On Jun 7, 2014, Zacks Investment Research downgraded
PetMed Express, Inc.
) to a Zacks Rank #4 (Sell).
Why the Downgrade?
PetMed posted a mixed fourth-quarter fiscal 2014 with earnings
beating the Zacks Consensus Estimate but revenues missing the same.
Earnings per share (EPS) of 23 cents in the quarter came in 2 cents
ahead of the Zacks Consensus Estimate. On the other hand, net sales
in the quarter dropped 4.9% year over year to $48.6 million and
also missed the benchmark by 6.5%.
Sales were negatively impacted due to an intense winter season
resulting in lower new order and reorder sales. Despite a favorable
reaction to promotions which increased average order size to $77 in
the quarter from $75 in the year-ago period, there was a huge 11.0%
drag in new order sales driven by increase in customer acquisition
costs. This, in turn, led to a year-over-year decline in sales.
In addition, mountingproduct costs and discounts continued to
take a toll on the company's gross margin. Although, during the
reported quarter, gross margin expanded 24 basis points year over
year to 35.9% due to cost reduction in certain brands, the company
expects no improvement in margin trends in the coming year.
The company predicts fiscal 2015 to follow the same
quarter-to-quarter trend as observed in the previous fiscal. The
June quarter usually being the weakest of the lot, we expect
margins to fall in the first quarter of fiscal 2015.
Of late, PetMed has been witnessing downward estimate revisions
given the lack of any significant growth catalyst and persisting
intense competition, which escalate operational and financial
Meanwhile, the Zacks Consensus Estimate for 2014 declined 1.12%
to 88 cents per share, in the last 60 days.
Other Worthy Financial Stocks
While we prefer to avoid PETS for the time being, some
better-ranked stocks in the broader healthcare sector such as
The Cooper Companies Inc.
ICU Medical, Inc.
) are worth considering. All these stocks sport a Zacks Rank #2
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PETMED EXPRESS (PETS): Free Stock Analysis
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STERIS CORP (STE): Free Stock Analysis Report
ICU MEDICAL INC (ICUI): Free Stock Analysis
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