America's largest pet pharmacy,
) reported earnings of 20 cents per share in the second quarter
of fiscal 2013, a penny ahead of the year-ago quarter and
surpassing the Zacks Consensus Estimate of 17 cents. Net sales
remained almost unchanged at $58.1 million, but surpassed the
Zacks Consensus Estimate of $57 million.
The Florida based company added 177,000 new customers during
the quarter compared with 184,000 in the second quarter of fiscal
2012. PetMed reported a 2.1% year-over- year increase in reorder
sales to $46.4 million though new order sales dropped 8.1% to
$11.7 million owing to reduction in advertising and lower average
order value. Sales continued to be adversely affected by the
unavailability of branded products from
) due to suspension of its production.
It seems that PetMed has been successful in pushing its sales
via the internet, which is reflected in the 2.9% increase in
online sales. Approximately 77% of the company's orders were
generated on the website compared with 74% in the corresponding
Gross margin contracted 90 basis points (bps) to 33.3% during
the quarter with the average order size declining by 5% to $72.
This reduction was primarily due to additional discounts and a
shift to lower-priced product mix, mainly generics. Increase in
freight costs was also responsible for lower margin.
A 4.2% drop in general and administrative expenses (to $5.4
million) and a 6.1% decline in advertising expenses (to $7.4
million) led to a 5.3% reduction in operating expenses (without
depreciation) to $12.8 million. Consequently, operating margin
improved 30 bps to 11.3%.
PetMed reduced advertising expenses during the quarter due to
the unavailability of any television remnant space. However, the
cost to acquire a new customer dropped to $42 from the year-ago
quarter's $43. The company would continue to advertise
efficiently along with shifting sales to higher-margin products
while expanding its product portfolio, including generic pet
PetMed exited the quarter with cash and cash equivalents of
$47.0 million compared with $46.8 million at the end of March,
2012. The company repurchased 397,000 shares during the quarter
for approximately $3.9 million.
PetMed reported a mixed second quarter with still struggling
sales. Although the company is attempting several strategies to
revive its top line, it will be a while before any impact is
witnessed. The company offers a wide range of products for dogs,
cats, and horses and is working on expanding its portfolio.
However, the presence of players like
) makes the pet pharmacy market very competitive. To address
competition, the company has adopted an aggressive pricing
strategy that might hurt its margins.
The stock retains a Zacks #3 Rank (Hold) in the short
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