PetMed falls short of Q1 sales hopes but continues to boost bottom line

PetMed Express sells medicines for dogs and cats direct to consumers.

PetMed Express ($PETS), known to consumers as 1-800-PetMeds, has spent much of the last two years overhauling its marketing plan in a bid to boost its efficiency, while at the same time trying to draw customers towards high-margin products. Investors have been pleased with the company’s progress, pushing shares up from $16.75 at the start of the year to $19.60.

But with progress comes high expectations, and when PetMed Express announced results for its fiscal first quarter on July 25, it didn’t quite live up to analysts’ hopes. The Florida company announced that sales in its first quarter rose just 1% year-over-year to $72.5 million, missing forecasts by about $1 million, according to figures collected by Seeking Alpha. The company’s net income rose 15% to $6.6 million (32 cents a share), which did beat estimates by a penny.

CEO Menderes Akdag urged investors to focus on continued efficiency gains, rather than the flat top line. The cost of acquiring each new customer dropped from $53 to $37 over the last year, he said in a press release announcing the results. “We were able to decrease our operating expenses to improve our bottom line results,” Akdag said, adding that the company acquired 158,000 new customers during the quarter while reducing its operating expenses by 274 basis points compared to the same period last year.

PetMed Express has been trying to change its image as a telephone pharmacy, hoping to retrain its customers to log onto its website rather than dialing the phone, and it is slowly making progress towards that goal. The company’s online sales during the most recent quarter were 82% of all sales, vs. 81% in year-ago quarter.

Akdag has traditionally been cagey when asked for details about how PetMed’s marketing strategy is changing, but during its fourth-quarter earnings call with analysts in May, he did say the company has moved away from television advertising and towards a more “targeted” strategy. One analyst noted that by the end of the last fiscal year, PetMed’s advertising expenses were 6% of sales--half of what they were in fiscal 2012.

To what extent PetMed Express can continue to pare back its expenses remains to be seen. In keeping with his close-to-the-vest style, Akdag made no predictions about the company’s performance for the rest of the year in the earnings release, choosing only to remind investors that PetMed is preparing to move into a new headquarters building and distribution facility this quarter.

- here’s the earnings release

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PetMed marketing overhaul pays off as orders continue to rise in Q3