Phil Francis, chairman and CEO, commented in the conference callthat, "PetSmart delivered a solid performance in the first quarterdespite a pet food recall unlike anything we have ever experiencedin the industry." Francis described the recall as "frustrating,confusing and at times a bit scary," saying that it "hit close tohome for many of our customers and for us," with the recallaffecting 305 skus and 16 brands.

Francis attributed the company's solid financial performance inthe face of adversity to an organizational structure that enabledPetSmart to address the recall quickly and efficiently. The companyimmediately removed the recalled products from the shelves and"worked with customers to help find alternatives and to findveterinary care," he said. Although the business performed well, henoted, "We saw customers grow increasingly wary of an expandingrecall list and a lack of conclusive evidence of the cause," withsome of them switching brands or cutting back on spending for petfoods by switching to homemade food. The customers' reactions hadsome impact on sales, he said, but added, "We believe that many ofthe reactions to the recall are short-term."

PetSmart's financial performance also resulted in part from thecontinuing growth at the chain, which opened 23 new stores andclosed three locations during the first quarter of 2007, for a netgain of 20 new stores, compared with a net gain of 16 new stores inthe same quarter last year. The company's growth strategy includesplans to open 100 net new stores this year.