PetMed (PETS) Tops Q2 Earnings & Sales Estimates, Margins Up

PetMed Express, Inc. PETS announced earnings per share (EPS) of 43 cents for the second quarter of fiscal 2018, up 79.2% from the year-ago quarter's 24 cents. Also, earnings surpassed the Zacks Consensus Estimate by 43.3%.

The year-over-year rise in earnings was driven by an increase in sales and improved margins.

Net sales in the reported quarter rose 10% year over year to $66.7 million, outpacing the Zacks Consensus Estimate by 5.9%.

PetMed Express, Inc. Price, Consensus and EPS Surprise

PetMed Express, Inc. Price, Consensus and EPS Surprise | PetMed Express, Inc. Quote

Per this leading pet pharmacy in Americas, the upside in sales was a result of increased new orders and reorders during the quarter.

In the reported quarter, reorder sales increased 9.9% to $55.1 million on a year-over-year basis, while new order sales rose 8.8% to $11.6 million.

Average order value was approximately $85 in the quarter compared with $82 in the year-ago quarter. We note that the variation in average order value is mainly driven by a shift of sales to higher priced items.

Per 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.

During the quarter under review, PetMed acquired 134,000 new customers, up from 131,000 a year ago. Roughly, 84% of all orders was generated from its website (versus 82% in the prior-year quarter).

Gross margin expanded 548 basis points (bps) year over year to 35.2% in the reported quarter. General and administrative expenses were up 7.5% year over year to $6.2 million. Also, advertising expenses rose 3.3% to $4.5 million. This led to a 5.6% increase in adjusted operating expenses (without depreciation expense), which amounted to $10.7 million. Nevertheless, adjusted operating margin in the quarter rose 610 bps to 19.1% from the year-ago quarter.

PetMed exited the fiscal second quarter with cash and cash equivalents of $68.4 million compared with $68.5 million at the end of the first-quarter fiscal 2017. The company also announced a quarterly dividend of 20 cents per share, payable to shareholders of record as of Nov 17, 2017.

Our Take

PetMed successfully delivered yet another quarter of solid results. In the fiscal second quarter, the company once again topped the Zacks Consensus Estimate on both revenues and earnings. We are also encouraged to note the stellar increase in reorder and new order sales in the quarter.

The company is also striving to implement several strategies to revitalize its top line. These include increased focus 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 besides working on upgrading its existing portfolio.

Zacks Rank & Key Picks

PetMed currently has a Zacks Rank #3(Hold). A few better-ranked stocks in the medical sector are Abbott ABT , IDEXX Laboratories, Inc. IDXX and Thermo Fisher Scientific Inc. TMO , all three carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Abbott has a long-term expected earnings growth rate of 10.7%. The stock rallied roughly 39.5% over the last year.

IDEXX Laboratories has a long-term expected earnings growth rate of 19.8%. The stock surged 48.2% last year.

Thermo Fisher has a long-term expected earnings growth rate of 11.7%. The stock gained 31.4% last year.

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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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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