PetMed Express Management Discusses Q1 2013 Results - Earnings Call Transcript

PetMed Express (PETS)

Q1 2013 Earnings Call

July 23, 2012 8:30 am ET

Executives

Bruce S. Rosenbloom - Chief Financial Officer, Principal Accounting Officer and Treasurer

Menderes Akdag - Chief Executive Officer, President, Director and Member of Investment Committee

Analysts

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Mitchell O. Bartlett - Craig-Hallum Capital Group LLC, Research Division

Erin E. Wilson - BofA Merrill Lynch, Research Division

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

Anthony C. Lebiedzinski - Sidoti & Company, LLC

Ross Taylor - CL King & Associates, Inc.

Presentation

Operator

Welcome to the PetMed Express, Incorporated Doing Business as 1-800-PetMeds Conference Call to review the financial results for the first fiscal quarter ended on June 30, 2012. At the request of the company, this conference call is being recorded.

Founded in 1996, 1-800-PetMeds is America's Largest Pet Pharmacy, delivering prescription and nonprescription pet medications and other health products for dogs and cats direct to the consumer. 1-800-PetMeds markets its products through national television, online, direct mail and print advertising campaigns, which direct consumers to order by phone or on the Internet and aim to increase the recognition of the PetMeds family of brand names. 1-800-PetMeds provides an attractive alternative for obtaining pet medication in terms of convenience, price, ease of ordering and rapid home delivery.

At this time, I would like to turn the conference call over to the company's Chief Financial Officer, Mr. Bruce Rosenbloom. And sir, you may begin.

Bruce S. Rosenbloom

Thank you. I'd like to welcome everybody here today. [Operator Instructions]

Also, certain information that will be included in this press conference may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 or the Securities and Exchange Commission that may involve a number of risks and uncertainties. These statements are based on our beliefs, as well as assumptions we have used based upon information currently available to us. Because these statements reflect our current views concerning future events, these statements involve risks, uncertainties and assumptions. Actual future results may vary significantly based on a number of factors that may cause the actual results or events to be materially different from future results, performance or achievements expressed or implied by these statements. We have identified various risk factors associated with our operations in our most recent annual report and other filings with the Securities and Exchange Commission.

Now let me introduce today's speaker, Mendo Akdag, the President and Chief Executive Officer of 1-800-PetMeds. Mendo?

Menderes Akdag

Thank you, Bruce. Welcome, everyone. Thank you for joining us. Today, we will review the highlights of our financial results. We'll compare our first fiscal quarter ended on June 30, 2012, to last year's quarter ended on June 30, 2011.

For the first fiscal quarter ended on June 30, 2012, sales were $69 million compared to sales of $73.6 million for the same period the prior year, a decrease of 6.3%. The unavailability of Novartis brands disrupted our sales during the quarter. In addition, the decrease was due to the consumers purchasing smaller quantities, for example, 3 packs instead of 6 packs, additional discounts given due to increased competition and a change in product mix to lower-priced items.

Also, the peak season started early this year due to the warmer climate in the March quarter, which might have shifted sales from the June quarter to the March quarter. For the first fiscal quarter, net income was $4 million or $0.20 diluted per share, compared to $4.8 million or $0.22 diluted per share for the same quarter last year, a decreased earnings per share of 12%. The decrease was mainly due to a decrease in sales.

Reorder sales decreased by 2.8% to $55.1 million for the quarter compared to reorder sales of $56.6 million for the same quarter the prior year. The decrease was due to a decrease in average order size.

Reorder sales decreased by 18% to $13.9 million for the quarter, compared to $17 million for the same quarter the prior year. The decrease was mainly due to an increase in customer acquisition costs and decrease in average order size, in addition to slightly reduced advertising.

We acquired approximately 197,000 new customers in our first fiscal quarter compared to 226,000 for the same period the prior year. Our average order was approximately $73 for the quarter compared to $80 for the same quarter the prior year. The decline was also due to the consumer purchasing smaller quantities, additional discounts given and a change in product mix to lower-priced items.

Approximately 77% of our sales were generated on our website for the quarter compared to 73% for the same period the prior year. The seasonality in our business is due to the proportion of flea, tick and heartworm medications in our product mix. Spring and summer are considered peak seasons, with fall and winter being the off seasons.

For the first fiscal quarter, our gross profit, as a percent of sales, was 32.4% compared to 32.8% for the same period 1 year ago. The percentage decrease can be attributed to an increase in freight costs to improve service levels.

Our general and administrative expenses, as a percent of sales, was 8.6% for the first fiscal quarter compared to 8.3% for the same quarter the prior year. The increase was due to lower sales.

We spent $9.8 million in advertising for the quarter compared to $10.1 million for the same quarter the prior year, a decrease of about 2%. We reduced advertising late in the quarter due to increases in costs. The advertising cost of acquiring a customer was $50 for the quarter compared to $45 for the same quarter the prior year.

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