PetMed Express Navigates Challenging Macroeconomic Environment

PetMed Express, a leading nationwide direct-to-consumer pet pharmacy and online provider, has reported its financial results for the three and nine months ended December 31, 2024. The company faced a challenging macroeconomic environment during this period, with factors like inflation, rising interest rates, and supply chain volatility impacting its operations.

Financial Performance Overview

For the quarter ended December 31, 2024, PetMed Express reported net sales of $53.0 million, a decrease of 18.9% compared to the same period in the prior year. This decline was primarily driven by a strategic reduction in advertising as the company reset its marketing foundation for sustainable profitability. Reorder sales decreased by 16.6% to $45.1 million, while new order sales decreased by 31.0% to $6.1 million.

The nine-month period ended December 31, 2024 saw a similar trend, with net sales decreasing by 15.9% to $180.5 million. Reorder sales declined by 14.3% to $149.4 million, and new order sales decreased by 24.6% to $24.9 million. The company attributed the overall sales decline to the strategic reduction in advertising, broader macroeconomic factors, and higher consumer promotional usage.

Despite the revenue challenges, PetMed Express was able to maintain a strong gross profit margin. Gross profit for the quarter ended December 31, 2024 was $14.9 million, a decrease of 16.6% compared to the prior year period. Gross margin increased by 0.8 percentage points to 28.1%, primarily due to favorable sales mix and lower consumer promotional usage.

Cost Management and Profitability

The company’s focus on cost management was evident in its operating expenses. General and administrative expenses decreased by 19.7% to $10.8 million for the quarter ended December 31, 2024, driven by a reduction in stock-based compensation expense, payroll and related expenses, and credit card processing fees.

Advertising expenses also declined significantly, dropping by 48.2% to $3.0 million for the quarter. This strategic reduction in advertising spending was part of the company’s efforts to reset its marketing foundation for sustainable profitability. The advertising cost of acquiring a new customer decreased from $59 in the prior year quarter to $47 in the current quarter, reflecting a more efficient variable marketing spend.

Despite these cost-cutting measures, PetMed Express reported a net loss of $0.7 million for the quarter ended December 31, 2024, compared to a net loss of $2.0 million in the same period of the prior year. The company’s adjusted EBITDA, a non-GAAP measure that excludes certain expenses, increased by 116% to $2.0 million for the quarter.

For the nine-month period ended December 31, 2024, the company reported net income of $5.4 million, a significant improvement from the net loss of $2.4 million in the prior year period. Adjusted EBITDA, however, decreased by 67% to $2.6 million, reflecting the impact of the macroeconomic environment and the company’s strategic initiatives.

Goodwill and Intangible Assets

PetMed Express’ critical accounting policies include the assessment of long-lived assets, goodwill, and other intangible assets for impairment. The company concluded that no impairment of long-lived assets existed as of December 31, 2024. The company’s goodwill and other indefinite-lived intangible assets, primarily a trade name, were also evaluated for impairment, and the company concluded that it was not more likely than not that these assets were impaired.

Liquidity and Capital Resources

As of December 31, 2024, PetMed Express had a working capital of $20.4 million, a decrease of $1.1 million from March 31, 2024. The company’s cash and cash equivalents, along with expected cash flows from future operations, are believed to be sufficient to continue operations for at least the next twelve months.

The company’s net cash used in operating activities was $2.3 million for the nine months ended December 31, 2024, compared to $2.8 million in the prior year period. This improvement was due to the increase in net income, partially offset by changes in working capital. Net cash used in investing activities decreased from $39.4 million in the prior year period to $2.7 million, primarily due to the PetCareRx acquisition and an additional investment in Vetster in the prior year.

PetMed Express has suspended its quarterly dividend indefinitely, focusing its cash and cash flow on growth initiatives and other higher-return opportunities. The company is not currently bound by any material long-term or short-term commitments for the purchase or lease of capital expenditures, and it plans to fund any future capital expenditures from working capital funds.

Outlook and Challenges

The macroeconomic factors, including inflation, increased interest rates, supply chain volatility, and geopolitical developments, are expected to continue impacting PetMed Express’ operations for the remainder of fiscal 2025. The company anticipates that rising fuel, utility, and food costs, as well as recessionary fears, may impact customer demand and its ability to forecast consumer spending patterns.

Additionally, the current macroeconomic environment and enterprise customer cost optimization efforts are expected to impact the company’s revenue growth rates. PetMed Express is proactively seeking opportunities to improve the efficiency of its operations, realize internal cost savings, and create a more variable cost structure to better support its current and expected future levels of operations.

Conclusion

PetMed Express has navigated a challenging macroeconomic environment during the three and nine months ended December 31, 2024. The company’s strategic reduction in advertising, focus on cost management, and efforts to improve operational efficiency have helped mitigate the impact of declining sales. However, the broader economic factors continue to pose risks and uncertainties for the company’s future performance.

As PetMed Express looks ahead, it will need to carefully balance its marketing and operational strategies to drive sustainable profitability in the face of ongoing macroeconomic headwinds. The company’s ability to adapt and innovate will be crucial in maintaining its position as a leading player in the pet pharmacy and online retail space.