PetMed Express Leaves Competitors In The Doghouse

On Monday, SmartGuyStocks recommendation PetMed Express (PETS) reported excellent second quarter results. Revenue rose 18% to 51.5M while net income jumped 37% to $0.18 per share, both exceeding analyst estimates.

These results are especially impressive in light of the recent disappointing results at Petsmart (PETM), who blamed its shortfall on an uncertain economic environment, consumer weakness, and bad weather (yeah, I don’t get the last one either). But PETS is in the market’s sweet spot - while consumers may pinch pennies and hold off on buying a fancy new birdhouse from Petsmart or Petco, buying Fido’s heartworm drugs is non-negotiable (and as I wrote about in my original recommendation of PETS, so too could soon be his Prozac and weight-loss pills).

In fact, in an uncertain economic environment, PETS will actually thrive, as it provides an essential product at a much lower price than the neighborhood vet. This is demonstrated by the fact that sales zoomed while advertising expenses barely budged vs. 2006. Growth of reorder sales was 25%, indicating that PETS is producing satisfied customers, while further supporting my thesis that the people are increasingly willing to seek aid for more pet ailments. Throw in some strong cash flow and $1M in share buybacks, and it's fair to say that PETS was a “good boy” for the second quarter.

Disclosure: SmartGuyAB is long PETS.

PETS 1-yr chart: