PetMed Express Inc. (PETS) filed Quarterly Report for the period ended 2009-09-30.
Petmed Express is America's largest pet pharmacy delivering prescription and non-prescription pet medications and health and nutritional supplements for dogs and cats at competitive prices direct to the consumer through its 1-800-PetMeds toll free number and on the Internet. Petmed Express Inc. has a market cap of $358.19 million; its shares were traded at around $15.69 with a P/E ratio of 14.26 and P/S ratio of 1.63. The dividend yield of Petmed Express Inc. stocks is 2.55%. Petmed Express Inc. had an annual average earning growth of 27.2% over the past 5 years.
Highlight of Business Operations:
Cost of sales increased by approximately $2.1 million, or 5.6%, to approximately $38.8 million for the quarter ended September 30, 2009, from approximately $36.7 million for the quarter ended September 30, 2008. For the six months ended September 30, 2009, cost of sales increased by approximately $7.3 million, or 9.3%, to approximately $86.6 million compared to $79.3 million for the same period in the prior year. The increase in cost of sales is directly related to the increase in sales in the quarter ended September 30, 2009 compared to the quarter ended September 30, 2008. As a percent of sales, the cost of sales was 62.1% and 61.6% for the quarters ended September 30, 2009 and 2008, respectively, and for the six months ended September 30, 2009 and 2008, the cost of sales was 62.1% and 62.0%, respectively. The percentage increase for the three months can be attributed to increases in our product costs. The percentage increase for the six months can also be attributed to increases in our product costs, offset by a reduction in freight expenses due to a shift from priority to standard shipping.
General and administrative expenses increased by approximately $160,000, or 2.8%, to approximately $5.8 million for the quarter ended September 30, 2009, from approximately $5.6 million for the quarter ended September 30, 2008. For the six months ended September 30, 2009, general and administrative expenses increased by approximately $841,000, or 7.4%, to approximately $12.3 million compared to general and administrative expenses of approximately $11.4 million for the six months ended September 30, 2008. The increase in general and administrative expenses for the three months ended September 30, 2009 was primarily due to the following: a $161,000 increase to payroll expenses related to the addition of new employees in the customer care and pharmacy departments enabling the company to sustain its growth; a $76,000 increase in credit card and bank service fees which is directly attributable to increased sales in the quarter; a $30,000 increase to property expenses which can be directly attributed to increased rent due to the 15,000 square feet warehouse and pharmacy expansion; and a net $23,000 increase in other expenses, including bad debt expenses, office expenses, and telephone expenses. Offsetting the increase was a $130,000 reduction in professional fees, with the majority of the decrease relating to legal fees.
Advertising expenses decreased by approximately $908,000, or 10.5%, to approximately $7.8 million for the quarter ended September 30, 2009, from approximately $8.7 million for the quarter ended September 30, 2008. For the six months ended September 30, 2009, advertising expenses decreased by approximately $1.1 million, or 5.9%, to approximately $17.6 million compared to advertising expenses of approximately $18.7 million for the six months ended September 30, 2008. The decrease in advertising expenses can be mainly attributed to a shortage in the remnant television advertising inventory. During the quarter the Company planned to commit certain amounts specifically designated towards television, direct mail/print, and online advertising to stimulate sales, create brand awareness, and acquire new customers. The advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers acquired, was $33 for both the quarter and the six months ended September 30, 2009, compared to $36 for the quarter ended September 30, 2008 and $37 for the six months ended September 30, 2009. Advertising cost of acquiring a new customer can be impacted by the advertising environment, the effectiveness of our advertising creative, increased advertising spending, and price competition from veterinarians and other retailers of pet medications. Historically, the advertising environment fluctuates due to supply and demand. A more favorable advertising environment may positively impact future new order sales, whereas a less favorable advertising environment may negatively impact future new order sales. As a percentage of sales, advertising expense was 12.4% and 14.5% for the quarters ended September 30, 2009 and 2008, respectively, and 12.6% and 14.6% for the six months ended September 30, 2009 and 2008, respectively. The decrease in advertising expense as a percentage of total sales for the quarter and six months ended September 30, 2009 can be attributed to increased sales with declining new customer acquisition costs and a reduction in advertising spending. The Company currently anticipates advertising as a percentage of sales to range from approximately 12.0% to 13.0% for Fiscal 2010. However, the advertising percentage will fluctuate
Other income decreased by approximately $462,000, or 88.8%, to approximately $59,000 for the quarter ended September 30, 2009 from approximately $521,000 for the quarter ended September 30, 2008. Other income decreased by approximately $869,000, or 87.8%, to approximately $122,000 for the quarter ended September 30, 2009 from approximately $991,000 for the quarter ended September 30, 2008. The decrease to other income can be primarily attributed to decreased interest income due to a reduction in interest rates. The decrease can also be attributed to a reduction in advertising revenue generated from our website. Interest income may decrease in the future due to a reduction in interest rates and also as the Company utilizes its cash balances on its $20.0 million share repurchase plan, with approximately $10.0 million remaining as of September 30, 2009, on any quarterly dividend payment, or on its operating activities.
The Company’s working capital at September 30, 2009 and March 31, 2009 was $71.0 million and $54.6 million, respectively. The $16.4 million increase in working capital was primarily attributable to cash flow generated from operations, and a $2.2 million redemption of our ARS investments. Net cash provided by operating activities was $26.1 million and $18.7 million for the six months ended September 30, 2009 and 2008, respectively. The increase can mainly be attributed to a decrease in inventory. Net cash provided by investing activities was $1.6 million for the six months ended September 30, 2009, compared to net cash used in investing activities of $9.1 million for the same period in the prior year. This change can be attributed to an increased amount of investment purchases in the prior quarter. Net cash used in financing activities was $1.6 million and $851,000 for the six months ended September 30, 2009 and 2008, respectively. This change was primarily due to a decrease in the proceeds from the exercise of stock options. The Company received approximately $476,000 in proceeds in the six months ended September 30, 2009 compared to proceeds of approximately $1.2 million in the six months ended September 30, 2008. On August 3, 2009 our Board of Directors declared a $0.10 per share dividend. The Board established an August 14, 2009 record date and an August 31, 2009 payment date. The company paid approximately $2.3 million for its new quarterly dividend in the six months ended September 30, 2009, which was offset in the prior year by the Company repurchasing 182,400 shares of its common stock for approximately $2.2 million during the six months ended September 30, 2008. As of September 30, 2009 the Company had approximately $10.0 million remaining under the Company’s share repurchase plan. Depending on future market conditions the Company may utilize its cash and cash equivalents on the remaining balance of its current share repurchase plan, or on its quarterly dividend.
As of March 31, 2009, the Company held $14.7 million (par) in ARS, which were classified as long term investments and the Company recorded an unrealized impairment loss of $219,750, in the fourth quarter of Fiscal 2009, within accumulated other comprehensive loss, based upon an assessment of the fair value of these ARS. During the quarter ended September 30, 2009 the Company was able to liquidate approximately $2.2 million of its ARS investments. As of September 30, 2009, the Company held $12.5 million (par) in ARS, which were classified as long term investments. The Company reduced the unrealized impairment loss to $187,500, in the second quarter of Fiscal 2010, within accumulated other comprehensive loss, based upon an assessment of the fair value of these ARS. The $187,500 impairment was recorded as temporary due to the fact that the Company has both the ability and intent to hold these securities until anticipated recovery or maturity. However, it could take until the final maturity or issuer refinancing of the underlying debt for us to realize the recorded value of our investments in these securities. If the issuers of our ARS are unable to successfully close future auctions or redeem or refinance the securities and their credit ratings deteriorate, we may in the future be required to record an additional impairment charge on these investments, or may need to sell these securities on a secondary market. Although we believe we will be able to liquidate our investments in these securities without any significant loss, the timing and financial impact of such an outcome is uncertain. Based on our expected cash expenditures, our cash and cash equivalents balance, and other potential sources of cash, we do not anticipate that the potential lack of liquidity of these investments in the near term will adversely affect our ability to execute our current business plan.
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