PetMed Express (PETS) Q1 2027 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Thursday, Aug. 13, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

• Chairman and Interim Chief Executive Officer and President - Leslie C. G. Campbell
• Interim Principal Financial Officer and Chief Accounting Officer - Doug Krulik

Need a quote from a Motley Fool analyst? Email pr@fool.com

TAKEAWAYS

• Net Sales -- $41 million, reflecting a 19.9% decrease driven by softness in prescription medication sales partially offset by lower consumer promotional usage.
• Net Loss -- $6.1 million, compared to a $34.2 million loss, primarily reflecting the absence of a noncash goodwill impairment charge.
• GAAP EPS -- $(0.28), compared to $(1.65) in the prior year period.
• Adjusted EBITDA -- $(3.4) million loss, compared to a $(2.7) million loss, primarily driven by lower gross profit.
• Gross Profit Margin -- 27.6%, compared to 28.1%, reflecting lower manufacturer rebates as a percentage of sales partially offset by lower freight costs per order.
• General and Administrative Expenses -- $11.2 million, representing a 13.5% decrease due to lower professional fees, share-based compensation, and severance costs.
• Advertising Expenses -- $4.2 million, a 30.2% reduction resulting from the elimination of unproductive media spend and lower gross media expenditures.
• Recurring Net Sales -- 61.5% of total gross sales, up from 57.6%, reflecting the contribution of AutoShip and membership revenue.
• New Customer Acquisitions -- 70,000 approximately, representing a sequential upward trend over several quarters.
• Customer Acquisition Cost -- $60, a 15% reduction from $71 in the prior year period.
• Cash and Cash Equivalents -- $13.1 million as of June 30, 2026, with the company reporting zero debt.
• Sale-Leaseback Agreement -- $37 million for the headquarters and distribution center in Delray Beach, intended to strengthen the balance sheet and provide financial flexibility.
• Rural King Partnership -- 150 stores in 17 states reached through a co-branded online pharmacy offering launched in July to convert in-store shoppers to online customers.
• SAP ERP Implementation -- Completed enterprise-wide in May to modernize financial systems and reporting processes.
• Unsolicited Acquisition Proposal -- $3 per share in cash received from Silver Cape Investments on June 30, 2026, currently under Board evaluation.
• Freight Efficiency -- New agreement providing deliveries up to 2 days faster for West Coast customers while mitigating potential cost increases.
• Inventory -- $8.5 million as of June 30, 2026, compared to $13.6 million as of March 31, 2026.
• Accounts Payable -- $12.3 million as of June 30, 2026, compared to $20.9 million at the end of the previous fiscal year.
• Quarterly Revenue Trend -- Above $40 million for the third consecutive quarter, indicating sequential stabilization according to management.
• Call Center Platform -- New platform launched in June to improve efficiency in handling customer inquiries and sales.

SUMMARY

Management of PetMed Express, Inc. (NASDAQ:PETS) reported a strategic transformation focused on establishing a path toward sustainable profitability through disciplined expense management and new revenue channels. Key developments included a $37 million sale-leaseback agreement for corporate real estate to bolster liquidity and the July launch of a white-label pharmacy partnership with Rural King. The company also completed the enterprise-wide rollout of an SAP software system and introduced a new call center platform to improve operational efficiency and reporting accuracy.

• Interim CEO Campbell noted the expansion of the business-to-business strategy: "For example, key strategic initiatives such as our first white label pharmacy offering, are reaching in store shoppers and bringing them online."
• The company is actively evaluating an unsolicited acquisition proposal from Silver Cape Investments for $3 per share in cash, though the Board has not yet reached a determination.
• Management established a new freight agreement to enhance service: Campbell stated this "provides faster and more trackable service especially to our West Coast customers who may now receive their orders up to 2 days faster."
• A global executive search firm has been engaged to assist the Board in recruiting a permanent Chief Executive Officer.
• A new fraud prevention system launched in the previous quarter continues to protect order volumes as they evolve.
• Management reported that net sales have stabilized sequentially over several quarters, maintaining levels above $40 million despite year-over-year declines in prescription sales.

INDUSTRY GLOSSARY

• AutoShip: A subscription-based service where customers receive pet products on a recurring schedule.
• ERP: Enterprise Resource Planning, a software system used by organizations to manage and integrate core business processes.
• SAP: A specific brand of enterprise resource planning software.
• White label pharmacy: A fulfillment model where PetMed provides its infrastructure, licensed pharmacists, and technology for use under a partner's brand.
• Adjusted EBITDA: A non-GAAP financial measure that represents earnings before interest, taxes, depreciation, and amortization, often adjusted for non-recurring or non-cash items.

Full Conference Call Transcript

Operator: Greetings. And welcome to the PetMed Express, Inc. Q1 27 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. It is now my pleasure to introduce your host, Reed Anderson with ICR. You may begin.

Reed Anderson: Thank you, and welcome to the PetMed Express Fiscal First Quarter 27 Earnings Conference Call. With us on the call today are Leslie C. G. Campbell, PetMed's Chairman and Interim CEO 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 2000 and the Securities Exchange Act of 1.93 thousand 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 PetMeds. PetMeds 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 Leslie C. G. Campbell, PetMed's Chairman, Interim CEO and President.

Leslie C. G. Campbell: Thank you, Reed, and welcome to everyone on our call this afternoon. Following my opening remarks, Doug will provide a detailed overview of our financial results. In this first quarter, we continued to build on the operational and financial foundation we began transforming last year. With a significant focus on enhancing shareholder value optimizing our capital allocation, streamlining our cost structure, developing new revenue streams, improving our customer retention, while efficiently gaining access to new customers, modernizing our technology infrastructure, enhancing our customer service capabilities, and speeding up deliveries to our customers. While the direct to consumer pet health landscape remains intensely competitive, our focus is single-minded.

Driving long term shareholder value and establishing a direct clear path back to sustainable profitability. To that end, our Board continues to evaluate all capital allocation and strategic priorities with complete discipline. While we believe we are implementing the strategy and taking the actions necessary, to enhance shareholder value, our board and management team remain open to considering any opportunities that have the potential to enhance value for all PetMed's shareholders. With respect to revenue growth, and customer acquisition initiatives, we are diversifying our customer acquisition funnel beyond relying on traditional advertising and media channels which continue to become more expensive.

For example, key strategic initiatives such as our first white label pharmacy offering, are reaching in store shoppers and bringing them online. Leveraging the technology and infrastructure work we completed during Q4 and into the current quarter, we believe we are beginning to see the benefits of these investments show up in our day to day operations. Our new call center platform launched in June has helped us handle customer inquiries and sales more efficiently. And our new fraud prevention system launched in Q4 continues to protect the business as order volumes evolve.

During Q1, we completed a comprehensive process to upgrade our enterprise resource planning system, our ERP system, And in May, we successfully rolled out SAP as our ERP system enterprise wide. Further modernizing and strengthening our financial and reporting processes, and representing the completion of 1 of the largest elements of our technology transformation initiative as we continue to replace legacy platforms. We also recently entered into a new freight agreement that both mitigates proposed cost increases from a previous carrier and provides faster and more trackable service especially to our West Coast customers who may now receive their orders up to 2 days faster.

We believe that speeding up deliveries to our customers will significantly enhance their customer experience and customer satisfaction, and lead to higher customer retention rates. All these ongoing technology and operational initiatives are creating a stronger foundation for a more scalable, efficient organization going forward. Before we move on to the first quarter results, I would like to update you on 2 current topics. First, in a press release that we issued on June 30, we acknowledged receipt of an unsolicited and conditional proposal from Silver Cape Investments to acquire all the outstanding shares of the company's stock for $3 per share in cash.

Based on communications to date with SilverCape, the Board has not yet reached any determination regarding Silver Cape's proposal. And there is no assurance that any transaction will result. As stated in our June 30, 2026, press release, the company does not intend to comment further unless and until it determines that additional disclosure is appropriate or required. Secondly, regarding the search for a permanent CEO, the board is continuing this search with the assistance of a global executive search firm. Recruiting for this role, a person firmly committed to driving long term shareholder value and establishing a direct clear path back to sustainable profitability remains a high priority for our board. Turning now to first quarter results.

In Q1, we are pleased to see that sales have stabilized sequentially over the past several quarters. Although the year over year decline of 19.9% in first quarter net sales reflects continued softness in prescription medication sales. Our net loss for the first quarter narrowed significantly to $6.1 million compared to a net loss of $34.2 million in the same period last year. Reflecting our disciplined focus on managing operating costs as well as the absence of a noncash goodwill impairment charge. General and administrative expenses declined nearly 14% year over year reflecting lower professional fees. And advertising expenses declined 30% reflecting lower gross media spend and the selective elimination of several unproductive high cost programs.

At the same time, our recurring net sales which include auto ship and membership related revenue, grew to 61.5% of total gross sales, up from 57.6% a year ago, underscoring the strength of our subscription driven customer base. I also want to call out our continued improvement around customer acquisition. During the first quarter, we acquired approximately 70 thousand new customers and this metric has been trending upward over the past several quarters. In addition, we reduced our cost of acquiring a new customer by 15% in the first quarter. To $60 compared to $71 in the same period last year.

This meaningful improvement was driven by our ongoing advertising and media spend optimization, including the selective elimination of unproductive media spend and other strategic reductions in marketing costs. We see this improvement as an encouraging sign that our marketing investments are becoming more efficient even as the broader advertising environment remains competitive. As we continue to focus on improving our customer acquisition and lowering our customer acquisition costs, I am also pleased to share that in July, we officially launched our new co-branded online pharmacy offering with Rural King, giving Rural King's customers across more than 150 stores in 17 states convenient access to pet medications, prescription food, preventatives, and auto ship services through a platform powered by PetMeds.

This partnership, which we announced in April, represents our first large scale white label pharmacy program. And we believe it is an important proof point for our strategy to efficiently grow our customer acquisition reach including by converting in store shoppers into online customers, and developing new revenue streams by putting our pharmacy infrastructure licensed pharmacists, ecommerce capabilities, and 30 years of expertise to work for our partners. In Rural King's case, particularly in the rural communities that they serve, where access to veterinary care and pet medications can be limited.

We are proud of what this partnership represents in terms of future opportunities to efficiently gain access to new customers and develop new revenue streams, and we look forward to announcing the extension of our white label offering to additional partners in the near future.

Turning to capital allocation, on July 23, we announced that we had entered into a definitive agreement for a sale-leaseback of our headquarters and distribution center buildings here in Delray Beach, Florida, for an aggregate purchase price of $37 million Under the agreement, we will lease back the portion of the property housing our offices in Florida distribution center under a 10-year lease with subsequent renewal options allowing us to continue operating out of the headquarters that has been home to PetMeds for the past decade. We expect this transaction to close within approximately 120 days from the date of the definitive agreement. Subject to a due diligence period, negotiation of the definitive lease agreement, and other customary closing conditions.

We see this transaction as a strategic next step in our ongoing commitment to sharpen our focus on our core pharmacy business, strengthen our balance sheet and optimize our asset base by unlocking the value of our real estate, in turn, providing us with additional financial flexibility to continue investing in the initiatives with the greatest potential to drive shareholder returns.

Looking ahead, the financial, operational, commercial and cultural improvements we have implemented over the past 12 months, our strategic initiatives and partnerships, and our more disciplined approach to expense management and capital allocation have dramatically improved our foundation, and they position us well for the future as we seek to drive long-term shareholder value and establish a direct clear path back to sustainable profitability. We will continue to focus on operational excellence as a competitive pillar and core driver for sustainable long term results and delivering value for shareholders. By leveraging our modernized technology and other operational initiatives, we can build on our exceptional service levels and improve customer retention.

In addition, we continue leaning into our pet pharmacy expertise and infrastructure to expand B2B relationships through membership programs, and our white label fulfillment services to extend our reach to more customers. We remain deeply committed to our mission of ensuring pets live longer healthier and happier lives, and we are focused on delivering value for our shareholders through this disciplined execution of our strategic priorities. With that, I will turn the call over to Doug Krulik for a more detailed review of our financial results for the first quarter.

Doug Krulik: Thank you, Leslie. Net sales for the first quarter were $41 million compared to $51.2 million in the same period last year, representing a third consecutive quarter of revenue stabilization above $40 million although a 19.9% year-over-year decline primarily driven by decline in prescription medication sales partially offset by lower consumer promotional usage. Gross profit was $11.3 million compared to $14.4 million last year. As a percent of sales, gross profit this year was 27.6% compared to 28.1% in the prior year. Primarily reflecting lower manufacturer rebates as a percentage of sales partially offset by lower freight costs per order. General and administrative expenses were $11.2 million compared to $12.9 million last year. A 13.5% decrease.

This year over year improvement was driven by lower professional fees, share based compensation, and severance costs. Advertising expenses were $4.2 million compared to $6 million last year. A decrease of 30.2%, reflecting lower gross media spend and the elimination of unproductive media. Depreciation and amortization was $2.1 million compared to $2.3 million in the prior year period. Net loss for the first quarter was $6.1 million or $0.28 per diluted share compared to a net loss of $34.2 million or $1.65 per diluted share for the same period last year. This decrease in net loss was primarily driven by the absence of last year's goodwill and trade name impairment charge.

And, to a lesser extent, lower general and administrative and advertising expenses partially offset by lower gross profit resulting from decreased net sales. Adjusted EBITDA loss was $3.4 million compared to a loss of $2.7 million in the prior year period. Turning to our balance sheet, As of June 30, 2026, we had $13.1 million in cash and cash equivalents and no debt. With that, I will turn the call back to Leslie for closing remarks.

Leslie C. G. Campbell: Thank you all for your time today and your interest in PetMeds. We are very grateful for the support of all of our shareholders and have appreciated the opportunity to communicate with many of you at different times throughout this quarter. I also want to thank our employees as always for how they bring their passion for our customers to life in their work every day. And finally, we always want to thank our loyal customers and their veterinarians who trust us to be part of helping pets live longer healthier, happier lives. Thank you again for allowing us to share these first quarter results with you. We look forward to updating you on our progress next quarter.

Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.