Q2 2020 Earnings Call

[laughter].

Welcome to the pad Medexpress incorporated doing but that's that's one 800 cabinets conference call.

To review the financial results for the second quarter ended last September Thirtyth 2019.

At the request of the company. This conference call is being recorded.

Founded in 1980, 618 hundred Petmeds is America's largest at the pharmacy, delivering Prince caption Nonprescription patent applications and other health products for dogs and cats direct to the consumer.

One 800, petmeds markets its product through national advertising campaigns, which direct consumers to order by phone or into Internet and aim to increase the recognition of the Petmeds family of brand names.

One 800, Petmeds provides an attractive alternative for obtaining pad medications in terms of convenience price ease of ordering and rapid home delivery.

At this time I would like to turn to call over to the Companys Chief Financial Officer, Mr. Bruno <unk> you may begin.

[laughter]. Thank you are willing to welcome everybody here today before I turn the call over to amend the walked our president and Chief Executive Officer, I like to remind everyone that the first portion of this conference call will be listening.

Until the question answer session, which will be later, which will be later in the call also certain information that will be included in this press conference May include forward looking statements within the meaning of the private Securities Litigation Reform Act of 90, 95, or the Securities Exchange Commission that may involve a number of risks and uncertainties.

Statements are based on our beliefs as well assumptions we abuse.

Based upon information currently available to us because these statements reflect our current views concerning future events.

Statements involve risks uncertainties assumptions actual future results may vary significantly based on a number of factors that may cause actual results for them to be materially different from future results performance or achievements expressed or implied by these statements. We've identified various risk factors associated.

And with our operations and our most recent annual report and other filings with the Securities and Exchange Commission.

Now, let me introduce today Speaker Mendo walk down the President and Chief Executive Officer of 100 Mad men do Thank you Bruce welcome and thank you for joining us.

Before we start to review our financial result.

We're pleased to report we now have <unk> direct relationships with a major manufacturers.

These manufacturers have minimal advertised price policies.

Selling and general pricing discipline on the market.

I will compare our second fiscal quarter of six months ended on September 32019.

Last year's quarter, a six month.

Good on September 32018.

For the second fiscal quarter ended on September 32019, our sales were $69.9 million compared to $71.4 million for the same period the prior year increase from 2%.

For the six months ended on September 32019 sales were $149.9 million compared to $158.8 million. There was six miles to the prior year increase of 5.6 stores.

The decreases as sales were due to decreases in new order sales offset by increases in reorder sales for the quarter.

Decreases awareness, new I reorder sales for the six month.

Sales were negatively impacted by increase online competition.

Resin pricing in the market that forced us to reduce prices.

And as I, just mentioned the manufacturers' met him well advertised price policies.

In general pricing discipline enter the market.

The average order value was approximately $85 for the quarter compared to $87 for the same period last year.

Decrease was due to the price reductions.

For the second fiscal quarter net income was $6.7 million or 33 cents diluted per share compared to $10.8 million or 52 cents diluted per share for the same quarter that prior year.

An increase to diluted earnings per share of 36%.

For the six month net income was $12 million or 60 cents diluted per share.

The $23.3 million or $1.14 cents diluted per share a year ago. It increased diluted earnings per share of 48%.

In addition to increases in sales increases so that income are mainly attributable to lower gross profit margins due to price reductions.

Operating margin sequentially improved by 430 basis points in the September quarter compared to the drunk order.

Reorder sales increased by 1.4, bersani to $61.9 million for the quarter compared to reorder sales or $61 million for the same quarter the prior year.

For the six laws that are yoder sales decreased by 2.2, Bursa, the $129.6 million compared to $132.5 billion for the same period last year.

Yes.

You are those sales decreased by 22 Bush up to $8.1 million for the quarter compared to top $44 million for the same period the prior year.

For the six month. So they are the sales decreased by 23% to $20.3 million compared to $26.3 million for the same period last year.

We acquired approximately 98000, new customers in our second fiscal quarter, well is obviously that 17000 or the same period the prior year.

We acquired approximately 238000, new customers in the six months.

Just 286000 or the same period a year ago.

The seasonality in our businesses due to the proportion of fleet tick down hardware medications in our product mix.

Spring and summer are close to their peak season, with fall and winter being the off season.

For the second fiscal quarter, our gross profit as a percentage of sales was 28.6 Bursa compared to 35.4 version for the same period the prior year.

For the six months, our gross profit as a percentage of sales rose 27.9%.

Compared to 34.8 version for the same period a year ago.

The percentage decreases can mainly be attribute it to price reductions in response to increase the like competition.

Gross margin sequentially improved higher than 30 basis points in the September quarter compared to the drum quarter.

As I mentioned in the beginning we now have direct relationships with all the major manufacturers, which may help improve gross margins in the future.

Yes.

General and administrative expenses were up about $100000 compared to the same quarter last year.

For the corner, we spoke about $4.8 million in advertising compared to $5.3 billion for the same quarter over the prior year a decrease of top version.

The decrease was due to the elimination of television advertising and the quarter.

For the six months', we spent $13.4 million in advertising.

They have to drop millions dollars for the six months' a year ago that increased 11%.

The increase for the six wells was related to the realization of television advertising in the June quarter.

The advertising cost away acquiring a customer was approximately $49 for the quarter well to $45 for the same quarter the prior year.

For the six months it was $56 compared to $42 for the six month last year.

The increases were due to increases in advertising costs.

And so the more competitive environment.

We had $94.9 billion and cash on cash equivalents and $19.1 million in inventory with all depth as of September 32019.

Net cash from operations for the six months' was $17.3 million compared to $20.4 million for the same period last year.

[noise] this as the financial review operator, we're ready to take questions.

Jeremy will now be gains that question answer session.

I'd like to ask a question you May press Star one.

Please record your first and that together with your company name in order to getting to Q.

One moment for the first question.

Our first question is from Irene right of credit Suisse.

Your line is helping.

Great. Thanks.

Curious if you could speak to how the not pricing.

Implemented and how that's playing out relative to your expectations due to pricing shaking out higher than expected obviously to the margin.

Profile, obviously says that to some extent and then what percentage of your overall sales are under map pricing what percentage would you consider more flexible in terms and promotional activity.

A map pricing on average is higher down the or.

Our higher than our prior pricing.

And in what percent of your sales would you say are under those sort of backbreaking strategy.

Lunch already Odell.

Okay, Great and then can you speak to the latest on advertising strategy for you and marketing campaign I guess, how should we be thinking about your advertising spend for the remainder of the year in light of competitive landscape and where do you stand now with the TV spot advertising strategy.

Finally, as we head into an election cycle I'm just curious your thoughts there.

Well, our budget as Rob said, Topco, China high as well we spend than the prior year.

We're working on optimizing your already would sizing and we intend to be more efficient.

With our they're with us expanding.

Television advertising spending will likely be is gonna be minimal for the next year.

Okay, great. Thank you.

You'll walk.

Thank you. Our next question is from cabin knowledge from Craig Hallum. Your line is hoping Ah. Thanks. Good morning, Mendo. So you said that you now have direct relationships with all the major manufacturers did insulet its content that go into effect just this morning, or when did that actually happen.

It does fall off.

Excuse me.

This monster in October Gotcha, Gotcha, Okay, great Great and then I mean, clearly you know we saw nice improvement sequentially in the gross margin do you think we will continue to see you ramp sequentially with math or do you think I guess can you give us any help in terms of hog.

Profit should you should a kind of goals move forward.

Improve from here.

Oh, we anticipate that is going to improve for all the September quarter, I think we'll have a better picture and the index too in the next couple of quarters.

Gotcha Gotcha, Okay any update on.

Potential White label project, you know white label deals maybe with a.

Big box retailers like target or Cosco.

We do not have anything timing.

Nothing that are you in any discussions.

Yeah, Okay, and then inventory on the balance sheet clearly down sequentially is this kind of the levels, we should be thinking about given your direct purchasing from the manufacturers.

And there is a cost advantage buying opportunities, we won't carry higher them authorities.

A little bit.

Okay got that the that makes sense Bruce really quickly you know it looked like tax rate was a little bit higher gonna, we're expecting nothing major but let's take it might have a you know that would've been 24 recently remodeling would've been two cents just wondering what was the bump up on tax rate.

Right on the attach rate. We every September quarter, we do have to reconcile our restricted stock compensation when the best.

Yes, we've had what was called a windfall, which is actually a benefit for the last two or three years because of the change in stock price can you actually has a charge of $322000 in the quarter. So again every September quarter. You know these these are restricted shares the best in July .

And going forward, that's when all of our restricted stock will probably be best thing and so we'll have this type of a charge it could be a charge which of your benefit depending on the the change in the stock price from one of the shares were issued versus when they.

Got it that makes a lot of sense and then lastly, mendo competition can you talk a little bit more about the competitive landscape now that maps implemented and then are you expecting any other major online retailers to to jump into the had prescription market.

Prices are you assuming set prices stabilizing in the markets, what a manufacturers' enforcing a map policy.

And.

As far as a.

Not aware or anybody else club that doesn't mean.

They're not planning on answering the market.

Great. Thanks, guys.

Thank you once again to ask a question. Please press Star then one please record your first and Naseem together with your company name.

Next question is from Anthony Lebiedzinski from Sidoti and company. Your line is hoping.

Good morning, Thank you for taking the questions. So.

Just wondering if you could perhaps comment on the progression of sales and gross margins.

The kind of steady or was noticeable change between the months and.

As far as the last.

Manufacture those now going to be selling directly just just wondering if.

Perhaps comment on the percentage of sales that you get from from that.

Sure.

Yeah, we're not we're not going to carve out on that and they were not going to get into lumps too long.

Reporting.

Okay got it.

And then.

As far as your advertising strategy. So is it safe to assume it's going to be digital only at this point.

A much larger though yes.

Gerard is gonna be digital.

Okay. So basically the elimination of TV advertising was because.

No cost efficient from your perspective, it's safe to say.

That is correct yes.

Yes.

All right and your outlook for I'm, just overall capital allocation priorities.

Between buybacks and dividends.

I'm going on.

We don't have anything else that the sky, we look at the acquisition opportunities during normal commercial business.

Got it Okay and lastly.

Is your E.

Commerce website.

So you are looking to do.

Timing on that and then what do you expect to get out of that.

And of course with that project.

Oh, it's about $5 million the graph slows we anticipate took me on the platform before they have though there.

And the show with us to improve user experience, especially that becomes critical with prices stabilizing.

The mall personalization that you saw we use speed.

Is the goal.

Got it Okay and then just to clarify is at the end of the county.

End of this fiscal year.

And though the calendar year.

Okay.

All right, Thanks, and best of luck.

Thank you.

Thank you. Our next question is from Catherine outage from cracking Holly.

And I was hoping mendo I have one follow up so and I don't think you talked about this but in the press release you guys talked about the Petmeds rewards program. Just wondering you know kind of what the Genesis of that was and I guess.

It's really just mean you guys are really focused on.

Orders sales or can you give us a little bit of detail behind that program.

Well objective is to increase the cuts that where we dilution and Italy, where the customers.

Hi approaches where those issue additional discounts.

On the actual other benefits such as asked the lead free treats for you return.

Educational articles et cetera.

Got it okay sounds good thank you.

I will walk them.

At this time sorry, no further questions May stops dog you May proceed.

Back to for the remainder, though fiscal 2020. They will continue until may price competitive I will focus on optimizing our marketing and this more competitive environment.

Being more efficient with our advertising spending.

In addition, we have been investing in our ecommerce platform to embed those shows our customers. This wraps up todays conference call. Thank you for joining us operating <unk>. This as the conference call.

Thank you for participating you may disconnect.

[laughter].