Petmed Express Inc (PETS) Q2 2027 Earnings Call Transcript

And welcome to the Pat Met Express Fiscal Second Quarter 2027 Financial Results Conference Call. At this time, all participants are in listen-only mode. It is now my pleasure to introduce your host, Sophia Edwards with ICR. Thank you. You may begin.

Thank you, and welcome to the PetMed Express Fiscal Second Quarter 2027 Earnings Conference Call. With us on the call today are Jeff Willard, PetMed's Chief Executive Officer and President, and Doug Krulik, Interim Principal Financial Officer and Chief Accounting Officer. Certain information included during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities Exchange Act of 1934. As amended, 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 results could differ materially from those projected. There can be no assurance that any forward-looking results will occur or be realized, and nothing contained in this presentation is or should be relied upon as a representation or warranty as to any future matter, including any matter in respect of the operations or business or financial condition of PET meds. PEPMEDS 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 have identified various risk factors associated with our operations in our most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission. Now, let me turn the call over to Jeff Willard, PEPMEDS' Chief Executive Officer and President.

Thank you, Sophia, and welcome to everyone joining our call this afternoon. Following my prepared remarks, Doug will provide a detailed overview of our financial results. Since I joined PetMeds just six weeks ago, I've been focused on getting to know our business, our team, and our customers, and on identifying the biggest opportunities to strengthen it. Over the past 25 years, I've spent my career building and transforming more than 50 consumer brands, including Coleman, JBL, Beautyrest, Casper, and many others across businesses ranging from $50 million to $5 billion in revenue. I've led turnarounds of return declining businesses to growth, repositioned iconic brands to build on their heritage, and it's significantly improved profitability. Those experiences have given me a unique perspective on what makes consumer businesses successful, how markets and customer expectations evolve, and also what it takes to compete and win. My approach combines building a compelling consumer proposition while at the same time streamlining the business to return it to profitable growth. What drew me to PetMeds is the company's heritage and the position it holds and the opportunity to turn the company back into a growing and profitable business. Pet Meds was the company that pioneered the online pet pharmacy when it was founded 30 years ago and has built a brand that pet parents know and trust. As the owner of two older rescue dogs, Faith and Wrangler, I know firsthand how much pet parents depend on getting the right medication on time and every time. That trust is what we have to earn with every order. I want to thank Leslie Campbell, our former chair and interim CEO, for her steady hand in leadership during a critical period for this company. She helped put the foundation in place for work ahead, and I'm grateful for her support also during the transition. Over this past year, the team has stabilized the operations of the business. We've brought our cost base down. We've modernized our technology. We've reduced our cash burn. We've put a more disciplined approach to capital allocation in place. Operational improvements such as our SAP rollout, launching a new call center platform, and speeding up deliveries help create better experiences for our customers and make our business more efficient. Now we turn to the next phase, fixing our core business, the online pet pharmacy. That is where we began in 1996. It is the heritage we are building on, and it is where our greatest opportunity lies. This is our top priority and is how we deliver on our commitment to drive long-term shareholder value and to establish a clear path back to sustainable profitability. The goal is simple. Give pet parents a clear reason to choose pet meds over the competition and run this company profitably at the size we are today. While our net sales remain below where they were a year ago, we have a strong foundation to build on, as I just mentioned. When pet parents come to pet meds, they find a trusted pharmacy, outstanding customer service, and reliable delivery. Despite these advantages, we aren't fully capitalizing on them yet, and too few customers are choosing pet meds. In the quarters ahead, we intend to show you a strategy built around the components that differentiate pet meds and make us the number one choice for pet parents. I want to talk to you about the four fronts we're working on right now to help better differentiate pet meds and make this a stronger business. First, we're repositioning the brand so it's clear to our pet parents exactly why they should choose pet meds over the competition. Second, we're improving the efficiency of our marketing dollars. This means having the most efficient marketing spend possible and also having a message that cuts through and gets noticed. Third, we're making our website easier to buy from. We are simplifying the path from search to checkout so that more of our customers make it through checkout and leave with the right medication. And finally, we're working on keeping the customers that we win. This is critical given what it costs to acquire a new customer. Within the pharmacy, in addition to broadening our reach, we see opportunity in several areas. One example is generics, which is also a growing category and closely aligned with our focus on access and affordability. With our strong supply relationships and better merchandising, we can give pet parents lower cost choices while also creating a margin opportunity for pet meds. We are also simplifying our assortment. Today, we carry thousands of items. In the future, our goal is to have a full assortment of pet medications to satisfy every need, but a tighter and more curated assortment of other items such as food and accessories. We will focus on the items that are central to our pharmacy and our customers and be more selective about slower-moving items that do not fit that core. We've also made good progress on the cost of acquiring new customers by optimizing our advertising and eliminating unproductive media spend. In the second quarter, we acquired 41,000 new customers, and the average acquisition cost was $51. That's a 32% reduction compared to a year ago and down 15% just from the last quarter, Q1. We see additional opportunities to further reduce acquisition costs, and we'll build on that by attracting and converting customers more efficiently and by approving retention, which is one of the fastest ways to improve profitability. Those are the areas, along with website conversion, we're expected to see progress over the quarters ahead. We are also committed to running pet meds in a way that is the right size for the business we are today. We will keep looking for opportunities across gross margin, across G&A, and advertise and improve our run rate and profitability. And as we return to growth, we do not expect operating expenses to grow at the same pace as revenue. Our goal, again, is to operate this business profitably at its current size and then to build on that as we grow. We're also realistic that this will take time. Rebuilding customer relationships in a competitive market is a multi-year effort, but we see a credible path to returning pet meds to profitability and then to growth. We are also extending our pharmacy platform through white-label partnerships. In July, we launched our co-branded pharmacy with Rural King, and we have since added Pet Supermarket as a second partner. These partnerships are a good complement to our core business and another way to reach pet parents in stores and bring them online. With that, I will turn over to Doug Grulich for a more detailed review of financial results for the second quarter.

Thank you, Jeff. Net sales for the second quarter were $35.8 million compared to $44.4 million in the same period last year, a decrease of 19.4%, primarily driven by decline in prescription medication sales and higher consumer promotional usage. Gross profit was $9.8 million versus $12.4 million last year. As a percent of sales, gross profit this year was 27.4% compared to 28% in the prior year, primarily reflecting unfavorable product mix and lower manufacturer rebates as a percent of sales, partially offset by lower net freight cost per order. General administrative expenses were $12 million, compared to $14.2 million last year, a 15.6% decrease. This year-over-year improvement was struck by lower non-operating professional fees and severance costs, partially offset by higher IT-related expenses. Advertising expenses were $2.1 million, compared to $4.3 million last year, a decrease of 52.3%, reflecting lower gross media spend and the elimination of unproductive media spend. Depreciation and amortization was $2.2 million compared to $2.3 million in the prior year period. Net loss for the second quarter was $6.4 million, or $0.31 per diluted share, compared to a net loss of $8.5 million, or $0.41 per diluted share, for the same period last year. This decrease in net loss is primarily driven by lower general administrative and advertising expenses, partially offset by lower gross profit. Adjusted EBITDA was a loss of $3.6 million compared to a loss of $2.3 million in the prior year period. Turning to our balance sheet, as of September 30, 2026, we had $11.4 million in cash and cash equivalents and no debt. We continue to work towards the transaction to monetize our Delray Beach headquarters and distribution center on terms that reflect the asset's value. With that, I'll turn the call back over to Jeff for closing remarks.

Thank you, Doug. I know that I've covered a lot of ground on my first call. The message I want you to take away is simple. We have stabilized the operations of the business, and our focus now is on transforming our core direct-to-consumer pharmacy business and making PetMeds a leaner, more profitable company at the size we are today. In the quarters ahead, we'll show you a strategy that builds on the trust and expertise we have earned over 30 years and on the components that differentiate pet meds so that we are the first choice for pet parents. We're also planning to share the KPIs that show the progress against this new growth strategy. For our shareholders, that means a more efficient business that can return to growth built on a consumer proposition that works in today's competitive e-commerce environment. There is real work ahead, and we are approaching it with urgency. Finally, I want to thank all of our employees for how they serve our customers every day and for their commitment during a period of significant change. I also want to thank our customers and their veterinarians who trust us to help their pets live longer, healthier, and happier lives. And thank you to our shareholders for your support and your patience. Thank you again for joining us today. We look forward to updating you on our progress next quarter.

Thank you. This conference call is now concluded. Thank you for attending the PetMed Express Fiscal Second Quarter 2027 Financial Results Conference Call. You may disconnect your lines this time, and have a great day.