Earnings Beat for PETS, Margins Up - Analyst Blog
May 13 2013 - 5:20AM
Zacks
America’s largest pet pharmacy,
PetMed Express (PETS) reported earnings of 23
cents per share in the fourth quarter of fiscal 2013, 2 cents ahead
of the Zacks Consensus Estimate and up 15% year over year. Fiscal
2013 earnings per share were 86 cents, up 7.5% year over year.
Net sales in the quarter were down
8.6% year over year to $51.1 million, way below the Zacks Consensus
Estimate of $55 million. The decline was a result of the negative
impact of the colder-than-normal weather on sales. For the full
year, the company reported $227.8 million in sales, a decline of
4.4%. The fiscal sales were adversely affected by the
unavailability of branded products from Novartis
(NVS) due to the suspension of its production. However, the company
noted that the loss from this suspension was to some extent
compensated by certain brands. Moreover, online sales at the end of
the fiscal, occupied 77% of total sales, compared with 75% in the
year-ago period.
Gross margin expanded 176 basis
points (bps) to 35.7% during the quarter on the back of a shift
toward higher margin product mix, including generics. A 19.7%
decline in advertising expenses (to $5.6 million) as well as a 4.8%
drop in general and administrative expenses (to $5.2 million) led
to a 13.1% reduction in operating expenses (without depreciation)
to $10.7 million. Consequently, operating margin improved 285 bps
to 14.7%.
PetMed exited the fiscal with cash
and cash equivalents and short-term investments of $33.6 million
compared with $57.1 million at the end of fiscal 2012.
Recommendation
Although PetMed is still struggling
with sales, we are encouraged with the company’s cost reduction
initiatives, which aided margin expansion. PetMed is currently
trying to implement several strategies to revive its top line.
These strategies include focus on advertising efficiency to improve
new order sales and shifting sales to higher margin items,
including generics, while expanding its product offerings. The
company currently offers a wide range of products for dogs, cats,
and horses, and is working on expanding its portfolio. The stock
retains a Zacks Rank #3 (Hold).
Other Stocks to
Consider
While we prefer to remain on the
sidelines on PetMed, other medical device stocks worth a look are
Conceptus, Inc. (CPTS) and Myriad
Genetics (MYGN). Both the stocks carry a Zacks Rank #1
(Strong Buy).
CONCEPTUS INC (CPTS): Free Stock Analysis Report
MYRIAD GENETICS (MYGN): Free Stock Analysis Report
NOVARTIS AG-ADR (NVS): Free Stock Analysis Report
PETMED EXPRESS (PETS): Free Stock Analysis Report
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