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Why PetMed Express Stock Briefly Tanked Today

By George Budwell - Jul 22, 2019 at 10:00AM

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PetMed's weaker-than-expected fiscal first quarter isn't sitting well with shareholders this morning.

What happened

Shares of the online pet medication and supply company PetMed Express ( PETS -0.07% ) fell by as much as 12.5% in pre-market trading today. The culprit?

PetMed's shares briefly tanked this morning in response to the company's disappointing fiscal first-quarter results announced before the opening bell. Specifically, the company badly missed Wall Street's consensus estimate for EPS under generally accepted accounting principles by a whopping 38%. It also whiffed on its consensus revenue estimate for the quarter by a stately 6.8%. After the opening bell, however, shares immediately regained most of this lost ground, and were down only 3.41% as of 9:47 a.m. EDT.   

A kitty extending its paw on the snout of at a fully grown golden retriever.

Image source: Getty Images.

So what

PetMed's management attributed this poor quarterly performance to increasing online competition that's been weighing heavily on both its gross margins and overall sales for the better part of the last year. That's not surprising, given the emergence of rival online pet retailers like Chewy.

To counteract this more competitive marketplace, PetMed said that it plans to aggressively pursue direct purchasing relationships with the major manufacturers, roll out more cost-effective advertising campaigns, and beef up its e-commerce platform. Unfortunately, PetMed didn't provide much in the way of long-term guidance in today's earnings release, which arguably would have helped investors gauge the effectiveness of these proposed countermeasures. 

Now what

Despite PetMed's rich shareholder rewards program that consists of share buybacks and a sizable dividend, the company's shares have been locked into a long-term downward trend. The underlying problem is that PetMed has yet to figure out an effective strategy at combating newcomers like Chewy. That's not to say that PetMed won't ultimately unearth a viable solution, but investors might want to take a cautious approach with this falling knife for the time being.   

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

PetMed Express, Inc. Stock Quote
PetMed Express, Inc.
PETS
$27.08 (-0.07%) $0.02
Chewy, Inc. Stock Quote
Chewy, Inc.
CHWY
$62.69 (-5.01%) $-3.31

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