PetMed Express on a rough patch ahead of next week’s Q2 earnings report

PetMed Express (NASDAQ: PETS) is set to report its second-quarter earnings results on Monday, October 21, before the market opens. The pet pharmacy operator’s results will be hurt by increased competition from Chewy (NYSE: CHWY) that compel PetMed to lower prices for surviving in the market.

PetMed’s margins have fallen considerably due to the pricing and volumes weakness. The weakness was created by the stiff competition from Chewy, which got into the pet prescription medication business last year. The stock, which carried the burden, has fallen over 46% in the past two years and over 31% in the past year, despite recovering over 17% in the past three months.

PetMed’s last hope is lowering costs by fixing direct relationships with manufacturers. However, the company has been struggling to hook accord under its hoods as stiff competition continues to steal away the clients. Also, the competition is expected to increase the spending on online advertising that the company expects to be more efficient.

For shrinking costs, the company could cut down dividends due to weakness in the pricing and volumes. The current dividend payout ratio stood at 72.97% with the forward annual dividend yield at 5.80%. Investors believe that a dividend cut could be the first step to dividend withdrawal in the future.

Analysts expect the company’s earnings to plunge by 50% to $0.26 per share and revenue will decline by 2.5% to $69.65 million for the second quarter. The company has missed analysts’ expectations thrice in the past four quarters.

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For the first quarter, PetMed Express reported a 58% dip in earnings due to higher online competition and aggressive pricing in the market. Net sales decreased by 8.5% year-over-year. The company’s average order value declined by 4% to $86 in the previous-year quarter.

In fiscal 2020, the company will continue to be price competitive and will focus on optimizing its marketing in this more competitive environment and being more efficient with its advertising spending.

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