What happened

Shares of PetMed Express (PETS -1.16%) were slipping today after the online pet pharmacy posted disappointing results in its third-quarter earnings report.

As a result, the stock was down 12.5% as of 12:15 p.m. EST.

A beagle looking up

Image source: Getty Images.

So what

Revenue in the period rose 10% to $65.9 million, ahead of Wall Street estimates at $63.8 million, though only two analysts are covering the stock.  

Reorder sales were up 11.9% to $60.2 million, showing solid customer retention, though that growth rate decelerated from earlier in the fiscal year.  

Further down the income statement, gross margin improved from 29.5% to 29.8%, and it also gained leverage on overhead costs. On the bottom line, the company reported earnings per share of $0.38, up from $0.34, and matching analyst estimates.

CEO Menderes Akdag said, "We were pleased with the company's performance during the quarter and throughout 2020, where we have seen both double-digit top and bottom-line growth," and noted the positive impact of its loyalty program on reorder growth. 

Now what

Management did not offer guidance for the current quarter, and the sell-off seems like a bit of a surprise given the better-than-expected revenue result and the margin improvement. Still, investors may have expected more from the company given the surge in pet adoptions during the pandemic, and because other pet stocks like Chewy and Petco, which just IPO'ed, have done well.

PetMed Express shares surged at the beginning of the pandemic, but the stock is down from its peak last April, showing that the company has been unable to capitalize on the pandemic boom that has driven shares of Chewy higher. While the pet stock still looks like a solid dividend play, investors may want to temper their growth expectations after the latest quarter.