Three Months Ended June 30, 2014 Compared With Three Months Ended June 30, 2013
Sales
Sales decreased by approximately $1.7 million, or 2.2%, to approximately $72.5 million for the quarter ended June 30, 2014, from approximately $74.2 million for the quarter ended June 30, 2013. The decrease in sales for the three months ended June 30, 2014 was primarily due to decreased new order and reorder sales. The decrease in new order sales may be attributed to decreased advertising expenses, with increased acquisition costs. The Company acquired approximately 184,000 new customers for the quarter ended June 30, 2014, compared to approximately 207,000 new customers for the same period the prior year. The following chart illustrates sales by various sales classifications:
Three Months Ended June 30,
|
Sales (In thousands)
|
|
2014
|
|
|
%
|
|
|
2013
|
|
|
%
|
|
|
$ Variance
|
|
|
% Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorder Sales
|
|
$
|
58,488
|
|
|
|
80.6
|
%
|
|
$
|
58,970
|
|
|
|
79.5
|
%
|
|
$
|
(482
|
)
|
|
|
-0.8
|
%
|
New Order Sales
|
|
$
|
14,053
|
|
|
|
19.4
|
%
|
|
$
|
15,224
|
|
|
|
20.5
|
%
|
|
$
|
(1,171
|
)
|
|
|
-7.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$
|
72,541
|
|
|
|
100.0
|
%
|
|
$
|
74,194
|
|
|
|
100.0
|
%
|
|
$
|
(1,653
|
)
|
|
|
-2.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internet Sales
|
|
$
|
58,014
|
|
|
|
80.0
|
%
|
|
$
|
58,364
|
|
|
|
78.7
|
%
|
|
$
|
(350
|
)
|
|
|
-0.6
|
%
|
Contact Center Sales
|
|
$
|
14,527
|
|
|
|
20.0
|
%
|
|
$
|
15,830
|
|
|
|
21.3
|
%
|
|
$
|
(1,303
|
)
|
|
|
-8.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$
|
72,541
|
|
|
|
100.0
|
%
|
|
$
|
74,194
|
|
|
|
100.0
|
%
|
|
$
|
(1,653
|
)
|
|
|
-2.2
|
%
|
Sales may be adversely affected in Fiscal 2015 due to increased competition and consumers giving more consideration to price. No guarantees can be made that sales will grow in the future. The majority of our product sales are affected by the seasons, due to the seasonality of mainly heartworm, and flea and tick medications. For the quarters ended June 30, September 30, December 31, and March 31 of Fiscal 2014, the Company’s sales were approximately 32%, 26%, 21%, and 21%, respectively.
Cost of sales
Cost of sales decreased by approximately $1.4 million, or 2.8%, to approximately $48.8 million for the quarter ended June 30, 2014, from approximately $50.2 million for the quarter ended June 30, 2013. The decrease in cost of sales is directly related to the decrease in sales during the quarter ended June 30, 2014. As a percent of sales, the cost of sales was 67.2% and 67.6% for the quarters ended June 30, 2014 and 2013, respectively. The decrease in the cost of sales percentage can be attributed to a reduction in product costs on certain brands.
Gross profit
Gross profit decreased by approximately $200,000, or 1.0%, to approximately $23.8 million for the quarter ended June 30, 2014, from approximately $24.0 million for the quarter ended June 30, 2013. The decrease in gross profit is directly related to the decrease in sales during the quarter ended June 30, 2013, offset by a reduction in product costs on certain brands. Gross profit as a percentage of sales was 32.8% and 32.4% for the quarters ended June 30, 2014 and 2013, respectively. The increase in the gross profit percentage can be attributed to a reduction in product costs on certain brands.
General and administrative expenses
General and administrative expenses were $5.9 million for both of the quarters ended June 30, 2014 and 2013. There was a slight increase in general and administrative expenses during the three months ended June 30, 2014 that was primarily due to the following: a $53,000 one-time charge relating to state/county sales tax which was not collected on behalf of our customers; a $20,000 increase in telephone expenses; and a $15,000 net increase in other expenses which included insurance, property, and payroll expenses. Offsetting the increase was a $34,000 decrease in bank service fees, a $21,000 decrease in licenses and fees, a $19,000 decrease in office expenses, and a $12,000 decrease in other expenses which included bad debt expenses and travel related expenses.
Advertising expenses
Advertising expenses decreased by approximately $500,000, or 4.8%, to approximately $9.9 million for the quarter ended June 30, 2014, from approximately $10.4 million for the quarter ended June 30, 2013. The decrease in advertising expenses for the quarter can be mainly attributed to decreased print and television advertising spending. The advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers acquired, was $54 for the quarter ended June 30, 2014, compared to $50 for the quarter ended June 30, 2013. Advertising cost of acquiring a new customer can be impacted by the advertising environment, the effectiveness of our advertising creative, advertising spending, and price competition. Historically, the advertising environment fluctuates due to supply and demand. A more favorable advertising environment may positively impact future new order sales, whereas a less favorable advertising environment may negatively impact future new order sales.
As a percentage of sales, advertising expense was 13.7% and 14.0% for the quarters ended June 30, 2014 and 2013, respectively. The decrease in advertising expense as a percentage of total sales for the quarter ended June 30, 2014 can be attributed to a reduction in advertising spending. The Company currently anticipates advertising as a percentage of sales to be approximately 12% for Fiscal 2015. However, the advertising percentage will fluctuate quarter to quarter due to seasonality and advertising availability. For the fiscal year ended March 31, 2014, quarterly advertising expenses as a percentage of sales ranged between 9% and 14%.
Depreciation
Depreciation expenses decreased by approximately $85,000, to approximately $163,000 for the quarter ended June 30, 2014, from approximately $248,000 for the quarter ended June 30, 2013. This decrease to depreciation expense for the quarter ended June 30, 2014 can be attributed to a reduction in new property and equipment additions, and an increase in fully depreciated fixed assets.
Other income
Other income increased by approximately $8,000, to approximately $53,000 for the quarter ended June 30, 2014 from approximately $45,000 for the quarter ended June 30, 2013. The increase to other income can be primarily attributed to increased advertising income offset by decreased interest income. Interest income may decrease in the future as the Company utilizes its cash balances on its share repurchase plan, with approximately $10.2 million remaining as of June 30, 2014, on any quarterly dividend payment, or on its operating activities.
Provision for income taxes
For the quarters ended June 30, 2014 and 2013, the Company recorded an income tax provision for approximately $2.9 million and $2.8 million, respectively. The effective tax rate was 37% for the both of the quarters ended June 30, 2014 and 2013. The Company estimates its effective tax rate will be approximately 37.0% for Fiscal 2015.
Liquidity and Capital Resources
The Company’s working capital at June 30, 2014 and March 31, 2014 was $67.9 million and $66.1 million, respectively. The $1.8 million increase in working capital was primarily attributable to cash flow generated from operations, offset by dividends paid. Net cash provided by operating activities was $14.3 million and $19.8 million for the three months ended June 30, 2014 and 2013, respectively. This reduction can be mainly attributed to a greater decrease in the Company’s inventory balance for the three months ended June 30, 2013, compared to the same period in the current quarter. Net cash used in investing activities was flat with $26,000 for the three months ended June 30, 2014, compared to $25,000 used in investing activities for the three months ended June 30, 2013. Net cash used in financing activities was $3.4 million for the quarter ended June 30, 2014 compared to $3.0 million for the quarter ended June 30, 2013, which represented an increase in the dividend paid in the quarters. As of June 30, 2014 the Company had approximately $10.2 million remaining under the Company’s share repurchase plan. On July 21, 2014 our Board of Directors declared a $0.17 per share dividend. The Board established an August 4, 2014 record date and an August 15, 2014 payment date. Depending on future market conditions the Company may utilize its cash and cash equivalents on the remaining balance of its current share repurchase plan, on quarterly dividends, or on its operating activities.
As of June 30, 2014 the Company had no outstanding lease commitments except for the lease for its 65,300 square foot facility. We are not currently bound by any long or short term agreements for the purchase or lease of capital expenditures. Any amounts expended for capital expenditures would be the result of an increase in the capacity needed to adequately provide for any increase in our business. To date we have paid for any needed additions to our capital equipment infrastructure from working capital funds and anticipate this being the case in the future. Presently, we have approximately $2.8 million forecasted for capital expenditures for the remainder of Fiscal 2015, which will be funded through cash from operations. The Company’s primary source of working capital is cash from operations. The Company presently has no need for alternative sources of working capital, and has no commitments or plans to obtain additional capital.
Off-Balance Sheet Arrangements
The Company had no off-balance sheet arrangements as of June 30, 2014.
Cautionary Statement Regarding Forward-Looking Information
Certain information in this Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the words “believes,” “intends,” “expects,” “may,” “will,” “should,” “plans,” “projects,” “contemplates,” “intends,” “budgets,” “predicts,” “estimates,” “anticipates,” or similar expressions. These statements are based on our beliefs, as well as assumptions we have used based upon information currently available to us. Because these statements reflect our current views concerning future events, these statements involve risks, uncertainties, and assumptions. Actual future results may differ significantly from the results discussed in the forward-looking statements. A reader, whether investing in our common stock or not, should not place undue reliance on these forward-looking statements, which apply only as of the date of this quarterly report. When used in this quarterly report on Form 10-Q, “PetMed Express,” “1-800-PetMeds,” “PetMeds,” “PetMed,” “PetMeds.com,” “PetMed.com,” “PetMed Express.com,” “the Company,” ”we,” “our,” and “us” refers to PetMed Express, Inc. and our subsidiaries.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk generally represents the risk that losses may occur in the value of financial instruments as a result of movements in interest rates, foreign currency exchange rates, and commodity prices. Our financial instruments include cash and cash equivalents, short term investments, accounts receivable, and accounts payable. The book values of cash equivalents, short term investments, accounts receivable, and accounts payable are considered to be representative of fair value because of the short maturity of these instruments. Interest rates affect our return on excess cash and investments. As of June 30, 2014, we had $29.1 million in cash and cash equivalents and $15.6 million in short term investments. A majority of our cash and cash equivalents and investments generate interest income based on prevailing interest rates.
A significant change in interest rates would impact the amount of interest income generated from our excess cash and investments. It would also impact the market value of our short term investments. Our investments are subject to market risk, primarily interest rate and credit risk. Our investments are managed by a limited number of outside professional managers within investment guidelines set by our Board of Directors. Such guidelines include security type, credit quality, and maturity, and are intended to limit market risk by restricting our investments to high-quality debt instruments with both short and long term maturities. We do not hold any derivative financial instruments that could expose us to significant market risk. At June 30, 2014, we had no debt obligations.
ITEM 4. CONTROLS AND PROCEDURES.
The Company’s management, including our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended) as of the quarter ended June 30, 2014, the end of the period covered by this report (the “Evaluation Date”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective such that the information relating to our Company, including our consolidated subsidiaries, required to be disclosed by the Company in reports that it files or submits under the Exchange Act: (1) is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and (2) is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. There have been no significant changes made in our internal controls over financial reporting or in other factors that could significantly affect, or are reasonably likely to materially affect, our internal controls over financial reporting during the period covered by this report.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS.
Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations, and trading price of our common stock. Please refer to our Annual Report on Form 10-K for Fiscal Year 2014 for additional information concerning these and other uncertainties that could negatively impact the Company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The Company did not make any sales of unregistered securities during the first quarter of Fiscal 2015.
Issuer Purchases of Equity Securities
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS
The following exhibits are filed as part of this report.
31.1
|
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, promulgated under the Securities Exchange Act of 1934, as amended (filed herewith to Exhibit 31.1 of the Registrant’s Report on Form 10-Q for the quarter ended June 30, 2014, Commission File No. 000-28827).
|
31.2
|
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, promulgated under the Securities Exchange Act of 1934, as amended (filed herewith to Exhibit 31.2 of the Registrant’s Report on Form 10-Q for the quarter ended June 30, 2014, Commission File No. 000-28827).
|
32.1
|
Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith to Exhibit 32.1 of the Registrant’s Report on Form 10-Q for the quarter ended June 30, 2014, Commission File No. 000-28827).
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
PETMED EXPRESS, INC.
|
|
|
|
(The “Registrant”)
|
|
|
|
|
|
|
Date: July 29, 2014
|
|
|
|
|
|
|
By:
|
/s/ Menderes Akdag
|
|
|
|
Menderes Akdag
|
|
|
|
|
|
|
|
Chief Executive Officer and President
|
|
|
|
(principal executive officer)
|
|
|
|
|
|
|
By:
|
/s/ Bruce S. Rosenbloom
|
|
|
|
Bruce S. Rosenbloom
|
|
|
|
|
|
|
|
Chief Financial Officer
|
|
|
|
(principal financial and accounting officer)
|
|
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PETMED EXPRESS, INC
FORM 10-Q
FOR THE QUARTER ENDED:
JUNE 30, 2014
EXHIBITS
EXHIBIT INDEX
Exhibit
Number
|
|
Description
|
|
Number of Pages
in Original
Document
|
|
Incorporated
By
Reference
|
|
|
|
|
|
|
|
31.1
|
|
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
1
|
|
**
|
|
|
|
|
|
|
|
31.2
|
|
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
1
|
|
**
|
|
|
|
|
|
|
|
32.1
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
1
|
|
**
|
** Filed herewith