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PetMed (PETS) Up 9% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
Chesapeake Utilities (CPK) saw a big move last session, as its shares jumped nearly 6% on the day, amid huge volumes.

It has been about a month since the last earnings report for PetMed (PETS). Shares have added about 8.9% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to its next earnings release, or is PetMed due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Recent Earnings

PetMed Express announced earnings per share (EPS) of 62 cents for the first quarter of fiscal 2019, up from the year-ago quarter’s 45 cents. However, the bottom line missed the Zacks Consensus Estimate of 64 cents by 3.2%. The year-over-year upside was driven by higher gross profit margin. Further, a tax cut owing to the recent U.S. tax reform provided an impetus.

Net sales in the reported quarter rose 9.7% year over year to $87.4 million. Sales also steered past the consensus estimate of $86.1 million by 1.5%.

According to this leading pet pharmacy in the Americas, the sales upside was a result of increased reorders as well as new orders.

In the reported quarter, reorder sales increased 10.9% to $71.5 million on a year-over-year basis, while new order sales rose 4.6% to $15.9 million.

Average order value was approximately $90 in the quarter compared with $87 in the year-earlier quarter. 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 69,000 new customers, similar to the year-ago period. Roughly 85% of all orders was generated from its website (compared with 84% a year ago).

Gross margin contracted a marginal 20 basis points (bps) year over year to 34.3% in the quarter under review. The decline was due to additional discounts offered to customers to accelerate sales.

General and administrative expenses rose 11.3% year over year to $6.9 million. Further, advertising expenses increased 6.3% to $6.7 million. Adjusted operating margin (without including depreciation expenses) remained flat at 18.8% with the year-ago quarter level.

PetMed exited the fiscal first quarter with cash and cash equivalents of $94.6 million, compared with $77.9 million at the end of fiscal 2018. The company also declared a quarterly dividend of 27 cents per share, payable to shareholders on record as of Aug 3, 2018.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

At this time, PetMed has a strong Growth Score of A, though it is lagging a bit on the momentum front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for growth investors while also being suitable for those looking for momentum and to a lesser degree value.

Outlook

PETS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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