PetMed Express (PETS 34.64, -5.55, -13.81%), which refers to itself as America's Largest Pet Pharmacy, is trading sharply lower today (-14%) after reporting 1Q19 (Jun) earnings this morning.
PETS sells prescription and non-prescription pet medications
and other health products for dogs and cats at competitive prices directly to consumers
online and through toll free calling. PETS markets its products through
national television, online channels, and direct mail and print advertising
campaigns. Generally, its medication prices are competitive with, and
oftentimes lower than, prices charged by veterinarians and retailers.
To be clear, PETS is better thought of as a distributor of these products rather than as the manufacturer. In fact, many major pharmaceutical manufacturers have declined to sell pet medications directly to PETS. They would rather the meds be sold directly by the veterinarian to the consumer, probably to ensure that a trained vet is always available to explain the medication to the purchase -- and probably because they want to charge more money. As a result, PETS purchases many medications indirectly from secondary sources, including distributors.
Turning to today's JunQ earnings report, EPS rose 38% year/year to $0.62. Revenue rose 9.7% year/year to $87.4 mln. It was a mixed quarter, as EPS was slightly below market expectations while revenue was a bit better than market expectations. Gross margin fell slightly to 34.3% from 34.5% last year while operating margin also dipped slightly to 18.0% from 18.1% last year.
PETS says it was pleased with increases in both new order and reorder sales during the quarter along with continued net income growth. Average order value increased to $90 for the quarter compared to $87 for the same quarter the prior year. In addition to earnings, PETS also announced it has increased its quarterly dividend to $0.27/share from $0.25/share. That's an 8% increase.
Judging by the stock’s performance today, investors are clearly not happy with this JunQ report. The company is known for providing little detail in its press release, and this report was true to that trend. With that said, our sense is that investors were concerned by PETS’ report of its first EPS miss after five consecutive upside quarters.
The miss seems related to the margin decline. While gross and operating margin was down only slightly, the fact that there was revenue upside but an EPS miss tells us that margins came up a bit light of market expectations. Looking ahead, hopefully results can improve in SepQ and DecQ. The stock has been on an up and down roller coaster over the past year or so, and today's report is sending the stock steeply back toward a trough.