Q1 2020 Petmed Express Inc Earnings Call

Welcome to the Pet Medexpress incorporated doing business has one 800 Petmeds conference call to review the financial results for the first fiscal quarter ended on June Thirtyth 2020.

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

Founded in 1990, 618 hundred Petmeds as America's largest pharmacy, delivering prescription and nonprescription pet medications and other health products for dogs cats and horses threats to the consumer.

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

Wanting hundred Petmeds provides an attractive alternatives for obtaining pet medications in terms of means price.

Use of ordering and rapid home delivery.

At this time I would like to turn the call over to the Companys Chief Financial Officer Mr. Bruce.

Mr. Rosenblum. Please go ahead. Thank you.

You're welcome everybody here today before I turn the call over two megawatts, all our president and Chief Executive Officer, I'd like to remind everyone. At the first portion of this conference call will be listen only until the question answer session, which will be later in the cool.

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 1995 Order Securities Exchange Commission that may involve a number of risks and uncertainties. These statements are based on our beliefs as well as assumptions we have used.

On information currently available to us because these statements reflect our current views concerning future events. These statements involve risks uncertainties assumptions.

Actual future results may vary significantly based on a number of factors that may cause actual results or events to be materially different from future results performance or achievements expressed or implied by these statements. We've identified various risk factors associated with our operations.

Most recent annual report and other filings with the Securities Exchange Commission.

Let me introduce today Speaker Mendo Akdag, the President and Chief Executive Officer of 100 Petmeds Mendo.

Thank you Bruce.

Thank you for joining us.

During the June quarter consumer demand continues to be strong for E commerce with had already shifting their purchases to align.

Our sales have been positively impacted due to this increased demand coincided with our peak season.

As an essential business, we have that operating open doing our normal business hours without any material disruptions in our operations.

We have also taken measures to ensure the health safety all our employees.

We have implemented as working for all mall where possible.

The transaction all our workplace.

Also so far we have not seen any material disruptions in our supply chain.

Thats a peak portion we have temporarily increased our inventory during the quarter.

No I will call first fiscal quarter ended on June 32020.

Last year's quarter ended on June 32019.

For the first fiscal quarter ended on June 32020 sales were $96.2 million compared to sales so $80 million for the same period the prior year that increase so 20%.

The increase in sales was due to increases in New York.

Further sales.

Our average order value was approximately $89 for the quarter compared to $86 for the same quarter last year.

For the first fiscal quarter net income was $7.8 million or 39 satisfied as a fair share compared to $5.3 million or 26 cents diluted per share for the same quarter last year and increase the diluted earnings per share of 47.

Yes.

In addition to sales growth operating income margin improvement over two point walk versa positively impacted earnings.

New all of those sales increased by 29% to $15.8 million for the quarter compared to $12.2 billion for the same quarter over the prior year.

Reorder sales increased by 19% to $80.4 million for the quarter captive to reorder sales of $67.7 million for the same quarter last year.

We acquired approximately 186000, new customers in our first fiscal quarter compared to 140000 for the same period the prior year.

Seasonality in our businesses due to the proportion of fully tick and heartworm medications and our product mix spring and summer our cost of the peak season with fall and winter things off season.

For the first fiscal quarter, our gross profit this adverse metal sales rose 27.8 Boes John.

27.3% for the same period a year ago.

50 basis points improvements.

General and administrative expenses increased by approximately $1.2 million for the quarter.

The majority of this increase was related to increased payroll expenses bank shows fees and telephonics sponsors.

Stock related compensation increased by $430000 due to an increased stock price.

The additional expenses of approximately $240000 were incurred due to quote was 19, which includes increased payroll telephone asset allocation expenses.

We spent $9 million and advertising for the quarter.

$8.6 million for the same core as the prior year.

An increase over about 5%.

Advertising coastal acquiring a customer for the quarter.

Fine. This total advertising expenses divided by total new customers acquired was approximately $48 compared to $62 for the same quarter a year ago. It to a new offers on improvements.

We had $86.8 million and cash cash equivalents at $43.1 million interrupt already with all debt as of June 32020.

Cash from operations for the quarter was negatively impacted by a $25.2 million increase in inventory as a precautions due to possible shortages as a result of call. It IP.

We intend to return to normal inventory levels in future quarters.

This as the financial review.

Operator, we're ready to take questions.

Thank you we will now begin the question and answer session.

To answer your question. Please first on mute your phone and then press Star One you will be prompted to record your name and please record your company as well.

If at any time, while waiting for your question to be answered you mean remove your request by pressing star into.

Once again that is star one for questions at this time.

One moment for first questions.

No no first question comes from Anthony.

The buttons key of Sidoti and company Sir Please go ahead.

Good morning, and thank you for taking the questions.

Sure.

So as far as the sales increased part of the sales increase was an increase in April.

Perhaps mendo if you can then maybe expand on them.

Increasing the.

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Our campaigns have encourage the upselling and cross selling so that was the reason for the increase.

Got it okay.

And as far as the gross margin obviously, it was up from a year ago, but sequentially down from the last.

Three quarters.

We're tracking above 29% the last couple of quarters. So.

Can you just expand on that Youre seeing more competition or is it something else is driving the sequential downtick in the gross margin.

Sure.

Product mix was difference.

We had more over the car sales that has lower margins.

Also reorder the through our very strong ended the quarter that cost higher loyalty program, where our credit accruals, which negatively impacted gross margins.

Okay, great. Thank you for that and then last questions from me as far as the inventory increase was this across the board or were there any certain product categories. As you focused on as far as your inventory increases.

Fashionable worse.

That was that we increased the month already.

We intend to return to normal inventory levels, starting in this quarter with that we are in.

Okay. All right. Thank you and best of luck. Thank you.

Thank you.

Once again, if you would like to ask your question. Please press Star then one.

Our next question comes from Ben Rose of Battle Road Research.

Yes, good good morning, Mendo and good morning, Bruce.

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Sorry, I don't know that the actual results come across the wire, but could you repeat the new order sales number if you don't mind.

You are those sales increased by 29% to $15.8 million for the quarter compared to $12.2 million for the same quarter last year. Okay. Great. So this is obviously by far and away the largest percentage increase that you've had a new orders.

Sales.

Reorder sales have been trending up but just to focus on the new order sales for for a moment.

You may be just speak to what accounts for such a dramatic.

Shift was it in part this shift to the over the counter medications or was it perhaps a change in the way your advertising or reaching out to new customers.

Our demand has been strong for E commerce that coincided with our peak season. So that's how to new orders also.

Advertise our advertising was more effective.

Advertising pricing was more favorable in the quarter and demand was strong as I said.

Okay.

Just in a general sense I think what may be on the mind of many investors is kind of looking out over.

The next year so.

You are in a half.

What is the general plan for Petmeds too.

Sustain and perhaps extended some market share gains that you've seen now for the last couple of quarters due in part to the crisis.

Continue advertising.

Also we are working wrong redesigning our websites mobile app.

To optimize the user experience.

Personalization.

Using artificial intelligence is the focus for.

This.

Fiscal year.

Okay, and if I may just one more for Bruce.

With the inventory build.

Were there.

Perhaps some favorable terms that the drug manufacturers were offering or.

Was it sort of normal pricing for you to get.

The inventory that you needed.

So for the most pardons normal pricing it was really more of a reaction to increase sales increased demand and stocking up on the inventory obviously hitting prior inventory levels allows us to.

Hit or volume requirements for us to receive I guess that are rebates.

Down the road.

Okay.

Okay. Thank you very much.

Thank you and as a reminder, please press star one for questions. The next question is from told and Elledge Okay.

Yes.

Good morning, guys, Hey, Mendo.

You know what the sales mix increase to Otcs that you cited.

We're very specific promotions this corner or was it may be more with her on the virus do you think that led to fewer.

And that would fill the over the counter increase.

Probably yes.

In offices.

Our closed so that shifted.

The sales from prescription to old Tc also brick and larger retailers who are closed.

Okay that that make sense.

And then you know with the advertising spend even though.

New customer acquisition cost was lower year over year.

Do you think that trend is going to continue and on top of that.

You know is 9 million or 9%.

As a percent of sales target for the year I can never if I saw that mckay or not.

I believe the in the 10-K, we have.

Gross.

As approach are for the year, it's going to fluctuate from quarter to quarter.

Depending on the advertising availability on that if the pricing as favorable or not to us.

We watch it up for sale last year, so we'll be more aggressive during peak season.

The demand is stronger so we'll see what happens.

Got it that makes sense and remind me.

The year spending primarily on.

Online advertising, Greg or you have you launch in the TV campaigns, we do have TV campaign was small to ledger Oreo.

Ladies being spot on the online digital.

Okay got it got it and then lastly, you know clearly we saw a lot of competition in the last couple of years, having from other big online retailers as well as.

With that channel.

Turning to.

The increase their ecommerce platforms have you seen any change in the competitive landscape.

All I was very competitive.

Prices stabilized in the markets with.

Manufacturers' enforcing map policies.

Within areas still have to lunch Oreo that market share all prescription medications.

The that's really the opportunity, we anticipate continuing market share shift.

Direct to grow share were all lined channel.

Got it doesn't make sense and then one last one for me with her on the virus as well as you know some large industry consolidation that's happened and you've seen any changes in that inventory and any issues with the supply chain.

We did not have any issues with the supply chain and the June quarter.

Is it pretty close to that and we increased our inventory.

As I included as my presentation.

Okay. That's great. Thanks, guys.

Okay.

Thank you our last question for today will come from Anthony.

Limits and Keith.

Excuse me Zinski LTE and company.

Yes, good morning, guys just.

One follow up question as far as advertising expenses, So I'm, just curious and with the presidential election coming up.

Well that have any impact you thing as far as your ability to advertise and if so maybe you could maybe talk about the your expectations for for costs.

For for advertising thanks.

We wish we you advertise and minimally on television that way it will stop advertising on television starting in August.

It will probably mostly in fact television that may have some impact on digital so the prices may be slightly higher.

That's my input on the.

Okay. Thank you.

Okay.

At this time I will turn the call over to Mundo.

Thank you.

In fiscal 2000 to anyone that we are focusing all redesigning our website that law will app to optimize our customers digital experience. This wraps up to this conference call. Thank you for joining US operator decides that conference call.

Thank you all figure puts us participation on today's conference call at this time all parties may disconnect.