone has it in the building. That being said, if you go in the historic and walk the aisles and get a really good estimate of how much square footage is dedicated to the different aisles. It has moved in our two big food resets that we've done over the last three years. The whole intention of those resets, the primary intention really was to give more space to the higher velocity, growing businesses such as the super-premium natural aisles, while taking away from those businesses that were actually declining like grocery. So, the space has been re-shifted twice and we'll probably be looking at another food reset at the beginning of 2014 if we continue the cadence of every two years. And I think based on velocities today and based on all the introductions that David just spoke to, you are going to continue to see more space dedicated to that. What we haven't done is expanding consumable space in the box that is something that we will probably have to think about before our next consumables reset next year, but that's to be determined.
Michael Baker - Deutsche Bank: One more if I could, on a different subject (just aside), is the online business and you said it's growing. You describe what the margins look like on the online business and what you are doing about shipping. I know you've had some free shipping offers, but generally not free shipping, what's the response rate for free shipping offers and how would that impact the margins?
Chip Molloy - EVP and CFO: So we have a policy that as it relates to pricing that we are utilizing the same pricing online as we are in the stores. So therefore at the gross line, you are going to get very similar – almost exact margins both online and in the store. Where you are going to get actual net profit is really comes down to the big drivers going to be free shipping or not, and so we play in the free shipping game, we're not free shipping all the time, we play with the price points, we move that around to see how it works and how it drives velocity, but at the end of the day when you're given free shipping and you're at the same price points, you are in the store, obviously it's going to be less profitable.
Operator: Michael Lasser, UBS.
Michael Lasser - UBS: Chip, would you mind expanding on the puts and take within the merch margins for the quarter. The comparison was easier for the period and it was only up 15 basis points?
Chip Molloy - EVP and CFO: You are taking on the merch side?
Michael Lasser - UBS: Yeah.
Chip Molloy - EVP and CFO: I mean on the merch side hold on just a second. So, you know we had merch – give me just a second ago. I want to make sure I'm talking to the right place like I was before. On the merch side, yeah, I mean it was still sold, it was the first two quarters of the year, we were looking at, on average, high single digits and we had about 30 bps in Q3 and in Q4. We still add 15 bps, so I mean it's not dramatic, but yes, it was last year in Q3 and Q4, we were pretty promotional, which we weren't – and this is on a low-end, essentially low-end primarily cat, and we weren't as promotional in the back half of this year. so, yeah that helped, but it helped both in Q3 and Q4. The quarter generally looked pretty similar to Q3 from a merch perspective.
Michael Lasser - UBS: Were there any offsets that may have dampened the merch margin expansion you would have otherwise gotten?
Robert F. Moran - Chairman and CEO: No, I think it was generally in line with what we were expecting. Actually it was right on line with what we were expecting coming into the quarter
Michael Lasser - UBS: Then a bigger question, you guys have mentioned that over the last few years you've comped on top of comp and top of comp in part because of all the great merchandising work that you've done. Do you feel the magnitude of the potential that's in front of you is not as great as what's behind you?
David K. Lenhardt - President and COO: Michael, it's David. The short answer is no. I think we've got a very strong merchandising team that continues to work with our vendors and I think in a world of humanization of pets and I just talked a little bit about the consumables side, but I think it also carries over into the hard goods and into the specialty side. You're going to see us continue to innovate and differentiate and I think we've got a lot of runway ahead of us and I think we talked a little bit about consumables, but we're starting to talk about Disney, we're going to continue to evolve with Bret Michaels and Martha Stewart from hardgoods side. We're going to be resetting the Reptile section of specialty, which is the fastest-growing section of specialty, and so I think we have absolutely continued runway.
Michael Lasser - UBS: Last question is for Chip. With the slight escalation in capital expenditures, are you expecting that depreciation and amortization is still going to come down by a double-digit rate in 2014?
Chip Molloy - EVP and CFO: Just the timing, it's going to come down high-single digits, not quite double-digits and you'll see a couple years of that '14 and '15. It may slide a little bit into the latter part of '14 into '15. Then CapEx as percentage of sales it's really a pretty steady year-over-year.
Michael Lasser - UBS: So, for 2014, 2015 for the full year, we can still expect high-single digit decrease in the dollars of D&A?
Chip Molloy - EVP and CFO: Beginning about the middle of '14, you will start to see high-single digits and so in '14, itself it'll probably be mid-single digits and then going into '15 high-single digits and you will get essentially two years of that.
Operator: David Gober, Morgan Stanley.
David Gober - Morgan Stanley: Dave, you mentioned some of the improvements on the services business, I was just curious, if you can give any color around the performance in that business around some of the implementation at the new call center and if you're expecting to see any flow through in that business in 2013, in addition to some of the other changes you're making there?
David K. Lenhardt - President and COO: David, with respect to the call center, that's really our PetsHotel business where -- and again we rolled that out nationwide just in time for the holidays, which is obviously a very busy time for us and that's really going to enable us and has enabled us to both improve the customer experience for our customers, but also to improve sales in our hotels in particular around things like add-on where we can more consistently talk to the customers and educate them about the potential solutions that we have for them. So, obviously, this year in our services business within the hotels, we'll be comping that against periods of time this past year that we didn't have the call center, so I think you will see some impact of that within our hotel business.
David Gober - Morgan Stanley: Just in terms of product mix, it looked like hardgoods lagged a little bit more this quarter than it has in the past couple. Just curios if there is anything going on in the hardgoods business relative to the consumables business and maybe if you could provide some color on what you're seeing in terms of pet acquisition if that's lagging for any reason or anything like that?
Chip Molloy - EVP and CFO: Hey, David, this is Chip. If I look at the mix and the mix shift, you look at Q3 and then you go on to Q4 which I assume is kind of what you're looking at.
David Gober - Morgan Stanley: Yeah.
Chip Molloy - EVP and CFO: It's a little bit more of a mix shift, not much. I think it's 10 or 20 basis points more this quarter than it was in last quarter. But I would tell you that, one, we had another great quarter with consumables very strong quarter, where consumables it was ahead of the average comp. For hardgoods it still was a pretty decent positive comp, it was less than the company average but it was still a decent positive comp and once again, that's a business you just got to constantly work out and all the innovation that you hear about primarily there is some of it on the food side, but a lot of it's on the hardgoods side and we continue to drive that. And the good news there is in spite of that mix little bit of mix shift, we're still able to manage the margin and have still been able to get some margin accretion in spite of that.
Robert F. Moran - Chairman and CEO: David, it's Bob, I just wanted to answer your question about pet acquisition. Q4 was our fifth quarter in a row that we have had sequential improvement in the adoptions and we're very encouraged by that and it also demonstrates the correlation to what's happening in the housing market at this point in time. So, we have not seen a fall off on that if anything, we've seen sequential improvement over the last five quarters.
David Gober - Morgan Stanley: Just one quick clarification for Chip. I think you mentioned that inflation for the full year was about 200 basis points. Could you just give us that number for the fourth quarter?
Chip Molloy - EVP and CFO: Yeah, we haven't broken it out by quarter, but it was for the year – it was slightly less than 200 basis points or right around 200 basis points for the full year and it sequentially dropped from the beginning to the end but it was still north of 100 bps.
Operator: Peter Keith, Piper Jaffray.
Peter Keith - Piper Jaffray: I wanted to talk about the management succession and certainly congratulations to everyone involved, but I guess there's some questions and concerns out there that there's sort of a lot of change going on at the Company all at once with the last quarter call announcing Chip moving on. Could you guys just provide a little commentary on why the succession planning sort of was executed right now with some of the changes in the CFO position as well?
Robert F. Moran - Chairman and CEO: Peter, this is Bob. I think you have to look at the two recent announcements as not being related in any way, shape or form. The first announcement with Chip, was related to the personal family decision to move his family to the south east and Chip has been an incredibly invaluable member of our team and as the transition happens, Chip is going to be the CFO through June of 2013 and act as a special advisor through March of 2014. So, he is still part of the family. So, I wouldn't look about that as any big issue. Succession planning I think is one of the most important things both of the Board and of the CEO and I started looking at succession planning when I first became CEO because of the not only the stress testing of the first level and various experiences that one could drive, but it also goes fairly deep into the organization and we felt that that was a multiyear journey. So, it was always planned to be at this time. There is nothing special about it. As you watched and looked at David and both Joe's experience, they have picked up more and more experiences from looking at a total enterprise and we feel that the Company is ready to have new management team and I will be around for a while as the Executive Chairman. So, there is really not a lot of changes even though you are saying there is changes. As David reiterated, I think you are going to see a lot of the same thing, but even better and better results. So, I think this is well managed. It's very transparent of both internally and externally and I think it's going to be a very smooth transition and I don't think anything that's happening with any type of results or anything like that has anything to do with it. So, we are totally in control with it.
Peter Keith - Piper Jaffray: I really appreciate the color around that. Another concern that we hear out there in the marketplace is just on that growth in the super premium and you talked about double-digit growth for quite some time and that was consistent here in the fourth quarter. I guess, if you are just looking at that super premium category in 2012 maybe versus 2011, 2010, I know you maybe don't want to give us a number, but I guess, the year-on-year growth rate, what has that trended like? Is that beginning to decelerate or has it been fairly consistent for the last three years?
Robert F. Moran - Chairman and CEO: I would say it's been consistent. And when we gave on dog side, it's may be come down a little bit, but it's been still really big numbers, really big comps and the cat has actually accelerated.
Peter Keith - Piper Jaffray: Last question I had for you, at your Analyst Day back in 2011, you had talked about an initiative around localized assortment and price optimization and you wanted to test that throughout 2012 and maybe roll it out in 2013. It didn't sound like you really brought it up on the prepared remarks. Could you give us an update on your thinking around those two initiatives?
David K. Lenhardt - President and COO: Peter, it's David. I think on the pricing side, that's an opportunity that we've been focused on and starting in 2012, we've been optimizing different categories from the pricing perspective on a national basis. We expect to continue that in 2013. We are not done in that journey and then over time, we are evolving and we'll test our way into pricing not nationally, but on a more local basis. So, that's a journey for us and I think we're very early days in there. I think from a space perspective what you will see us start to do is as we do resets, we inject the learnings we are having around space optimization from a national perspective, but again, we feel over time, we've got an opportunity to do that on a more local basis and again we are in very, very early days with that. So, that's kind of the journey we are on.
Robert F. Moran - Chairman and CEO: Well, I think another call has come to an end and I just want to thank everyone for joining us today and we will be looking forward to speaking with you again in May. Take care.
Operator: Thank you, ladies and gentlemen. That does conclude the conference for today. Again, thank you for your participation. You may all disconnect. Have a good day.