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Strategies & Market Trends : Three Amigos Stock Thread

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To: Sergio H who wrote (20795)	8/28/2000 10:41:38 PM
From: Ken W	Read Replies (1) of 29382

Sergio, I am bound and determined to get a comment out of you on PETM: NEW YORK, Aug 28 - Standard & Poor's today raised PetsMart Inc.'s corporate credit rating and bank loan rating to double-'B'-minus from single-'B'-plus, and its subordinated debt rating to single-'B' from single-'B'-minus. The outlook is stable. The ratings upgrade reflects operating improvements over the past two years and the sale of the company's U.K. subsidiary in fiscal 2000. The ratings reflect operating challenges associated with PetsMart's aggressive growth strategy, a highly competitive and fragmented pet food supplies and services industry, and a highly leveraged capital structure. These risks are mitigated somewhat by the company's leading position in the industry. Standard & Poor's believes that PetsMart's aggressive growth in recent years has contributed to operating challenges that have slowed improvement in financial performance. Operating issues relating to new SAP retail information systems in 1999 and mass distribution of Iams premium dog food by Procter & Gamble in 2000 have negatively impacted sales and EBITDA. Despite these operating issues, PetsMart has been able to improve its operating margins over the past two years. Additionally, initiatives including new distribution centers and smaller new store prototypes should result in lower inventory levels in stores, which could help improve cash flow. The sale of PetsMart's U.K. subsidiary eliminates negative EBITDA trends in 1999 and should allow the company to focus more on improving its core North American store base. Standard & Poor's believes PetsMart's leading position in the industry allows it to realize purchasing benefits and thus be the low price operator in the industry. Lease-adjusted EBITDA covered interest in the mid-2 times (x) area in fiscal 2000, an improvement from the low 2x area in fiscal 1999. Operating margins have also improved to more than 14% in fiscal 2000 from 10.4% in 1998 as PetsMart increased higher margin product sales and leveraged same store sales increases of 4.6% in 2000 and 6.3% in 1999. Financial flexibility is provided by a $110 million bank facility. OUTLOOK: STABLE PetsMart's leading position in the industry and improved operations provide support for the rating. How is that for some FA? Ken LOL

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