Petmed Express Inc (PETS) 2015 Q4 法說會逐字稿

Welcome to the PetMed Express, Incorporated., doing business as 1-800-PetMeds, Conference Call to review the financial results for the Fourth Fiscal Quarter as ended on March 31, 2016. At the request of the Company, this conference call is being recorded.

Founded in 1996, 1-800-PetMeds is America's largest pet pharmacy delivering prescription and non-prescription pet medications and other health products for dogs and cats direct to the consumer. 1-800-PetMeds markets its products through national television, online, direct mail, and print advertising campaigns, which direct consumers to order by phone or on the Internet, and aim to increase the recognition of the PetMeds family of brand names. 1-800-PetMeds provides an attractive alternative for obtaining pet medications in terms of convenience, price, ease of ordering, and rapid home delivery.

At this time, I would like to turn the call over to the Company's Chief Financial Officer, Mr. Bruce Rosenbloom.

Thank you. I'd like to welcome everybody here today. Before I turn the call over to Menderes Akdag, our President and Chief Executive Officer, I would like to remind everyone that the first portion of this conference call will be listen-only until the question-and-answer session, 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 1995 or the Securities and 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 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 vary significantly based on a number of factors that may cause the 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 in our most recent Annual Report and other filings with the Securities and Exchange Commission.

Now let me introduce today's speaker, Menderes Akdag, President and Chief Executive Officer of 1-800-PetMeds. Menderes?

Thank you, Bruce. Welcome everyone, thank you for joining us. Today we will review the highlights of our financial results. We will compare our fourth fiscal quarter and fiscal year ended on March 31, 2016 to last year's quarter and fiscal year ended on March 31, 2015.

For the fourth fiscal quarter ended on March 31, 2016, our sales were $55.4 million compared to sales of $50 million for the same period the prior year, an increase of 11%. For the fiscal year ended on March 31, 2016, sales were $234.7 million compared to $229.4 million for the prior fiscal year, an increase of 2.3%. The increase in sales for the quarter was due to increases in new order and reorders sale. The average order value was up approximately $83 for the quarter compared to $81 for the same quarter the prior year.

For the fourth fiscal quarter net income was $5.4 million or $0.27 diluted per share, compared to $5 million or $0.25 diluted per share for the same quarter the prior year, an increase to net income of 9.4%. For the fiscal year, net income was $20.6 million or $1.02 diluted per share compared to excluding a one-time charge for an IT-related discontinued project, $18.5 million or $0.92 diluted per share, a year ago, an increase to net income of 11%.

Reorder sales increased by 8.4% to $46 million for the quarter, compared to reorder sales of $42.5 million for the same quarter the prior year. For the fiscal year, reorder sales increased by 3.1% to $195.6 million compared to $189.7 million for the prior year. New order sales increased by 24% to $9.4 million for the quarter, compared to $7.5 million for the same period the prior year. For the fiscal year, new order sales decreased by 1.5% to $39.1 million compared to $39.7 million for the prior year. We acquired approximately 116,000 new customers in our fourth fiscal quarter compared to 97,000 for the same period the prior year. And we acquired approximately 489,000 new customers in the fiscal year compared to 529,000 for the prior year.

For the quarter, approximately 82% of our sales were generated on our website compared to 81% for the same period the prior year. The seasonality in our business is due to the proportion of flea, tick, and heartworm medications in our product mix. Spring and summer are considered peak seasons with fall and winter being the off-seasons.

For the fourth fiscal quarter, our gross profit as a percent of sales was 31.9% compared to 33.9% for the same period a year ago. For the fiscal year, our gross profit as a percent of sales was 32.5% compared to 33.2% for the prior year. The percentage decrease for the quarter can mainly be attributed to additional discounts given to customers to increase sales.

Our general and administrative expenses as a percent of sales were 9.3% for the quarter compared to 9.8% for the same quarter the prior year. And for the fiscal year, it was 9.1% compared to 9.2% for the prior year. We were able to leverage the G&A with increased sales.

For the quarter, we spent $3.7 million in advertising compared to $4 million for the same quarter the prior year, a decrease of about 8%. For the fiscal year, our spending was $21.8 million for advertising compared to $25.2 million for the prior fiscal year, a decrease of about 13%. Advertising cost of acquiring a customer for the quarter was approximately $32 compared to $42 for the same quarter the prior year. And for the fiscal year, it was $45 compared to $48 for the prior fiscal year.

We had $37.6 million in cash and cash equivalents and $25.6 million in inventory with no debts as of much March 31st, 2016. Net cash from operations for the fiscal year was $21.1 million compared to $32 million for the prior fiscal year. The majority of the decrease was due to a reduction in inventory in the prior fiscal year. Capital expenditures were $20.1 million for the fiscal year, including the purchase of the property for $18.5 million during the March quarter.

This ends the financial review. Operator, we are ready to take questions.

Thank you. We will now begin the question and answering session. (Operator Instructions) Erin Wilson, Credit Suisse.

The changes in advertising strategy here, was there anything significant that you would note that helped to contribute to the new order sales in the quarter?

All I can tell you is, we tweaked the model and it's more efficient. We moved from a mass marketing to a more targeted marketing.

And then are you seeing at all a positive impact from destruction across the marketplace with some consolidation with some of your competitors like Dr. Foster & Smith, is that helping you at all?

It's difficult to tell, it's possible.

Okay. Do you run into those competitors frequently? I mean how (multiple speakers)

We do.

And then I guess what types of products are you seeing an uplift in, particularly, just given the warmer weather?

The demand was higher, I should say, for the flea and tick category in the March quarter, which positively impacted both new orders on reorders.

And lastly on the gross margin trend, was mix a meaningful factor there and how should we think about the quarterly progression of that metric going forward?

We anticipate continuing pressure on the gross profit margins, but we may be able to make it up on the advertising line.

Mitch Bartlett, Craig-Hallum.

Mendo, maybe you could expand on the comments you just talked about of moving from mass marketing to more targeted marketing. First, what is that? I mean, can you just give us a practical explanation of what's going on there and how do you reach new customers with more targeted marketing and growth that efficiently, and you just said that perhaps this is a -- that you might be lowering prices going forward or keeping prices low and the trade-offs with the advertising cost. Maybe you could expand on that a little bit more.

Okay. With mass marketing what I referred to is, probably television advertising would be a mass advertising. So, we are reducing that and getting more targeted. So if you target, obviously the right customer, so we tweaked the model and currently it obviously worked better in the last two quarters.

What do you mean by targeting those is the question?

It's more targeted marketing. I'm going to leave it at that, I'm not going to give you any specifics due to competitive reasons.

It's more direct mail or something like that? Okay.

It could be, I mean, I'm not going to get into specifics, we have too many copy cats so.

And that leverages new customer growth as well?

Well, it did. So, I mean you saw it, so the numbers speak for themselves, so you can draw your own conclusions.

Okay. And then second question would be, last quarter I thought we kind of borrowed forward on flea and tick because of an unseasonably warm and here it happened again this quarter, which is wonderful. Is that -- do you see a change in the flea and tick in the winter months or have -- maybe you could go through that.

Well, the demand for the flea and tick category was higher, both in the March quarter and the December quarter, obviously, which positively impacted sales. So, the weather most likely played a role in there.

Anthony Lebiedzinski, Sidoti & Company.

First off, is it possible for you, Mendo, to quantify the impact of the warmer weather? How much do you think you got as a result of people buying more flea and tick medications because of the warmer weather?

We'll be guessing and speculating, which I'm not going to get into.

Okay. And also, could you give us a mix of business between over-the-counter and prescriptions for the year and for the quarter, if you can?

We will discontinue giving that information due to competitive reasons.

Okay, right. And then the other question that I had was, so it sounds like really because of your shift away from TV that the presidential election probably won't have too much of an impact on your advertising?

That's fair assumption, yes.

And just continuing on the advertising topics, obviously you did a good job of managing your expenses down 8% in the quarter, down 13% for the year. That being said, how much further can you take down advertising? I mean, is it fair to say that these types of decreases in advertising are not sustainable?

That's probably accurate. Yes, maybe in the June and September quarter we may be able to -- but after that, obviously comparison gets much tougher, so I would say, it would not be sustainable, maybe no longer run, but in the short run, it may be.

(Operator Instructions) Michael Kupinski, Noble Financial.

My question more is a little bit more broad. Obviously in the flea and tick category, we had a movement towards generics and non-prescription and I'm wondering if in the flea and tick category, are we starting to see a shift back towards prescription flea and tick medications? And if you could just talk a little bit about market share, shifts towards that type of product, if you have comments.

The new products are all prescriptions. So I'm not sure where are you getting your information that it moved to OTC, so there was not very many -- there was actually no prescription of -- we had just flea and tick category in the past, now there is , so there is a --

Right, that's what I'm saying. That's what I'm referring to. So, I'm just asking what type of share shifts we're seeing in terms of flea and tick prescription drugs.

And again, due to competitive reasons I'm not going to give you any data points on that.

Mitch Bartlett, Craig-Hallum.

Mendo, I understand why you don't want to kind of talk too much in detail about your components of your advertising strategy. So maybe I can just frame it this way. In the fourth quarter of fiscal 2012, you had about the same level of sales, advertising was $6.9 million, 12.4% of sales. And this year it was $6.7 million, roughly half of that level. Is the shift or could you look at that $6.9 million and say TV based advertising was three quarters of it, now it's one quarter. Could you kind of compare the two and say what has changed in the magnitude of the shift between the channels rather than delineating what you're doing with the channels?

It's probably possible to do that, it's not going to be a 100% accurate, but (multiple speakers) maybe give you some idea.

Well, that's my question to you. I mean was TV a significantly higher percentage back then, and could you quantify that for me?

Yes, it was significantly higher percentage back then. I'm not going to quantify it.

Thank you. At this time there are no further questions. I would now like to hand the call over to Mr. Akdag.

Thank you. In fiscal 2017 we will be preparing to move into our new corporate headquarters and distribution center, which is expected to occur or in our third fiscal quarter. This wraps up today's conference call. Thank you for joining us. Operator, this ends the conference call.

Thank you for participating, you may now disconnect.