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PetMed (PETS) Down 7.8% Since Earnings Report: Can It Rebound?

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About a month has gone by since the last earnings report for PetMed Express, Inc. (PETS - Free Report) . Shares have lost about 7.8% in that time frame.

Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

PetMed announced earnings per share (EPS) of 43 cents for the second quarter of fiscal 2018, up 79.2% from the year-ago quarter’s 24 cents. Also, earnings surpassed the Zacks Consensus Estimate by 43.3%.

The year-over-year rise in earnings was driven by an increase in sales and improved margins.

Net sales in the reported quarter rose 10% year over year to $66.7 million, outpacing the Zacks Consensus Estimate by 5.9%.

Per this leading pet pharmacy in Americas, the upside in sales was a result of increased new orders and reorders during the quarter.

In the reported quarter, reorder sales increased 9.9% to $55.1 million on a year-over-year basis, while new order sales rose 8.8% to $11.6 million.

Average order value was approximately $85 in the quarter compared with $82 in the year-ago quarter. We note that the variation in average order value is mainly driven by a shift of sales to higher priced items.

Per the company, the seasonality in its business is mainly because of the proportion of flea, tick and heartworm medications in the product mix. Spring and summer are considered peak seasons while fall and winter represent off-seasons.

During the quarter under review, PetMed acquired 134,000 new customers, up from 131,000 a year ago. Roughly, 84% of all orders was generated from its website (versus 82% in the prior-year quarter).

Gross margin expanded 548 basis points (bps) year over year to 35.2% in the reported quarter. General and administrative expenses were up 7.5% year over year to $6.2 million.

Also, advertising expenses rose 3.3% to $4.5 million. This led to a 5.6% increase in adjusted operating expenses (without depreciation expense), which amounted to $10.7 million. Nevertheless, adjusted operating margin in the quarter rose 610 bps to 19.1% from the year-ago quarter.

PetMed exited the fiscal second quarter with cash and cash equivalents of $68.4 million compared with $68.5 million at the end of the first-quarter fiscal 2017. The company also announced a quarterly dividend of 20 cents per share, payable to shareholders of record as of Nov 17, 2017.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter.

VGM Scores

At this time, the stock has a great Growth Score of A, though it is lagging a lot on the momentum front with a D. Following the exact same course, the stock was allocated also a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregte VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable soley for growth based on our styles scores.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.


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