Please ensure Javascript is enabled for purposes of website accessibility

What's Behind PetMed Express' Q1 Earnings Miss

By Keith Speights – Jul 20, 2020 at 12:08PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The pet pharmacy delivered solid revenue and earnings growth. But its bottom-line improvement wasn't quite good enough to impress analysts.

It's been a great year for PetMed Express (PETS -0.70%) so far. Shares of the pet pharmacy soared 72% heading into this week. But 2020 isn't going nearly as well for the company now.

PetMed Express announced the results for its fiscal 2021 first quarter, which ended on June 30, 2020, before the market opened on Monday. Shares plunged during the morning hours because of concerns about those results. Here are the highlights from PetMed's Q1 update.

A hand giving a pill to a dog

Image Source: Getty Images.

By the numbers

PetMed announced that its revenue jumped 20% year over year in the first quarter to $96.2 million. Analysts estimated that the company's revenue for the first quarter would come in at $87.9 million.

The company reported net income in the first quarter of $7.8 million, or $0.39 per share, based on generally accepted accounting principles (GAAP). This reflected significant improvement compared with PetMed's result in the prior-year period, when the company announced GAAP net income of $5.3 million, or $0.26 per share. This result narrowly missed the average analysts' estimate of adjusted earnings of $0.40 per share.

PetMed ended the first quarter with cash, cash equivalents, and short-term investments of $86.8 million. This was down from the $103.8 million on hand as of March 31, 2020.

Behind the numbers

Overall, PetMed turned in a strong performance in the first quarter. CEO Menderes Akdag noted that the company's e-commerce channel demand increased as consumers shifted to buying pet pharmacy products online. This boosted PetMed's top and bottom lines.

The COVID-19 pandemic didn't negatively impact PetMed much. The company was designated as an essential business. It has been able to remain open during normal business hours without any major issues. Akdag said that thus far PetMed hasn't experienced significant supply chain disruptions. However, the company did temporarily increase its inventory levels during Q1 as a precautionary measure.

PetMed picked up around 186,000 new customers in the first quarter, well above the 140,000 new customers acquired in the prior-year period. Its average order size also increased to $89 from $86 in the same period of 2019.

Analysts expected a little more from PetMed's Q1 earnings than the company delivered. However, PetMed's total operating expenses rose by only 10.5% year over year compared with much higher revenue growth of 20%. Akdag said that the company was "more efficient with our advertising in the quarter reducing our customer acquisition cost from $62 in the quarter ended June 30, 2019 to $48 in the current quarter, while increasing advertising expenses by approximately 5%." 

Looking ahead

PetMed plans to redesign its website and mobile app in fiscal 2021. Akdag said that these efforts are being undertaken to "optimize our customers' digital experience."

Shareholders can look forward to another quarterly dividend payment of $0.28 per share soon. The dividend will be paid on Aug. 7, 2020, for all shareholders of record as of the close of business on July 31, 2020.

It remains to be seen how quickly PetMed's shares will bounce back from the Q1 earnings miss. The healthcare stock trades at a high enough valuation that the market demands near-perfect execution. However, the fundamentals of PetMed's business still appear to be strong. 

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

PetMed Express Stock Quote
PetMed Express
$19.79 (-0.70%) $0.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.