PetMed Express Inc. (PETS, Financial) filed Quarterly Report for the period ended 2009-06-30.
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 $421.3 million; its shares were traded at around $18.54 with a P/E ratio of 17.3 and P/S ratio of 1.9. PetMed Express Inc. had an annual average earning growth of 27.2% over the past 5 years.
General and administrative expenses increased by approximately $681,000, or 11.7%, to approximately $6.5 million for the quarter ended June 30, 2009, from approximately $5.8 million for the quarter ended June 30, 2008. The increase in general and administrative expenses for the three months ended June 30, 2009 was primarily due to the following: a $308,000 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 $181,000 increase in credit card and bank service fees which is directly attributable to increased sales in the quarter; a $127,000 increase to property expenses which can be directly attributed to increased rent due to the 15,000 square feet warehouse and pharmacy expansion; a $80,000 increase in professional fees, with the majority of the increase relating to legal fees; and a $16,000 increase in other expenses, including travel expenses, license fees, and telephone expenses. Offsetting the increase was a $31,000 reduction in other expenses, including bad debt expense, insurance expenses, and office expenses.
Advertising expenses decreased by approximately $188,000, or 1.9%, to approximately $9.9 million for the quarter ended June 30, 2009, from approximately $10.1 million for the quarter ended June 30, 2008. 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, for the quarter ended June 30, 2009 was $33, compared to $38 for the same period the prior year. 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 12.8% and 14.7% for the three months ended June 30, 2009 and 2008, respectively. The decrease in advertising expense as a percentage of total sales for the quarter ended June 30, 2009 can be attributed to increased sales with declining new customer acquisition costs. 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 quarter to quarter due to seasonality and advertising availability. For the fiscal year ended March 31, 2009, quarterly advertising expenses as a percentage of sales ranged between 11% and 15%.
Other income decreased by approximately $407,000, or 86.6%, to approximately $63,000 for the quarter ended June 30, 2009 from approximately $470,000 for the quarter ended June 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 June 30, 2009, or on its operating activities.
The Companys working capital at June 30, 2009 and March 31, 2009 was $64.1 million and $54.6 million, respectively. The $9.5 million increase in working capital was primarily attributable to cash flow generated from operations. Net cash provided by operating activities was $29.3 million and $6.6 million for the three months ended June 30, 2009 and 2008, respectively. Net cash used in investing activities was $308,000 for the quarter ended June 30, 2009, compared to net cash provided by investing activities of $12.4 million for the same period in the prior year. This change can be attributed to an increased amount of investment redemptions in the prior quarter. Net cash provided by financing activities was $429,000 for the quarter ended June 30, 2009, compared to net cash used in financing activities of $707,000 for the same period in the prior year. This increase was primarily due the Company repurchasing 92,900 shares of its common stock for approximately $1.1 million during the first quarter of Fiscal 2009, compared to the Company repurchasing no shares of its common stock during the first quarter of Fiscal 2010. As of June 30, 2009 the Company had approximately $10.0 million remaining under the Companys 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.
The Company had $14.7 million (par) invested in auction rate securities (ARS) which were classified as long term investments in our financial statements as of June 30, 2009. Our ARS investments are not mortgage-backed based but are municipal-based and the securities underlying the ARS are currently rated AAA, the highest rating available by a rating agency. Our ARS consist of closed-end fund preferred ARS, whose interest rates are reset, typically every seven to twenty-eight days. In Fiscal 2010, the fair value of investments was based upon a valuation assessment by an outside third party. 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 income (loss), based upon an assessment of the fair value of these ARS. The $219,750 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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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 $421.3 million; its shares were traded at around $18.54 with a P/E ratio of 17.3 and P/S ratio of 1.9. 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 $5.3 million, or 12.5%, to approximately $47.9 million for the quarter ended June 30, 2009, from approximately $42.6 million for the quarter ended June 30, 2008. The increase in cost of sales is directly related to the increase in sales in the quarter ended June 30, 2009 compared to the quarter ended June 30, 2008. As a percent of sales, the cost of sales was 62.0% and 62.3% for the quarters ended June 30, 2009 and 2008, respectively. The percentage decrease can be attributed to a reduction in freight expenses due to a shift from priority to standard shipping, offset by increases in our product costs.General and administrative expenses increased by approximately $681,000, or 11.7%, to approximately $6.5 million for the quarter ended June 30, 2009, from approximately $5.8 million for the quarter ended June 30, 2008. The increase in general and administrative expenses for the three months ended June 30, 2009 was primarily due to the following: a $308,000 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 $181,000 increase in credit card and bank service fees which is directly attributable to increased sales in the quarter; a $127,000 increase to property expenses which can be directly attributed to increased rent due to the 15,000 square feet warehouse and pharmacy expansion; a $80,000 increase in professional fees, with the majority of the increase relating to legal fees; and a $16,000 increase in other expenses, including travel expenses, license fees, and telephone expenses. Offsetting the increase was a $31,000 reduction in other expenses, including bad debt expense, insurance expenses, and office expenses.
Advertising expenses decreased by approximately $188,000, or 1.9%, to approximately $9.9 million for the quarter ended June 30, 2009, from approximately $10.1 million for the quarter ended June 30, 2008. 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, for the quarter ended June 30, 2009 was $33, compared to $38 for the same period the prior year. 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 12.8% and 14.7% for the three months ended June 30, 2009 and 2008, respectively. The decrease in advertising expense as a percentage of total sales for the quarter ended June 30, 2009 can be attributed to increased sales with declining new customer acquisition costs. 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 quarter to quarter due to seasonality and advertising availability. For the fiscal year ended March 31, 2009, quarterly advertising expenses as a percentage of sales ranged between 11% and 15%.
Other income decreased by approximately $407,000, or 86.6%, to approximately $63,000 for the quarter ended June 30, 2009 from approximately $470,000 for the quarter ended June 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 June 30, 2009, or on its operating activities.
The Companys working capital at June 30, 2009 and March 31, 2009 was $64.1 million and $54.6 million, respectively. The $9.5 million increase in working capital was primarily attributable to cash flow generated from operations. Net cash provided by operating activities was $29.3 million and $6.6 million for the three months ended June 30, 2009 and 2008, respectively. Net cash used in investing activities was $308,000 for the quarter ended June 30, 2009, compared to net cash provided by investing activities of $12.4 million for the same period in the prior year. This change can be attributed to an increased amount of investment redemptions in the prior quarter. Net cash provided by financing activities was $429,000 for the quarter ended June 30, 2009, compared to net cash used in financing activities of $707,000 for the same period in the prior year. This increase was primarily due the Company repurchasing 92,900 shares of its common stock for approximately $1.1 million during the first quarter of Fiscal 2009, compared to the Company repurchasing no shares of its common stock during the first quarter of Fiscal 2010. As of June 30, 2009 the Company had approximately $10.0 million remaining under the Companys 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.
The Company had $14.7 million (par) invested in auction rate securities (ARS) which were classified as long term investments in our financial statements as of June 30, 2009. Our ARS investments are not mortgage-backed based but are municipal-based and the securities underlying the ARS are currently rated AAA, the highest rating available by a rating agency. Our ARS consist of closed-end fund preferred ARS, whose interest rates are reset, typically every seven to twenty-eight days. In Fiscal 2010, the fair value of investments was based upon a valuation assessment by an outside third party. 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 income (loss), based upon an assessment of the fair value of these ARS. The $219,750 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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