On Mar 22, we retained our Outperform recommendation on PetMed Express ( PETS ). Our retention is based on the company's solid fourth-quarter results, all-out effort to expand product portfolio as well as to revive the recent drop in new order and re-order sales, in spite of several recent headwinds like the unavailability of the Novartis ( NVS ) brands leading to a decline in average order value and a change in product mix to lower-margin items. This nationwide pet pharmacy presently carries a Zacks Rank #1 (Buy).
Why the Reiteration?
PetMed reported a decline in year-over-year revenues during the last reported quarter due to the unavailability of Novartis brands, consumer purchase in smaller quantities, a decline in average order value because of additional discounts amid tough competition and a change in product mix to lower-priced items, mainly generics.
However, we are encouraged to note that the company is working on these issues. PetMed is asking veterinarians to prescribe additional brands, which has led almost 60% pet owners to shift from the Novartis brands. In the last reported quarter, the company added 131,000 new customers compared with 150,000 in the year-ago period.
The company is also working on improving the effectiveness of its campaigns. It has been quite successful in pushing its sales via the Internet. Approximately 78% of the company's orders were generated on the website compared with 77% in the corresponding year-ago quarter. Moreover, after several quarters of drag in margins, the improvement came as another encouragement during the quarter.
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