PetMed beats Q2 earnings forecasts on continued shift toward high-margin sales

PetMed Express ($PETS) continues to make progress in its efforts to cut costs and boost sales of high-margin products. The company said on Monday that its net income in the second quarter jumped 18% year over year to $4.5 million, or $0.22 diluted per share, despite the fact that its sales dropped to $56.7 million from $57.6 million in the same period last year. Earnings exceeded expectations of analysts polled by Zacks, who had expected the company to report earnings of $0.20 a share.

"Despite sales being down slightly we were able to increase both gross profit margins and average order size during the quarter," said CEO Menderes Akdag in a press release. Average order size increased to $80 during the quarter from $75 in the same period the year before, while a shift toward higher-margin items helped improve gross profit by 128 basis points, he said.

The Florida company, which markets directly to consumers as 1-800-PetMeds, reported that its sales for the first six months of the year dropped 1% to $128.4 million. Its net income in the first half grew 17% to $10.3 million.

PetMed has spent much of the past year changing the way it approaches consumers. Akdag told analysts in July the company had cut way back on television advertising, and instead was focusing on database marketing. Overall, the company's advertising expenses dropped 20% in both the fourth quarter of last year and the first quarter of 2015.

Akdag vowed to base future advertising decisions on return on investment, and clearly he's still finding it pays to trim back spending. During the second quarter, PetMed's advertising spend dropped another 10% to $6.2 million.

PetMed also declared a quarterly dividend of $0.18 per share, payable November 13. Investors have been pleased with the company's progress so far: Its share price has risen 17% since the beginning of the year to $16.47.

- here's the earnings release

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