America’s largest pet pharmacy, PetMed Express (PETS), reported adjusted earnings per share (EPS) of 24 cents in the third quarter of fiscal 2015, up 4.3% year over year. However, earnings fell short of the Zacks Consensus Estimate by a penny.
Net sales in the quarter dropped 1.6% year over year to $49.3 million but closely beat the Zacks Consensus Estimate of $49 million. Year-over-year sales were negatively impacted by decreases in new order and reorder sales. According to the company, demand for flea and tick were soft. This is because spring and summer are considered peak seasons as against fall and winter which represent the off-season. Despite that, the average order size has increased to $76 in the quarter from $73 a year ago.
During the quarter under review, PetMed acquired 96,000 new customers, down from 114,000 in the third quarter of fiscal 2014. Roughly 80% of all orders were generated from its website (versus 79% in the prior-year quarter).
Gross margin expanded 100 basis points (bps) year over year to 34.7% due to a shift in sales to higher margin items. General and administrative expenses declined 3.1% year over year to $4.9 million while there was a 4.2% drop in advertising expenses to $4.3 million. This led to a 3.7% reduction in adjusted operating expenses (without depreciation and discontinued project costs), which amounted to $9.3 million. Adjusted operating margin in the quarter expanded 138 bps to 15.9%.
PetMed exited the quarter with cash and cash equivalents and short-term investments of $52.6 million compared with $33.8 million at the end of fiscal 2014.
Our Take
PetMed reported a mixed performance in the third quarter of fiscal 2015 with earnings missing the Zacks Consensus Estimate but revenues beating the mark. However, the top line fell short of the year-ago number. Continued decline in new order sales due to an increase in customer acquisition cost and lesser advertising raised concern. However, we are encouraged by the fact that after a series of disappointing quarterly operating margin numbers, the company showed a turnaround in the reported quarter. This was mainly because of the company’s ongoing cost reduction initiatives.
Moreover, the company is currently trying to implement several strategies to revive its top line. These include focusing on advertising efficiency to improve new order sales and shifting sales to higher margin items like generics, while also expanding its product offerings.
PetMed currently offers a wide range of products catering to dogs, cats and horses, and is working on upgrading its existing portfolio. The stock carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
Some other top-ranked stocks in the broader medical sector are Cyberonics Inc. (CYBX), Edwards Lifesciences Corp. (EW) and Hologic Inc. (HOLX), all carrying the same Zacks Rank as PetMed.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment