Q4 2024 PetMed Express Inc Earnings Call
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Ladies and gentlemen, thank you for standing by the program will start momentarily once again the program will start momentarily. Thank you for standing by.
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Greetings and welcome to Petsmart Express fourth quarter financial results Conference call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
It's now my pleasure to introduce your host John Mills ICR you may begin.
Thank you operator.
Like to welcome everybody here today to the pet Med Express fiscal fourth quarter.
124 earnings conference call.
Certain information that will be included during this call may include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, and the Securities Exchange Act of 1934.
As I mentioned that may involve a number of risks and uncertainties. These statements are based on our beliefs as well as assumptions. We have used based upon information currently available to us.
These statements reflect our current views concerning future events. These statements involve risks uncertainties and assumptions actual results could differ materially from those projected there can be no assurance that any forward looking results.
Look for Barbie realized and nothing contained in this presentation is or should be relied upon as a representation or warranty as to any future matters, including any matter in respect of the operations or business or financial condition of that map.
<unk> undertakes no obligation to update publicly these forward looking statements based on subsequent events, except as may be required by applicable law regulation or other competent legal authority.
We've identified various risk factors associated with our operations in our most recent annual report and other filings with the Securities and Exchange Commission.
Now, let me turn the call over to our CEO and President send your campus Sandra.
Thanks, John and thank you to everyone for joining our conference call today. It is a true pleasure to speak with all of you for the first time and let me just start by saying how incredibly honored I am to lead this company at such a pivotal point.
Pets, which includes pet meds and pet care is very much the intersection of my personal and professional passion that along with the ability to transform our business and a growing sector is what ultimately attracted me to join the board as an independent director just over a year ago.
Personally had eight rescue worth it to rescue dog and one very talkative senior chat I intimately understand the profound bomb that exists between pets and their families and the importance of working with trusted veterinarian, who provide the valuable patient care as well as the loyalty one has for a reputable reach up tighter that change sure.
All of your animals needs in an efficient timely and professional manner.
Throughout my retail CPG career, I have consistently prioritize the needs of consumers and strive to establish disruptive vibrant and enduring brands that fulfill their promise as the quality and value to their community.
We have scaled startups that entrepreneurial enterprise this billion dollar brand portfolios and have managed businesses that are global in scope and I have an extensive background in end to end supply chain as well.
In this new role I have the ability to bring my knowledge and experience with the pets as we refocus our teams I'm being a customer centric mission based company, whose primary goal is to empower pet families. So that they can provide the best possible care for their dogs cats, and horses and help them in order to leave a long and healthy life.
The market for pet medications, food and health products and services continuing to grow and servicing that market. It's what we've done really well since 1996.
According to the American Pet products Association pet spending in the United States continues to increase and has increased by 7% to $147 billion in 2023.
Veterinary care and prescription medications represented about 26% of that total spend for $38 3 billion.
That leaves us to pet where we have an incredible opportunity ahead for growth in a sector that continues to expand.
As an enterprise we have some very positive results.
We have filled almost 500000 much needed Rx prescription and our exit from the past 18 months.
<unk> continued to add new customers each year 302000 in fiscal 'twenty 'twenty four 274000, new customers in fiscal 'twenty to 'twenty, three or a 10% year over year increase.
Our average order value is healthy.
And had a slight year over year increase to $94 for fiscal 'twenty 'twenty four from $93 for fiscal 2023.
While I've only been at the helm of this company for four weeks I would like to share my view on the future for pets as well as some short term tactical and strategic objectives for our business.
First consolidation of our brands.
We believe that our primary brands, namely pet Meds and pet care acts are known as being credible expert among pet owners and are synonymous with pet health and wellbeing.
The consolidation of our brands into a single United Company is driven by our commitment to streamline operations.
So where our overall cost structure and increase the value proposition by enhancing efficiencies and providing a more cohesive customer experience.
By bringing together brands that have the same mission and product assortment, we can leverage our combined strength reduce redundancy and offer a unified stronger presence in the market.
In the short term our focus will be on improving fundamental processes, reducing operating expenses, while enhancing some of our core offerings such as our tiered membership model and our employer benefits partnerships. We still characterize this as a work in process as we continue enhancing the program with additional partnerships that help families provide.
Revenge of chair during all life stages of their pets.
Secondly, continue focusing on cash flow generation, while enhancing key partnerships to.
The company entered fiscal 'twenty 25, with a healthy liquidity position and we'll continue to monitor and manage cash flow through the consolidation of our two brands.
Actions to preserve liquidity and maximize cash flows during fiscal 2025 will include but will not be limited to the following.
Deepening our relationship with key suppliers to optimize our supply chain and improve margin.
Managing future inventory to appropriately forecasting supply with expected demand ensuring that customers can find the product when they need them.
Reducing expenses to better align operating cost with sales through elimination of duplicative resources, including agency and vendor consolidation.
And focusing on operational efficiency and reducing order processing time at our fulfillment centers pharmacy in call centres or check enablement and automation.
Third customer retention and loyalty and frequency of visits.
At the heart of our business are our loyal customers, who rely on pets for their job chat enforces regular wellness needs.
We have initiated the process of advancing our customized technology that supports our auto ship program from new features to seamless integration and facilitating the shopping experience. This is a high priority that drives higher customer lifetime value and repeat purchases. We have just added a new chief digital and technology officer to lead these.
Efforts, who has tremendous background unless masher pad.
Our marketing strategy is a commitment to reinvigorate our communication initiatives and deepen our engagement with consumers.
And that we also have just added a chief marketing officer Carla job. Two also has extensive reach out and E. Commerce experience. We are personalizing the customer journey through advanced AI customer segmentation marketing solution for <unk>.
Lynn and cross selling opportunities the cross merchandising category.
And Karla joined US just a couple of weeks ago, we are driving these initiatives today and going forward.
The enrichment of our digital content library with the support of our Veterinary Advisory Board is going to be something that will be connected to our easy checkout across all customer touch points.
And lastly, we have some new customer acquisition priorities, which will also be part of our fully integrated.
Marketing strategy as we go forward.
Number four investment in technology AI automation across departments, we have begun the work of integrating MTA already as one business unit across the organization. Each brand has had different system, but we've already launched a single solution best in class call Center for our Pet Health special.
But the phone system that goes live in August for a more seamless communication with our customers and our veterinary partners.
We are also at work on the following fulfillment.
Fulfillment logic to optimize operations across the two warehouse locations, along with adding three P O yet to be identified for reducing shipping costs and increasing speed to the customer store stuff.
Second enhancement of the pharmacy software for increased Digitization and greater efficiency for our team.
Third business intelligence tool revamp to be able to enable faster decision, making across our various operations that drive growth and profitability. The last marczak AI tools for end to end efficiency and automation throughout the customer journey.
We are well positioned to thrive as the leader in this growing industry for over two decades, they've serve millions of customers have been trusted us with the chair of their beloved pets.
Our competitive advantage as proven by our dedicated employees consumers veterinarians and vendors confidence that pet meds and pet care acts are synonymous but providing the best health care products for preventative care and acute or chronic conditions for dogs cats and horses.
We've invested heavily in our pharmacies at each location and we have pharmacists with specialties in veterinary pharmacology and licenses in all 50 states. Our pharmacies are also credited by the N. H D. P. Legit script and have excelled in all federal and state regulatory requirements that include a five point rigorous verification.
<unk> process from the time that we receive an order to the moment that we ship it to the customer.
In creating an ecosystem for holistic pet wellness with a laser focus on the pet family needs. We believe that we have the ability to expand our position as a trusted go to leader.
To best serve our customer needs, we have established strong vendor in strategic services partnerships with brand names that consumers recognize and trust for any of their Pets' health concerns.
That includes our prescription and over the counter medications.
Supplements supplies food, both Rx and non Rx.
Insurance telehealth employer benefits, our veterinary advisory board, our educational content that we provide.
Private label products that provide alternatives at accessible price points for the consumer.
We are committed to connecting our customers to rich educational content from our professional civil resources.
We recently launched our veterinary advisory board or the V. A P. As we're calling them has a goal of ensuring that all of our initiatives result in improved patient care. This esteemed board consist of five expert veterinarians across the country each with decades of experience in private practice and academia shaping that future.
Our veterinary medicine.
Dr. Lorie, Tyler T M D D E. B V P for canine and feline C V J and clinical professor in the department of small animal clinical Sciences at Texas, A&M University School of Veterinary Medicine, and Biomedical Sciences.
<unk> as a liaison between the company and our Veterinary Advisory Board Dr.
Doctor Teller and her for colleagues bring a wealth of knowledge and experience will be instrumental in achieving our fiscal year 2025 goals and beyond.
<unk> extensive expertise will be leveraged across the organization from products to marketing and they will play a crucial role in advising the company on a regulatory update.
Additionally, the VIP will support the development of customer facing educational content about the vital role that veterinarians play in protecting family health and most importantly, the VIP will be instrumental as we improve our veterinary facing portal through reducing friction applying historical data and increasing usage to increase internal speed of twins.
Auctions.
Another key area of strength is our in house customer support teams, who are pet health specialists.
The premium service to our customers are in helps pest specialist in the call center support mode more than 100000 pet parent calls each month Pat.
Pet owners have the ability to contact our agent and pharmacists for assistance with their animals wellbeing via telephone chat and email we're in the process of consolidating our two teams and phone systems into one in order to ensure efficiency consistency scalability and reduce costs.
The quality of our senior management team has been a key area of my initial focus for the past four weeks and I am thrilled to welcome three exceptional leader, who will play pivotal roles in driving our company's future growth and success.
Carla Dod joined US on May 28, as our new Chief Marketing Officer, Carla is a dynamic and inspiring marketer who brings a wealth of experience in consumer behavior integrated marketing solutions, creating meaningful loyalty Mark partnership programs and increasing brand equity from enterprise companies, such as Walmart Mastercard and Penske media.
Corporation.
Caroline can take Liana <unk> joined US on June 10th as Chief operating officer, a newly created position for pets underscoring the importance of having a singular focus later in this role her ability to seamlessly integrate analytical insights with creative solutions, along with a proven track record in scaling businesses makes her an invaluable asset.
For our organization.
<unk>, our new Chief Digital and Technology Officer also joined the company on June 10th to.
<unk> expertise in driving successful technology implementations and creating seamless customer experiences from the likes of Ikea Dot com overstock dot com and bed Bath and beyond will significantly enhance our operational efficiency and effectiveness.
Additionally, we as a board determined that we needed an independent director, who could bring experience specific to technology cyber security and digital transformation as such we've added technology veteran Justin Mennen to the independent Board of directors, Justin brings enterprise level technology infrastructure health care and five or six.
Charity expertise that will be extremely valuable as we modernize and transition our Texas.
I have no doubt that these key additions will allow us to be positioned to execute our strategy and to accelerate the growth of pets.
Our ultimate goal is to position pets as the go to resource for pet health and wellness products services and experiences through our ecosystem, ensuring sustained growth and a thriving customer community requires a broad roadmap and a disciplined execution.
First we're going to create personalized customer experiences across channels or modern technology that incorporates AI automation and product management that drive scale.
Second optimizing our order processing and transportation management systems to deliver with speed and efficiency from time of order to the customer's doorstep.
Third develop mission first purposeful marketing campaigns that are authentic and improve customer engagement, while increasing brand awareness across all touch points.
Fourth leveraging data analytics to gain timely customer insights that will accelerate responds the best consumer demand and create automation for improved daily work streams.
Fifth innovate product offering increasing high margin private label Assortments for greater accessibility.
And lastly, trading strategic partnerships to further promote health and wellness during all life stages for dogs cats and horses.
Our company owned and third party operated management information system.
Consist of a full range of retail merchandising human resource and financial system. These systems include applications related to digital operation inventory management supply chain planning sourcing merchandising payroll scheduling and financial reporting we will prioritize these technology investments in order to upgrade our <unk>.
Our systems create efficiencies and support our digital operations, our pharmacy operations, our fulfillment center effectiveness and our customer relationship management tools with the loyalty programs.
Through our plan to integrated marketing campaigns and deepening our focus on customer segmentation. We believe we have the ability to acquire new customers and the like.
Underpenetrated regions, including the Midwest northwest southwest more than 50% of our current revenues come from the North East.
And the West Coast States as well southwestern Florida, where we will continue to focus our retention efforts.
These initiatives are part of our strategy to achieve greater levels of success, while creating significant value for both customers and shareholders.
Christine will provide a detailed summary of our latest result, but in general performance in the fourth quarter reflected a continuation of the trends we've seen throughout much of fiscal 'twenty four as net sales were up six 6% on a year over year basis, driven by the Pet Care Act acquisition.
We continue to make progress leveraging the combined pet business with our expanded product offerings by focusing on attracting new customers as well as driving recurring revenues from existing customers.
As a leader I have an unwavering commitment to transparency, whether speaking to customers vendors employees or shareholders.
When I joined as CEO four weeks ago I knew the overall technology stack with going to be an area of focus and opportunity for near term improvement.
We are dedicating additional technology resources to modernize our tech stack and as mentioned have added lasher pad, our very experienced new chief digital and technology officer to strengthen the leadership team.
The pet care Rx business that we acquired last year brings increased distribution capability and experience geographic diversity technology enhancements additional vendor relationships and a long tenured and experienced staff, whose capabilities will only enhance and accelerate our efforts to improve productivity.
A key to driving growth and profitability is a successful execution around these initiatives.
Our future hinges on our commitment to innovation delivering seamless experiences and positively contributing to a brighter healthier outlook for pets everywhere.
Pets everything we do is rooted in consistently delivering high quality value based products and services to millions of pets and their families while enhancing speed and efficiency.
I'm eager to build upon our foundation and to foster even more personalized and meaningful relationships at every touch point through advanced technology solutions generative AI and integrated marketing initiatives.
Equally important we are also committed to providing exceptional value across pets through our loyalty program and ongoing savings benefits that make high quality products accessible to everyone.
It'll be an expansion of our existing loyalty program, including plans to add members to our national employee benefits partnership, which is our pet plus program.
Our veterinary advisory board will be instrumental as I mentioned earlier in furthering our mission of enhancing our ecosystem of products and services. We currently offer free live chats with veterinary technicians access to the vet live on demand veterinary Telehealth service to our partner Baxter and offer valuable benefits of Lifelock.
Savings to our pet insurance Pumpkin partnership.
We plan to utilize the exclusive veterinary community.
Our proved incredible publishers to create and maintain our educational platform for dog Cat and horse owners.
In summary, after my first four weeks in the role I am even more convinced that our developing strategic business model will promote increased shareholder value. Our foundation is proven and we have the liquidity, including our balance sheet with over $55 million in cash and no debt as of March 31, 2024 that enables us to use a thoughtful balanced.
Approach to allocating capital as.
As mentioned over the near term our top priority will be consolidated in the businesses right sizing, our infrastructure and investing in our technology to drive sustainable growth and profitability.
We are confident that our strategic initiatives will drive growth will improve profitability outcomes and will increase our key customer satisfaction metrics I am grateful for our dedicated team of partners internally and externally each of whom play a crucial role in ensuring that pets becomes the go to resource for dog patent worst health and wellness.
With that let me hand, the call to Christine to cover the fourth quarter results in more detail.
Thank you Sandra.
I will now provide an update on the fourth quarter of fiscal year 'twenty 'twenty four results for the quarter ending March 31st 2024.
Fourth quarter fiscal year, 2024 sales was $66 5 million compared to sales of $62 4 million in the same period last year representing.
Representing growth of six 6% year over year.
The growth was due to incremental sales from the acquisition of pet care Alright.
Partially offset by a slowdown in call Center response times due to the implementation of a new order management system and oldest ship platforms during the fourth quarter.
We welcomed approximately 73000, new pet parents this quarter relatively.
Relatively flat to the same period in the prior year.
Consolidated reorder sales were $58 9 million for the quarter, an increase of four 6% compared to reorder sales of $56 2 million in the same period last year.
We've continued to grow our recurring revenue.
Including orders shipping save sales and Petco Rx membership sales as a percentage of total sales, 254% in the fourth quarter of fiscal year 2024.
<unk>, 252% in the third quarter of fiscal 2024.
And 44% in the same quarter last year.
Increasing our recurring revenue remains a focus for us as it drives greater engagement and strengthened the predictability of our sales pace.
Prescriptions and premium food or some of the top categories for our customers.
And we believe they continue to offer significant potential to help us increase order size purchase frequency and customer LTV. In addition to attracting new customers.
Gross profit margin was 27, 3% compared to 27, 9% in the same quarter last year and 27, 4% in the third quarter.
The decrease year over year was due to lower manufacturing rebates.
Higher promotional activity and a lower prescription medications sales mix.
Offset by an increase in Petcare ex membership fees.
Adjusted EBITDA was 500000 for the fourth quarter compared to an adjusted EBITDAR of $3 6 million in the same period last year.
The decrease was due to an increase in G&A and advertising expenses, partially offset by an increase in gross profit.
Net loss for the fourth quarter was $5 million or 25 cents per diluted share compared to a net loss of 200000 or one cent per diluted share for the same period last year.
The change year over year was due to the increase in G&A and advertising expenses of $3 5 million due to the petco ex acquisition.
An increase in depreciation and amortization of 900000.
As well as an increase in the tax provision of 870000 and a decrease in interest income of 400000.
Partially offset by an increase in gross profit related to the acquisition of 800000.
Turning to the balance sheet as of March 31, 2024.
We had over $55 million of cash and equivalents and no debt.
We continue to look for ways to maximize cash through driving net working capital improvements.
Shading leases without tenants.
And reviewing vendor agreements for efficiency.
With that I will now turn the call back to Sandra for concluding remarks.
Our strategic plan provides a robust foundation guiding our organization with a clear compass and ambitious kpis.
This plan is underpinned by these key pillars.
First delivering pets combined growth across all categories.
Second executing an enterprise wide consolidation of businesses.
Third executing digital transformation initiatives, and lastly, operating with financial discipline across every department and function.
As we embark on our multi year transformation to achieve top line growth across our distribution channels, we remain steadfast in our commitment to our core purpose.
Our focus is on our pet families ensuring that they have access to the best products for preventive and acute care at all stages of their companion animals lives.
We celebrate the veterinarians, who provide exceptional care to their patients nationwide and we welcome the support of our newly formed Veterinary Advisory Board as part of our fiscal year 2025 initiatives.
Additionally, we value our strategic partners to help us create a comprehensive ecosystem supporting pets.
All of their lives, we also prioritize our employees by investing and Upskilling and providing ample career development opportunities and with that I am very thankful and honored once again to be able to lead. This organization. During this pivotal time and look forward to further discussion. Thank you very much.
Sure.
We are now ready for the question and answer session.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate that your line is in the question queue.
And you May press star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Ryan Meyers with Lake Street Capital markets. Please proceed with your question.
Got it thanks for taking my questions today, Bruce one for me given all the initiatives you guys laid out do you feel like you can generate topline growth this year.
Hi, This is Sandra and absolutely our initiatives are focused on generating top line growth. We have started to already implement some changes across not only our marketing initiatives, but also as we continue to impart the technology.
As we were as I was mentioning earlier and all the technology advancements we know that we have the opportunity to increase sales not only with the addition of our auto ship subscription with current and recurring customers, but also in terms of new customers to create more seamless.
Customer journey.
And seamless experiences so that they can actually have better access to the products that they need at the right time in.
In addition to that as it relates to <unk>.
We look at our supply chain and our distribution and the way that we can actually get the product closer to the customer and with speed and efficiency that we also believe is going to absolutely helped the top line sales.
That's very helpful. And then next one for me just switching over to the fundamentals of the business have you seen any further stabilization in the core business. Besides the consolidation you guys talked about what else do you feel like needs to be done here to drive growth in that business.
In the core fundamental data, we're really looking at our overall vendors our top vendors are top performing skus with the help of our veterinary Advisory Board were looking at what are with those most important medications in the Rx part of the business are.
And how we can ensure that we have those products.
From an inventory management perspective at all given point in time, we're actually seeing the returning customers increase we're seeing an improvement in conversion because we're actually doing that through not only our customer care and health specialists, who are on the phone communicating with those 100000 plus pet families.
Please every month, but also online through chat through email and through their online purchases. So we are seeing that.
Every piece every initiative is going to absolutely help us propel these initiatives forward and not only top line growth also profitability or margin improvement because we are also making some slight deductions and changes as it relates to promotions, where as we focus on the top products that are key.
Two our customer up he shouldn't that pet families health and their health care of their pets in their lives the more of that that we offer the better we're going to be able to improve our own margins on those products not be focused on driving it at a value discount price, but really providing true value as it relates to.
The services and the products and the enhancement of those that we deliver as a company.
Thank you as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad. Our next question comes from the line of Erin Wright with Morgan Stanley. Please proceed with your question.
Great. Thanks. So you you gave a lot of great detail there on on a lot of the changes you're making across the organization and in light of that you know how should we think about the cost structure going forward and going into next year and how we should think about investments that you're making and the timing the timing of that and how.
Bumpy that can be kind of quarter to quarter end and just broadly kind of your philosophy on growth versus profitability in terms of your priorities. Thanks.
Thank you for that question well, we are absolutely focused on profitability.
And as I mentioned as it relates to consolidation of these two businesses, we are creating synergies with them and reducing redundancies. We are looking at that across literally every line item that has to do everything from vendors in each.
Agencies, where we have had two separate businesses luxury separate system and duplication of costs. There that initially and upfront in right away is going to be able to make some immediate impact.
Late two reduction of operating expenses, so we're finding better efficiencies will be focusing on the profitability through.
First and foremost reducing those duplication across both businesses in order to synergize, what we have together.
Okay, and then can you give us some metrics around sort of what the organic growth across the base business actually was in the quarter kind of excluding the pet care Rx or new customer growth or.
Across the base business or any metrics from an organic perspective.
Yes, Kristina I'm going to hand, this to you because I know you are cutting in with these statistics.
Yeah. Thank you thanks, Aaron for the question.
So we don't break the metrics out separately, but we did report.
Customer number four for the quarter and it was relatively flat to last year on a consolidated basis.
We are very focused on key metrics that are going to be focused on new customer acquisition retention of customers and really has been prevention instead of selling more to customers as we focus on you know the lifetime value of those customers and the repeatability.
Of those of those customers so for the <unk>.
Core take yes, new customer growth we did.
Relatively flat for the quarter.
We don't necessarily split split them out between two businesses.
Okay alright, thank you.
Okay.
Thank you.
We have reached the end of our question and answer session and with that this will conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
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