On Dec 18, 2015, we issued an updated research report on PetMed Express, Inc. PETS. PetMed exhibited a mixed performance in the second quarter of fiscal 2016 with earnings beating the Zacks Consensus Estimate while revenues were in line with the same.
Despite a drag in new order sales, we are impressed with PetMed’s consistent performance with respect to reorder sales. Although reorder sales were flat year over year in the reported quarter; over the last six months the same has shown an improvement. This apart, average order size increased to $80 from $75 in the second quarter of fiscal 2015, on the back of change in product mix to a higher priced item and increased doses.
The company is also working on issues like limited consumer spending and a change in product mix to lower-priced items, mainly generics. The company is asking veterinarians to prescribe additional brands.
We are also encouraged by the observation that PetMed is striving to expand its portfolio to drive the top line. The strategies undertaken include focus on advertising efficiency to improve new order sales and shifting sales to higher-margin items.
Meanwhile, the company continues to face competitive pressure in the highly fragmented pet medications market. In Jan 2015, Eli Lilly and Company acquired Novartis’ animal health division. The acquisition has posed more challenges for PetMed in the pet pharmacy industry. Also, lesser advertising at the company raises concerns.
This nationwide pet pharmacy presently carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Internet commerce stocks such as Autobytel Inc. ABTL, Blue Nile Inc. NILE and Amazon.com Inc. AMZN are worth considering in the short term. All the three stocks hold a Zacks Rank #2 (Buy).
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