1. Presented by 1 Peng Liang Yongxiang Mao Richie Hartz Xiaosi Song Shengkun Wang November 29, 2012

2. Agenda Introduction Recent Stock Performance Company Overview Industry Overview Financial Analysis Projections Valuation Recommendation 2

3. Current Position 100 shares bought on May 3, 2012 @ $58.88 Current Price: $69.91 as of 11/28 Unrealized Gain: $1,103 with a return on investment of 18.73% 3

4. Recent Stock Performance 4 Source: Pet Smart 2011 Annual report P32

5. Recent Company News October 1, PetSmart was added to the S&P 500, replacing Sunoco October 15, the vice president of investor relations and treasury post, David Cone, left PetSmart and joined private home builder, Taylor Morrison, as the CFO November 14, PetSmart unveiled its 3 rd quarter results: Sales increased to $1.6B by 9%; EPS up by 50% to $0.75/share; Expected annual sales for FY 2012 $6.5B November 26, CEO Robert Moran told CNBC that PetSmart grabbed a big share of holiday spending, about 76% of pet owners were expected to buy their pet a holiday gift. The company was ready to pounce on a housing recovery, explaining home sales are closely correlated to pet acquisition. 5

6. Company Overview PetSmart, Inc. is the largest specialty provider of pet products, services and solutions Founded in 1986 and public in 1993 on the NASDAQ In 2005, name rebranded from PETsMART to PetSmart FY 2011, 50,000 associates & 1,232 pet stores Net Sales: $6.1 Billion Services Sales: $0.67 Billion 6

7. Business Segments Merchandise  Consumables  Hardgoods  Pets 7 Services  Grooming  Training  Hotel/Day Camping  Veterinary Services

8. Consumables merchandise sales include pet food, treats and litter PetSmart emphasizes super-premium, premium and therapeutic dog and cat foods Proprietary labels like Grreat Choice, Authority, and Simply Nourish Source: PetSmart Q2 2012 Presentation, P12 8 Consumables >70%

9. Hardgoods Hardgoods include pet suppliers and other goods Collars, leashes, health care supplies, toys and apparel, as well as pet beds and carriers Higher margin and lower turnover than consumables Established strategic cooperation with Martha Stewart, GNC and Toys R US 9 Source: PetSmart Q2 2012 Presentation, P13

10. Pets No Dogs or Cats, but space in store for adoption Only Fish, Reptiles, Birds and Small Pets 10

11. Services Source: PetSmart Q2 2012 Presentation, P17 Largest pet services provider in North America 11 Grooming: precision cuts, baths, nail trimming and grinding, and teeth brushing (900 sq ft / store) Training ranges from puppy classes to advanced or private courses PetsHotels: 24-hour supervision, temperature controlled rooms and suites Veterinary hospitals: routine examinations and vaccinations, dental care, and surgical procedures As of Jan. 2012, owns 192 PetsHotels

12. Pet Store Industry - Segmentation Services Fastest-growing product segment Includes full service grooming, haircuts, baths, toenail trimming, and tooth brushing, but excludes veterinary services Other services may include training, boarding and day camp. Live animal purchases Relatively small and stable sales as a one-off purchase without repetitive spending Pet food A variety of premium pet foods are available to consumers today Pet supplies Revenue has been declining in the last five years due to competition, Increasingly sold at retail outlets Source: Pet Stores in the US, WWW.IBISWORLD.COM 12

13. Pet Stores Industry People between 45 to 54 with steady income streams look for pet companions to fill the empty space in their households after their children leave home. 13 Source: Pet Stores in the US, WWW.IBISWORLD.COM

14. Major Players in This Industry IBISWorld estimates that by the end of 2012, the industry will have about 13,853 firms. 14 Source: Pet Stores in the US, WWW.IBISWORLD.COM

15. Porter’s Five Forces 15 Source: Pet Stores in the US, WWW.IBISWORLD.COM; Global Specialty Retail, MarketLine; 10-KWWW.IBISWORLD.COM

16. Demand Determinants Pet ownership 62% of U.S. households are estimated to own a pet in 2012 compared with 56% in 1998 Income Pet owning households with high disposable income have been the main customers for luxury and trendy pet products People with higher income tend to travel more and are more likely to utilize pet boarding industry operators Demographics and lifestyle Aging population may increase demand for pets for companionship Households that are frequently relocating, working longer hours, or living in apartments are less likely to have pets 16 Source: Pet Stores in the US, WWW.IBISWORLD.COM

17. Macroeconomic Condition 17 Source: http://dailycapitalist.com/2012/01/31/income-and-spending-slowed-to-a- crawl-in-2011/ Recovering consumer confidence and strengthening retail sales since 2009.

18. Industry Outlook 1.Rising pet ownership serves as a strong driver for demand and boosts sales 2.Slowly improving economic conditions allows customers to spend more on premium pet products and services 3.Strong competition from grocery stores and mass merchandisers 4.Higher demand for pets over the next five years driven by more common single-person households and the aging population 5.Profit margins are forecasted to increase from 4.3% in 2012 to 4.5% in 2017 with expected growing profitability, thus also bringing new entrant into the industry 18 Source: Pet Stores in the US, WWW.IBISWORLD.COM

19. Financial Performance of Competitors 19 Gross Profit MarginNet Income Margin Merchandise Group TGT US Equity 29.70%4.10% WMT US Equity 24.90%3.50% COST US Equity 12.40%1.70% Average 22.33%3.10% Service Group IDXX US Equity 53.80%13.50% WOOF US Equity 23.60%6.10% HSKA US Equity 43.10%2.30% Average 40.17%7.30% PETM US Equity 29.90%5.20%

20. Comparative Equity Performance Services Merchandise 20

21. PetSmart’s Strategy Create meaningful differentiation to drive brand preference Offer superior customer service Focus on operating excellence Grow pet services business Add stores and provide the right format to meet the needs of customers 21 Focus is on SOLUTIONS! Source: PetSmart 10-k and Q2 2012 Presentation, P5

22. Market Differentiation Customers come to stores for problems solving Store associates with necessary training Drive traffic Stimulate merchandise sales Increase customer loyalty 22

23. SWOT Analysis StrengthsWeaknesses Strong product assortment complemented by value added services Co-anchor strategy and multiple channels improving performance of pet services business Supplier concentration OpportunitiesThreats Estimated positive growth of pet industry Favorable trends of online retail spending Increasing demand for private label brands Sluggish discretionary spending may impact the revenue growth adversely Increasing competition from large retailers Rising labor costs in the U.S. 23

24. Risk & Uncertainty Quarterly operating results may fluctuate due to seasonal changes associated with the pet products and services retail industry, and new store openings and store closures. A higher portion of our net sales and operating profit during the fourth fiscal quarter Lower operating margins for new stores that tend to experience higher payroll, advertising and other store level expenses, as a percentage of net sales, than mature stores Disruption of the relationship with or the loss of any of our key vendors Sales of premium pet food for dogs and cats comprise a significant portion of our net sales. Currently, most major vendors of premium pet food (exclusive relationships) do not permit their products to be sold in supermarkets, warehouse clubs, or through other mass and retail merchandisers. Two of our largest vendors account for a material amount of products sold Food safety, quality and health concerns costly recalls and a loss of consumer confidence 24 Source: 10-K

25. Sales & EPS Growth 25 Sales growth rate: 7% per year; EPS growth rate: 7% per year

26. Sales Penetration 26 Merchandise sales accounts for the largest portion of PetSmart’s sales, but keeps decreasing as % of net sales due to higher growth rate in services segment

27. Services Growth Source: PetSmart Q2 2012 Presentation, P18 27

28. 28 Dupont Analysis

29. Strategic Transition in 2009 Pursue existing store profitability instead of blindly opening new stores – 37 new stores opened in 2009, less than half of the number in the previous level Promote in-store management and improve pricing, space and assortment process Rely more on the growth in sales of pet services 29

30. New Stores and Capital Expenditure 30 Net sales/square feet decreased from $210 in 2007 to $205 in 2009, but recovered up to $224 in 2011

31. Comparable Store Sales Growth 31

32. Financial Projection 32 Sales growth rates

33. Discount Rate WACC CAPM Risk-free Rate1.72% Market Risk Premium6.00% Five-year Raw Beta0.72 Adjusted Beta0.81 (vs. 0.63 from Yahoo Finance) Cost of Equity6.6% No Long-term debt0 WACC6.6%80% ROE (Past 5-year average annual return)22.8%20% Discount Rate9.8%= 80% x WACC + 20% x ROE 33

34. DCF Model 34 2007200820092010201120122013201420152016 Actual Projected Net Income 258,684 192,670 198,325 239,867 290,243 310,694 339,403 370,734 404,928 442,247 Changes in NWC - 61,517 (80,258) 58,717 16,286 (4,220) 30,253 32,922 35,826 38,985 CAPEX 294,439 238,188 112,920 125,074 120,720 133,474 145,720 159,101 173,724 189,702 Depreciation 195,980 225,054 236,538 235,926 236,974 229,225 226,096 272,585 326,124 352,478 Free Cash Flow 160,225 118,019 402,201 292,002 390,211 410,664 389,525 451,295 521,502 566,038 PV(FCF) 1,891,831 Terminal Value 5,762,299 Enterprise Value 7,654,130 Capital lease obligations (505,273) Cash & Cash Equivalent 342,892 Implied Equity Value 7,491,749 Shares Outstanding 113,993 Price Per Share 72 Current Stock Price69.09Close @ Nov 28,2012

35. Multiples Valuation M Group vs. S GroupWeight AveragePrice 90% vs. 10%0.994.704.3817.2543.32 80% vs. 20%1.306.064.1818.2352.43 70% vs. 30%1.607.413.9819.2261.54 60% vs. 40%1.908.773.7820.2170.56 35

36. Recommendation DCF $72 36 Multiples $71Current Price $69.91 Hold