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PetMed (PETS) Q3 Earnings Fall Y/Y, Reorder Sales Strong

Zacks Equity Research

PetMed Express, Inc. PETS announced earnings per share (EPS) of 38 cents in the third quarter of fiscal 2019, down from the year-ago quarter’s 44 cents. The year-over-year decline was largely due to a drop in gross profit margin.

Net sales in the reported quarter remained flat year over year at $60.1 million.

In the reported quarter, reorder sales increased 4.6% to $53.3 million on a year-over-year basis, while new order sales declined 26.1% to $6.8 million. Per the company, growing online rivalry affected new order sales.

Average order value was approximately $84 in the quarter compared with $86 a year ago. The decline can be attributed to more aggressive pricing. 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.

PetMed Express, Inc. Price, Consensus and EPS Surprise


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

During the quarter under review, PetMed acquired 81,000 new customers compared with 106,000 a year ago.

Gross margin contracted 420 basis points (bps) year over year to 32.3% in the quarter under review. The contraction was mainly led by extra discounts provided to the consumers.

General and administrative expenses remained almost flat year over year at $5.8 million. However, advertising expenses declined 12.2% to $3.6 million. Adjusted operating margin (without including depreciation expenses) declined 340 bps to 16.6% from the year-ago quarter.

PetMed exited the fiscal third quarter with cash and cash equivalents of $93.2 million, compared with $87.1 million at the end of second-quarter fiscal 2019. The company also declared a quarterly dividend of 27 cents per share, payable to shareholders on record as of Feb 15, 2019.

Our Take

PetMed’s fiscal third-quarter earnings were hit by growing competition which forced the company to offer additional discounts to customers. This also had a negative impact on gross margin. However, the company expects to gain momentum in the online market by opting for more aggressive pricing and promotion strategies and shelling out more on advertisements.

Key Picks

A few top-ranked stocks in the broader medical space are BioTelemetry, Inc. BEAT, ABIOMED, Inc. ABMD and DexCom, Inc. DXCM.

BioTelemetry is expected to release fourth-quarter 2018 results on Feb 28. The Zacks Consensus Estimate for the period’s adjusted EPS is 42 cents and for revenues, $103.02 million. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

ABIOMED is expected to release fourth-quarter fiscal 2018 results on Jan 31. The Zacks Consensus Estimate for the quarter’s adjusted EPS is pegged at 94 cents and for revenues stands at $200.6 million. The stock has a Zacks Rank #2 (Buy).

DexCom is slated to release fourth-quarter 2018 results on Jan 26. The Zacks Consensus Estimate for adjusted EPS for the to-be-reported quarter is 14 cents and for the top line, $330.6 million. The stock carries a Zacks Rank of 2.

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