America's largest pet pharmacy,
) reported earnings of 23 cents per share in the third quarter of
fiscal 2013, a penny ahead of the Zacks Consensus Estimate and up
19% year over year. Net sales were down 1.8% year over year to
49.6 million, almost in line with the Zacks Consensus
The Florida-based company added 131,000 new customers during
the quarter compared with 150,000 in the third quarter of fiscal
2012. Although sales were down, PetMed reported a 1.2%
year-over-year increase in reorder sales to $40.9 million.
However, new order sales dropped 13.8% to $8.7 million due to
reduction in advertising and lower average order value. Sales
continued to be adversely affected by the unavailability of
branded products from
) due to the suspension of its production.
It seems that PetMed has been successful in increasing sales
via the Internet. Approximately 78% of the company's orders were
generated on the website compared with 77% in the corresponding
Gross margin expanded 74 basis points (bps) to 34.7% during
the quarter. However, the average orders value declined 2.8% to
$71. This reduction was primarily due to additional discounts and
a shift to lower-priced product mix, mainly generics.
A 15.5% decline in advertising expenses (to $4.6 million) as
well as a 1.8% drop in general and administrative expenses (to
$5.1 million) led to an 8.8% reduction in operating expenses
(without depreciation) to $9.7 million. Consequently, operating
margin improved 225 bps to 15.0%.
PetMed reduced advertising expenses during the quarter due to
the unavailability of any remnant television space due to the
presidential election and the holiday season. However, the cost
to acquire a new customer increased to $35 from the year-ago
quarter's $32. The company would continue to advertise
efficiently along with shifting sales to higher-margin products,
while expanding its product portfolio, including the generic pet
PetMed exited the quarter with cash and cash equivalents of
$30.0 million compared with $46.8 million at the end of fiscal
Although PetMed is still struggling with sales, we are
encouraged with the company's cost reduction initiatives, which
aided margin expansion. The company is currently trying to
implement several strategies to revive its top line. These
strategies include focus on advertising efficiency to improve new
order sales and shifting sales to higher margin items, including
generics, while expanding its product offerings. The company
currently offers a wide range of products for dogs, cats, and
horses and is working on expanding its portfolio.
The stock retains a Zacks Rank #3 (Hold).
Other Stocks to Consider
While we prefer to remain on the sidelines on PetMed, other
medical device stocks worth a look are
). Both the stocks carry a Zacks Rank #1 (Strong Buy).
CYBERONICS INC (CYBX): Free Stock Analysis
HAEMONETICS CP (HAE): Free Stock Analysis
NOVARTIS AG-ADR (NVS): Free Stock Analysis
PETMED EXPRESS (PETS): Free Stock Analysis
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