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PetMed (PETS) Q4 Earnings Top Estimates, Reorder Sales Solid

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PetMed Express, Inc. PETS announced earnings per share (EPS) of 50 cents for the fourth quarter of fiscal 2018, up from the year-ago quarter’s 37 cents. Also, the bottom line surpassed the Zacks Consensus Estimate of 44 cents by 13.6%. 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.

For the full year, EPS was $1.82, reflecting an increase of 55.6% from the year-ago $1.17. The EPS figure also beat the Zacks Consensus Estimate of $1.77.

Net sales in the reported quarter rose 6.8% year over year to $67.3 million. However, sales missed the consensus estimate of $68.1 million by 1.2%.

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

Net sales totaled $273.8 million in the full year, up 9.9% from a year ago. Net sales, however, missed the Zacks Consensus Estimate of $274.6 million.

PetMed Express, Inc. Price, Consensus and EPS Surprise

 

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

In the reported quarter, reorder sales increased 9.4% to $57 million on a year-over-year basis, while new order sales declined 5% to $10.3 million.

Average order value was approximately $89 in the quarter compared with $86 in the year-earlier quarter. We note that the variation in average order value was mainly because of a shift in sales to higher priced items.

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 113,000 new customers, up from 126,000 a year ago. Roughly 85% of all orders was generated from its website (compared with 83% in the prior-year quarter).

Gross margin expanded 190 basis points (bps) year over year to 37% in the quarter under review. General and administrative expenses were up 8.9% year over year to $6.1 million. However, advertising expenses declined 2.3% to $4.3 million. Adjusted operating expenses, however, rose 4% (without depreciation expense) to $10.4 million. Nevertheless, adjusted operating margin in the quarter expanded 210 bps to 21.5% from the year-ago quarter.

PetMed exited the fiscal with cash and cash equivalents of $77.9 million, compared with $58.7 million at the end of fiscal 2017. The company also declared a quarterly dividend of 25 cents per share, payable to shareholders on record as of May 25, 2018.

Our Take

PetMed exited the fiscal fourth quarter on a mixed note. However, we are encouraged by the growth in reorder sales in the quarter. Further, an expanding gross margin due to a shift to higher margin products like next generation medications buoys optimism.

The company is also striving to implement strategies to revitalize its top line. These include increased focus on advertising efficiency to boost new order sales as well as shifting sales to higher margin items while also expanding its product line.

Zacks Rank & Key Picks

PetMed has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical space which have reported solid results this season are Intuitive Surgical ISRG, Chemed Corporation CHE and Baxter International Inc. BAX. While Intuitive Surgical sports a Zacks Rank #1 (Strong Buy), Chemed and Baxter carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical reported first-quarter 2018 adjusted EPS of $2.44, which beat the Zacks Consensus Estimate by 22.6%. Revenues totaled $848 million, also surpassing the consensus estimate by 10.6%.

Chemed posted first-quarter 2018 adjusted EPS of $2.72, surpassing the Zacks Consensus Estimate of $2.37. Revenues came in at $439.2 million, beating the Zacks Consensus Estimate of $420 million.

Baxter posted first-quarter 2018 adjusted EPS of 70 cents, which beat the Zacks Consensus Estimate by 12.9%. Revenues of $2.68 billion also edged past the Zacks Consensus Estimate of $2.62 billion.

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