Alexander Wissel's  Instablog

The concern for many analysts was the decrease in new customer acquisitions and lowered advertising spending. While cost per acquisition was 8% lower, so was total spending. It resulted in a 3% decrease in new customers in the third quarter compared to the same period last year.  

While this is troubling, when you factor in that PetMed purchases its TV airtime in remnants – sections of commercial airtime that aren’t bought in large bulk purchases by major advertisers – and that many of these major advertisers are looking to remnant purchasing to buy their airtime, you start to see why their acquisitions have dropped off.

This tells us two things about the PetMed that reminds us why this company should continue to be on investors radars.  

One, that management has a close understanding of what it takes to add new customers. Two, that the management has the discipline not to chase inflated airtime costs with its advertising dollars. Hmm… management acting cautiously and prudently, it’s a new concept.

While these are good by themselves, the earnings numbers tell us a number of other pertinent details that give us renewed optimism for this stock.

For the last two quarters, year over year, net sales moved up 9% and reorder sales were up 14% from last year.  

Quite simply, a growing list of loyal customers who are purchasing medications for beloved pets and ‘family’ members is a great space to be in.

I’ve seen everyone from poverty stricken individuals to extended family members place their pet’s health ahead of their own. You might have a treasured pet of your own and know exactly what I’m talking about.

If you do, you also may have witnessed the extent people will go in pet care and paying for these pet’s medications. This loyalty and devotion isn’t going anywhere.

And PetMed’s message will continue to play well for the bargain conscious. 

As the undisputed leader in this space, PetMed Express should rebound nicely from its current position. A few simple changes in advertising allocations and redeployment of capital to add new customers will easily erase a small drop in new sales.  

While this isn’t entirely “buy the rumor and sell the news” earnings action on the stock price, its real close.

The stock dropped to $16.89 before rebounding slightly at around $17.30. This may take a couple of days to shake out, but PetMeds should start moving positively before too long.

Full Disclosure: No positions in any security mentioned above.