PetMed beats earnings estimates by a nose despite declining sales

PetMed Express ($PETS), known to dog and cat owners as 1-800-PetMeds, has spent much of the last year trying to boost sales of high-margin prescription medications, and it seems to be making some headway. On Monday, the Florida company announced that its net income for the fiscal first quarter ended in June jumped 16% year over year to $5.8 million, or $0.29 per share. The results beat the average earnings estimate by a penny.

Sales during the quarter actually fell 1% to $71.6 million. But PetMed was able to cut its operating expenses by 260 basis points, according to a press release announcing the results, and customers did show some willingness to fill pricey prescriptions through the company's online pharmacy.

"Despite our sales decrease for the quarter we were able to increase our average order size to $82 for the quarter ended June 30, 2015, compared to $78 for the same quarter in the prior year," said Menderes Akdag, CEO of PetMed, in the release. "For the remainder of Fiscal 2016 we are focusing on improving our marketing efforts to increase sales and profitability."

PetMed has been cutting down on its advertising--a decision that raised eyebrows among Wall Street analysts last quarter, when the company's marketing spend dropped 23% year over year. "The return on investments is not there for the incremental dollar (spent), so we did not want to waste any money," Akdag said at the time, during an earnings call with analysts. When asked if that might change in the future, Akdag made no promises except to say that the company would rely less on mass advertising and more on "database one-to-one marketing."

The company's marketing spend continues to fall, however. During the first quarter, advertising expenditures dropped 20% year-over-year to $7.9 million. Still, investors seem to be confident that Akdag's plan will eventually pay off: They've pushed PetMed shares up 27% in the last year to $17.

- here's the earnings release
- read more at the Associated Press

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