Financial Performance

PetMed Earnings Dip as Online Competition Bites

The pet pharmacy "has yet to figure out an effective strategy at combating newcomers" like PetSmart's
Matthew HellerJuly 23, 2019
PetMed Earnings Dip as Online Competition Bites

PetMed Express badly missed quarterly earnings estimates as online competition and pricing pressures hurt the pet pharmacy’s sales and profits.

For the first quarter, PetMed said Monday it earned $5.3 million, or $0.26 per share — down from $12.6 million, or $0.62 per share. a year ago — as sales declined 8.5% to $80 million. Gross margin fell almost 700 basis points year to year.

Analysts had been expecting earnings of $0.42 per share on revenue of $85.8 million.

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“Our sales and gross margins were negatively impacted by increased online competition and aggressive pricing in the market that forced us to reduce our prices,” CEO Menderes Akdag said in a news release, noting that PetMed’s average order value dropped from $90 to $86.

Akdag told analysts in an earnings call that margins may have bottomed out and “should improve in the future quarters” as pricing stabilizes in the market.

The company said it plans to aggressively pursue direct purchasing relationships with the major manufacturers — it has traditionally relied on purchasing from third-party distributors — roll out more cost-effective advertising campaigns, and beef up its e-commerce platform.

But in pre-market trading, PetMed shares slumped 12.5% before rebounding in the regular session. So far this year, the stock has fallen about 59%.

As The Motley Fool reports, increasing online competition — notably from PetSmart’s new platform — has been “weighing heavily on both [PetMed’s] gross margins and overall sales for the better part of the last year.”

“The underlying problem is that PetMed has yet to figure out an effective strategy at combating newcomers like Chewy,” The Motley Fool said.

Akdag acknowledged in the earnings call that “The competition is really coming — the impact is coming from online competitors — and its pretty much all the way across both prescription and OTC.” But he noted that PetMed expects to launch its new e-commerce platform before the end of the year, with the goal of improving user experience.

According to Akdag, PetMed will be procuring all of its product directly from manufacturers within the next two to three months.