PetMed Express, Inc.PETS , a leading pet pharmacy in the Americas, announced earnings per share (EPS) of 24 cents for the third quarter of fiscal 2017, unchanged from the year-ago quarter. However, earnings missed the Zacks Consensus Estimate by a penny.
Net sales in the reported quarter improved 3.8% year over year to $52.9 million, beating the Zacks Consensus Estimate by 1.6%. According to the company, the upside in sales was a result of increased new orders and reorders.
In the reported quarter, reorder sales increased 3.7% year over year to $44.9 million, while new order sales rose 4.4% to $7.9 million.
Average order was approximately $81 for the quarter, compared with $78 in the year-ago quarter. We note that the variation in average order value mainly stems from a change in product mix to higher priced items and increased doses.
According to the company, the seasonality in its business is mainly because of the proportion of flea, tick and heartworm medications in the product mix. Spring and summer are considered peak seasons while fall and winter represent off-seasons.
PetMed Express, Inc. Price, Consensus and EPS Surprise
During the quarter under review, PetMed acquired 99,000 new customers, marginally up from 98,000 a year ago. Roughly 83% of all orders were generated from its website (versus 81% in the prior-year quarter).
Gross margin contracted 141 basis points (bps) year over year to 31.5% in the reported quarter. General and administrative expenses were up 7.7% year over year to $5.4 million, while there was a 20.5% decline in advertising expenses to $2.3 million. This led to a 4.8% reduction in adjusted operating expenses (without depreciation expense), which amounted to $8.5 million. Adjusted operating margin in the quarter rose a marginal 5 bps to 15.3%.
PetMed exited the third quarter of fiscal 2017 with cash and cash equivalents of $47.9 million compared with $51.9 million at the end of the second quarter. The company also declared a quarterly dividend of 19 cents per share, payable to shareholders on record as of Feb 17, 2017.
PetMed exhibited a better-than-expected revenue performance in the third quarter of fiscal 2017, while earnings lagged the Zacks Consensus Estimate. We note that there was significant increase in new order sales and re-order sales in the quarter.
We are however apprehensive about the pressure on margins despite the company's cost-reduction initiatives. Furthermore, the drop in advertising cost raises concerns.
The company is striving to implement several strategies to revitalize its top line. These include focusing on advertising efficiency to boost new order sales and shifting sales to higher margin items, while also expanding product offerings.
PetMed currently offers a wide range of products catering to dogs, cats and horses, and is working persistently on upgrading its existing portfolio.
Zacks Rank & Key Picks
PetMed currently has a Zacks Rank #4 (Sell).
Some better - ranked medical stocks include Cardiovascular Systems, Inc. CSII , Neogen Corp. NEOG and OraSure Technologies, Inc. OSUR . While Cardiovascular Systems sports a Zacks Rank #1 (Strong Buy), Neogen and Orasure hold a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Cardiovascular Systems rallied 200.5% in the past one year, way higher than the S&P 500's 22.06% gain. It has a positive average earnings surprise of 31.8%.
Neogen gained 27.52% in the past one year, better than the S&P 500 mark. The stock has an impressive long-term earnings growth of 16.7% for the next five years compared with the industry average of 15.2%.
OraSure Technologies surged 57.95% in the last one year, compared to the S&P 500. The company has a stellar four-quarter average earnings surprise of over 100%.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.