PetMed Express, Inc. — Fiscal 2021 Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2021. The request references “2020 Q4,” but the supplied filing is the annual Form 10-K for fiscal 2021, not a quarterly filing. PetMed Express operates a nationwide direct-to-consumer pet pharmacy selling prescription and non-prescription medications and pet health products primarily through its website, mobile application, and contact center.
Financial performance and position
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Sales | $309.2 million | $284.1 million | Up 8.8% |
| Gross profit | $89.9 million | $81.2 million | Up 10.7% |
| Gross margin | 29.1% | 28.6% | Up 50 basis points |
| Operating income | $37.6 million | $31.0 million | Up 21.3% |
| Operating margin | 12.2% | 10.9% | Up 130 basis points |
| Net income | $30.6 million | $25.9 million | Up 18.4% |
| Diluted EPS | $1.52 | $1.29 | Up 17.8% |
| Operating cash flow | $40.1 million | $38.8 million | Up $1.2 million |
- Internet sales were $259.4 million, or 83.9% of total sales; contact-center sales were $49.8 million.
- Reorder sales increased 9.7% to $272.6 million and represented 88.2% of sales. New-order sales increased 2.8% to $36.6 million.
- Approximately 443,000 new customers were acquired, compared with 421,000 in fiscal 2020. Average purchase increased to approximately $89 from $87.
- Cash and cash equivalents were $118.7 million at March 31, 2021, compared with $103.8 million a year earlier. Working capital was $116.3 million.
- Total assets were $187.5 million and shareholders’ equity was $141.3 million at year-end.
- The Company reported no debt obligations, no material outstanding lease commitments, and no off-balance-sheet arrangements.
- Inventory increased to $34.4 million from $17.9 million, while accounts payable increased to $39.5 million from $19.7 million.
- Capital expenditures were $2.4 million, primarily related to a new e-commerce platform. Fiscal 2022 capital expenditures were forecast at approximately $2.0 million.
- Quarterly dividends declared totaled $1.12 per common share in fiscal 2021, compared with $1.08 in fiscal 2020. The quarterly dividend was subsequently increased to $0.30 per share in May 2021.
Material changes versus the prior comparable period
- Sales growth was driven by increased online demand, reorder activity, and new customers as consumers shifted purchases online during the COVID-19 pandemic.
- Gross margin improved primarily because direct relationships with major manufacturers reduced product costs and manufacturer minimum advertised pricing policies supported price discipline.
- Operating expenses increased 4.2% to $52.4 million, but declined to 16.9% of sales from 17.7%. General and administrative expenses rose 12.0%, partly due to payroll, remote-work costs, bank fees, e-commerce platform expenses, and accelerated vesting of restricted stock following the former Chairman’s death.
- Advertising expense declined to $21.6 million from $22.7 million after increased cooperative marketing funds from manufacturers. Customer acquisition cost decreased to $49 from $54.
- Other income declined to $1.6 million from $2.9 million, primarily because lower interest rates reduced interest income.
- Net cash provided by operations increased to $40.1 million. No shares were repurchased in fiscal 2021; the Company repurchased approximately 613,000 shares for $11.5 million in fiscal 2020. Approximately $28.7 million remained available under the repurchase plan at March 31, 2021.
- Sales were seasonal, representing approximately 31%, 25%, 21%, and 23% of fiscal 2021 sales in the June, September, December, and March quarters, respectively.
Outlook, commentary, risks, and unusual items
- Management expects advertising expense to be approximately 7% of sales and the effective tax rate to be approximately 23.5% in fiscal 2022; these are expectations, not guarantees.
- Management stated that the Company remained open as an essential business without material operating disruption during fiscal 2021. Supply-chain delays occurred for some inventory items, and the longer-term effects of post-pandemic consumer behavior remain difficult to predict.
- Future sales and margins may be pressured by increased competition, price sensitivity, manufacturer rebate structures, and consumers returning to veterinarians and physical retailers.
- Key risks include pharmacy licensing and regulatory compliance, prescription authorization by veterinarians, dependence on major suppliers, minimum advertised pricing requirements, inventory management, cybersecurity and payment processing, reliance on a single South Florida headquarters and distribution center, seasonality, and COVID-19-related disruptions.
- Five suppliers accounted for approximately 80% of product purchases in fiscal 2021, creating supplier concentration risk.
- The Company disclosed routine litigation and prior pharmacy-board complaints but stated that management does not expect existing routine matters to materially affect financial condition or results. Future regulatory actions remain possible.
- A related-party transaction involved a $292,000 engagement with Prophet, a firm whose board includes the Company’s Chairman; $32,000 was expensed in fiscal 2021 and $260,000 was deferred to fiscal 2022.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Inventory valuation was identified as the critical audit matter.
Important facts for investors to verify
- Whether the pandemic-related increase in e-commerce and reorder demand persists after veterinary clinics and retail stores fully normalize operations.
- Inventory growth, inventory reserves, supplier concentration, and the effect of manufacturer rebates and minimum advertised pricing policies on gross margin.
- Customer acquisition costs, new-customer growth, reorder rates, average order value, and competitive pricing trends.
- The sustainability of quarterly dividends and potential use of the remaining $28.7 million share-repurchase authorization.
- Compliance with federal and state pharmacy regulations, prescription authorization requirements, and the status of any future pharmacy-board complaints.
- Operational resilience of the single distribution facility and the Company’s information systems, website, mobile application, and payment-processing infrastructure.
- The filing’s fiscal-year basis: the supplied data covers the year ended March 31, 2021, while the requested “2020 Q4” period is not separately identified as the applicable reporting period.