Is PetMed Getting Too Much Credit for Its Q1 Report?

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PetMed Express Inc. (NASDAQ: PETS) reported its fiscal first-quarter financial results before the markets opened on Monday. The firm said that it had $0.26 in earnings per share (EPS) and $80.0 million in revenue. That compares with consensus estimates of EPS of $0.46 on $85.92 million in revenue, as well as the $0.62 per share and $87.39 million in the same period of last year.

During the quarter, sales and gross margins were negatively affected by increased online competition and aggressive pricing in the market that forced management to reduce prices. The average order value declined to $86 from $90 year over year.

During the quarter, PetMed bought back roughly 613,000 shares of common stock for $11.5 million, with an average price of $18.73 per share. The board of directors declared a quarterly dividend of $0.27 per share on the company’s common stock. The dividend will be payable on August 9, for shareholders of record on August 2.

The company did not offer any guidance for the fiscal second quarter, but consensus estimates call for $0.43 in EPS and revenue of $71.6 million.

Menderes Akdag, president and CEO, commented:

Cash from operations for the quarter was negatively impacted by an $8.8 million increase in inventory, the result of cost-advantaged inventory buys that we made during the quarter. We intend to return to normal inventory levels in future quarters. One of our long-term strategic initiatives and primary goals has always been to have direct purchasing relationships with the major manufacturers. We made further progress on this initiative in the current quarter, which may help improve our gross margins in the future.  In fiscal 2020, we will continue to be price competitive and will focus on optimizing our marketing in this more competitive environment and being more efficient with our advertising spending.  In addition, we will be investing in our e-commerce platform to better service our customers.

Shares of PetMed traded down about 3% at $15.75 Monday morning, in a 52-week range of $15.00 to $38.90. The consensus analyst price target is $18.67. Note that the shares were down as much as 12% in early trading indications.

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