Investors in PetMed Express Inc.’s stock are experiencing a significant setback today, as the pet medication and supplies company reports disappointing quarterly results and announces the suspension of its dividend to preserve cash.
The stock, with ticker symbol PETS, is currently plummeting by 32.1% in midday trading. This puts the stock on track for its lowest close since November 19, 2004, marking the largest one-day selloff since the record-breaking 37.5% plunge on May 5, 2000.
According to Chief Executive Matt Hulett, this change in capital allocation comes after a thorough analysis by the Board of Directors and the management team. Hulett explains, “By suspending the quarterly dividend, we have the opportunity to invest the company’s cash flow in projects and initiatives that we believe will yield higher returns.”
Previously, the company paid out a quarterly dividend of 30 cents per share on August 18. Based on current stock prices, the previous annual dividend rate of $1.20 implied a dividend yield of 19.26%, which is significantly higher than the implied yield on the S&P 500 index SPX of 1.67%.
This dividend cut news was released as part of the company’s fiscal second-quarter report, which was made public on Monday evening.
For the quarter ending September 30, PetMed Express swung to a net loss of approximately $70,000, or essentially breaking even on a per-share basis. This is a substantial decline from net income of $2.6 million, or 13 cents per share, in the same period last year. Notably, there weren’t enough analysts’ estimates provided to FactSet to establish a consensus.
Despite the disappointing net loss, revenue increased by 8.6% to $71.0 million during the quarter. This growth can be attributed to the addition of 75,600 new customers, representing a 25% increase from the previous year. The reported revenue also includes results from the acquisition of PetCareRx, which was finalized on April 3, 2023.
However, even with the growth in new customers, PetMed Express faces challenges in stabilizing its core customer base, as stated by Hulett during the post-earnings conference call with analysts.
In conclusion, PetMed Express Inc. is currently grappling with a significant decline in its stock valuation due to disappointing quarterly results and the decision to suspend its dividend. The company is now focused on reallocating its cash flow towards ventures that promise higher returns. Despite some growth in revenue and an increase in new customers, challenges remain in retaining their existing customer base.
PetMed’s Returning Customers and Market Challenges
According to the latest report, PetMed’s returning customers have contributed $62.4 million in sales for the quarter, marking a 4.5% increase compared to last year. However, this growth is solely attributed to the addition of the PetCareRx business.
Although the number of returning customers has decreased, the remaining ones are also spending less, as highlighted by Hulett during a recent call. This decline in returning customers has been consistent for several quarters, although the rate has improved slightly compared to a year ago. However, PetMed has yet to achieve a stable returning customer base.
Hulett explained that PetMed’s customer base consists primarily of price-conscious pet parents who are affected by prevailing market conditions. These conditions include higher inflation and interest rates, which have made consumers more cautious with their spending.
Stifel analyst Jonathan Block recently conducted a survey among veterinarians in the animal health industry, and the findings were largely downbeat. Wellness visits to veterinarians have declined recently and have become detached from non-wellness visits. Additionally, the survey revealed that clients are less willing to spend on average wellness visits, such as annual exams, vaccinations, or routine checkups.
As a result of these challenges, PetMed’s stock has experienced a significant decline of 64.8% year to date. In comparison, Chewy Inc., a seller of pet supplies and meds that does not pay a dividend, has seen a 47.6% drop in its shares this year. Meanwhile, the S&P 500 index has gained 8.7%.
Despite these setbacks, PetMed’s focus remains on resolving the declining customer base issue and adapting to the current market conditions to regain stability and growth.