EXHIBIT 99.1
PETMED EXPRESS, INC.
YEAR ENDED MARCH 31, 2006
CONFERENCE CALL TRANSCRIPT
MAY 15, 2006 AT 8:30 A.M. EDT
Coordinator: Welcome to the PetMed Express Incorporated, doing
business as 1-800-PetMeds, conference call to
review the financial results for the fourth fiscal
quarter and fiscal year ending on March 31, 2006.
At the request of the company this conference call
is being recorded.
Founded in 1996, 1-800-PetMeds is America's
largest pet pharmacy, delivering prescription and
non-prescription pet medication and other health
products for dogs, cats and horses direct to the
consumer. 1-800-PetMeds markets its products
through national television, on-line and direct
mail advertising campaigns which direct customers
to order by phone or on the Internet and aim to
increase the recognition of the "1-800-PetMeds"
brand name. 1-800-PetMeds provides an attractive
alternative for obtaining pet medications in terms
of convenience, price, ease of ordering and rapid
home delivery. At this time I would like to turn
the call over to the company's Chief Financial
Officer, Mr. Bruce Rosenbloom. Sir you may begin.
Bruce Rosenbloom: Thank you. I'd like to welcome everyone here
today. Before I turn the call over to Mendo
Akdag, our Chief Executive Officer and President,
I'd like to remind everyone that the first portion
of this conference call will be listen-only, until
the question and answer session which will be
later in the call.
Also, certain information that will be included in
this press conference may include forward-looking
statements within the meaning of the Private
Securities Litigation Reform Act of 1995 or the
Securities and Exchange Commission that may
involve a number of risks and uncertainties.
These statements are based on our beliefs as well
as assumptions we have used based upon information
currently available to us. Because these
statements reflect our current views concerning
future events, these statements involve risks,
uncertainties and assumptions. Actual future
results may vary significantly based on a number
of factors that may cause the actual results or
events to be materially different from future
results, performance or achievements expressed or
implied by these statements. We have identified
various risk factors associated with our
operations in our most recent annual report and
other filings with the Securities and Exchange
Commission.
Now let me introduce today's speaker, Mendo Akdag,
Chief Executive Officer and President of 1-800-
PetMeds. Mendo.
Mendo Akdag: Thank you Bruce.
Welcome everyone and thank you for joining us.
Exhibit 99.1 Page 1 - 8
Today we will review the highlights of our
financial results. We will compare our fourth
fiscal quarter and fiscal year ended on March 31,
2006 to last year's quarter and fiscal year ended
on March 31, 2005.
For the fourth fiscal quarter ended on March 31,
2006 sales were $29.4 million compared to sales of
$23.5 million for the same period the prior year,
an increase of 25%. For the fiscal year ended on
March 31, 2006 sales were $137.6 million compared
to $108.4 million for the prior fiscal year, an
increase of 27%. The increase was primarily due
to increased retail reorders, retail new orders
and wholesale sales for the fiscal year.
For the fourth fiscal quarter net income was $3.1
million or $0.13 cents diluted per share compared
to $2.4 million or $0.10 cents diluted per share
for the same quarter the prior year, an increase
to net income of 30%. For the fiscal year net
income was $12.1 million or $0.50 cents diluted
per share compared to $8.0 million or $0.34 cents
diluted per share a year ago, an increase to net
income of 51%.
Retail reorder sales increased by 28% to $21.7
million for the quarter compared to reorder sales
of $17.0 million for the same quarter the prior
year. For the fiscal year the reorder sales
increased by 29% to $88.4 million compared to
$68.7 million for the prior year.
Retail new order sales increased by 26% to $7.1
million for the quarter compared to $5.6 million
for the same period the prior year. For the
fiscal year, the new order sales increased by 22%
to $45.5 million compared to $37.2 million for the
prior year.
Wholesale sales were approximately $600,000 for
the quarter compared to $900,000 for the same
quarter the prior year. For the fiscal year
wholesale sales were at $3.7 million compared to
$2.4 million for the prior year.
We acquired approximately 94,000 new customers in
our fourth fiscal quarter compared to 80,000 for
the same period the prior year and we acquired
approximately 624,000 new customers in the fiscal
year compared to 510,000 for the prior year.
Our average retail order was approximately $81 for
the quarter and $77 for the fiscal year.
Approximately 57% of our sales were generated on
our web site for the fiscal year.
The seasonality in our business is due to the
proportion of flea, tick and heartworm medications
in our product mix. Spring and summer are
considered peak seasons, with fall and winter
being the off seasons.
For the fourth fiscal quarter our gross profit as
a percent of sales was 42.0% compared to 41.4% for
the same period a year ago. For the fiscal year
our gross profit as a percent of sales was 39.5%
compared to 40.3% for the prior year.
Exhibit 99.1 Page 2 - 8
The percentage increase for the quarter can mainly
be attributed to price increases implemented
earlier than last year to pass product and freight
cost increases to the consumer. The percentage
decrease for the fiscal year can mainly be
attributed to additional discounts given to
customers.
Our general and administrative expenses as a
percent of sales were 11.4% for the quarter
compared to 11.3% for the same quarter the prior
year and for the fiscal year the G&A decreased to
10.2% compared to 10.5% for the prior year.
Approximately $300,000 was expensed in the fourth
fiscal quarter related to Sarbanes-Oxley
compliance.
For the quarter we spent $3.9 million in
advertising compared to $3.2 million for the same
quarter the prior year, an increase of 21%. For
the fiscal year we spent $21.6 million for
advertising compared to $19.2 million a year ago,
an increase of 12%.
Advertising cost of acquiring a customer for the
quarter was approximately $41 compared to $40 for
the same quarter the prior year and for the fiscal
year it was $35 compared to $38 for the same
period a year ago. The improvement for the year
can be attributed to a more favorable advertising
environment.
Our working capital increased by $13.0 million to
$35.0 million since March 31, 2005. The increase
can mainly be attributed to cash flow generated
from operations and exercises of stock option. We
had $23.2 million in cash and $15.0 million in
inventory with no debt as of March 31, 2006.
Net cash from operations for the fiscal year was
$10.3 million compared to net cash from operations
of $8.3 million for the same period last year, an
increase of $2 million. Capital expenditures for
the fiscal year were approximately $758,000.
This ends the financial review. Operator we are
ready to take questions.
Coordinator: Thank you and at this time if you would like to
ask a question simply press star one on your
telephone touch pad. As a reminder please record
your first name and last name and company name for
pronunciation purposes. If you'd like to cancel
your question please press star two. Once again
that's star one to ask a question and star two to
cancel. One moment while the questions register
please, and your first question comes from Brian
Post with Roth Capital Partners.
Brian Post: Congratulations on the quarter guys.
Mendo Akdag: Thank you.
Brian Post: Taking a look at conversion rates during the
quarter can you guys provide any commentary on
what you saw with traffic and how it turned into
orders?
Mendo Akdag: You're talking about our web site?
Exhibit 99.1 Page 3 - 8
Brian Post: Yes.
Mendo Akdag: The traffic was probably approximately - I don't
have those numbers in front of me to be honest
with you but I'll give you a rough idea you're
looking at about - I better - I don't want to
guess it now so I don't have it in front of me.
Brian Post: Okay.
Mendo Akdag: But we'll give that number in the 10-K.
Brian Post: Sounds good. Looking at the advertising market
going forward do you see the same type of
improvement that you saw on a year over year basis
headed into later months of this year?
Mendo Akdag: There is elections as you know this year and that
may negatively impact us. We don't know at this
time how much of an impact it's going to make.
It's going to be - the race is probably going to
be in local levels than national so we'll see how
it shapes up.
Brian Post: Okay I've got one more.
Mendo Akdag: Sure.
Brian Post: Gross margin was actually up. Have, I mean, would
it have been up even more had there not been
competitive pressures from vets or has that
subsided a little bit?
Mendo Akdag: Typically off-season there's less competition than
in the peak season so price pressures are less in
the off season. When I say off-season I'm talking
about December and March quarters. In March it
starts getting competitive so - and we increased
prices earlier than last year this year to pass
product and freight cost increases to the
consumer.
Brian Post: Okay thanks.
Mendo Akdag: You're welcome.
Coordinator: Thank you. Our next question comes from Anthony
Lebiedzinski with Sidoti & Company.
A. Lebiedzinski: Good morning - a couple of questions. First, I
was wondering if you would comment on the impact
of weather on your results. Whether, you know, is
it anything to, you know, significantly impact
full - on the March quarter, anything or any
commentary as far as, you know, the current
quarter to date?
Mendo Akdag: I'll speak for the March quarter. My
understanding is that it was a little warmer I
understand and it might have started a little
earlier - the flea/tick season this year compared
to last year.
Coordinator: Thank you. Our next question comes from Bill
Lennan with Wedbush Morgan.
Exhibit 99.1 Page 4 - 8
Bill Lennan: Hi - good morning.
Could you tell us a little bit about the increase
in average order size? It's a pretty solid number
and also how should we account for wholesale
revenue in the mix? Is that something that you
expect to increase year over year or does it kind
of jump around opportunistically?
Mendo Akdag: To answer your second question first we're going
to jump around opportunistically. Wholesale is a
double-edged sword so we are kind of creating
competition for ourselves. I'm not too fond of it
personally and we internally debated, and plus we
buy most of the products - we are not buying
directly from the manufacturer. So wholesale is
going to go up and down opportunistically at this
point.
As far as average order size is concerned the
majority of the increase is due to price increases
which I mentioned earlier that we implemented
earlier than last year to pass product and freight
cost increases to the consumer and it's slightly
due to up-selling.
Bill Lennan: Okay and also on the subject of buying directly
from manufacturers anything to report on progress
there in terms of, you know, a breakthrough with a
large supplier?
Mendo Akdag: No there is no breakthrough.
Bill Lennan: Okay thank you.
Mendo Akdag: You're welcome.
Coordinator: Thank you. Once again it's star one if you would
like to ask a question and as a reminder please
limit your questions to one. Thank you. Our next
question comes from Frank Gristina with Avondale
Partners.
Frank Gristina: Thank you.
Good morning guys.
Mendo Akdag: Good morning.
Frank Gristina: One more question on the price, at $81 I guess
what's the - that's a great increase in the
average order value but what's the sensitivity on
new customer add at this level? Is it price
that's the bottleneck or is it your ability to get
your message out to more people? What's stunting
any growth in new customer add?
Mendo Akdag: You know, it's a highly fragmented market and
there are a wide range of prices out there, you
know, even if some of the prices are the same as
ours, you know, with our free priority shipping on
orders over $39 we give additional value to the
consumer. So we believe convenience is just as
important as price.
Exhibit 99.1 Page 5 - 8
We also offer discounts and we meet or beat any
price at time of order and, you know, our surveys
show that all customers are not created equal -
some are price sensitive, some are not.
Frank Gristina: So if you're - in terms of a strategy on price
going forward, I mean, would you feel like it
would make sense to employ some discounting in the
peak seasons to, I mean, you just raised the price
but if the vets were pricing more competitively,
Mendo would you lower prices to try to add more
new customers or would you just rely on your
installed customers that are more loyal and less
price sensitive?
Mendo Akdag: We are focusing - attempting to focus on acquiring
the right customer. And what I mean the right
customer is profitable, non-price sensitive
customer.
Frank Gristina: Right.
Mendo Akdag: So that's our focus going forward. Having said
that with, you know, price increases and with our
gross margin where it was in the March quarter we
have more cushion to offer discounts if needed.
Frank Gristina: Okay. Last question, you had some new products
that you made your installed customers aware of
during the quarter. Did you have any success with
some of those products? I'm thinking specifically
of the premium dog food but were there a number of
those new products in the quarter? I just saw the
one and were the direct emails successful?
Mendo Akdag: The food we are testing it. As you might have
noticed the freight cost makes it very expensive
so it's being offered purely on convenience and
quality of the food is what we are selling and the
consumer would have to be willing to pay more.
We like to, it's been about two months I believe
we've been testing it. We like to have six months
to see how many people are reordering, et cetera
before we draw any conclusions whether we want to
continue with it or not but at this point it's not
material and it's too soon to tell.
Coordinator: Thank you. As a reminder if you'd like to ask a
question press star one and please limit yourself
to one question. Our next question comes from
Marcos Kaminas with Kaminas Capital Management.
Marcos Kaminas: Hi - congratulations.
My questions on order size have been answered but
I have another question. Could you speak about
your advertising strategy right now? Is it
focused on metropolitan areas and do you think
that your spending might increase? Do you feel
like you're limiting your capital spend right now
and how do you see your advertising spending going
forward?
Mendo Akdag: Most of our advertising is national. On print we
are a lot more targeted, you know, we do analyze
our database, who the best customer is for us as
far as demographics
Exhibit 99.1 Page 6 - 8
are concerned and we attempt to target those type
of customers on our print advertising.
As far as advertising our budget is - dollar-wise
is going to be higher than last year. Having said
that we have flexible budget so it depends on the
advertising environment if it allows us to spend
it. We are more opportunistic advertisers and
depending on the success of advertising it could
change. It could go up. It could go down. So
it's difficult to tell but, you know, it will
probably be, I can give you a rough percent-wise
15 to 16% of sales for the next fiscal year. But
it will - I will also say that it will fluctuate
from quarter to quarter. Peak seasons it will
have higher percentage and off-season it will be
lower percentage.
Marcos Kaminas: That's great, I mean, it's been effective for you
guys.
And the second question I had is related to -
there was a possibility that you would be
purchasing supplies maybe directly from
manufacturers rather than from more expensive
sources. How close do you think you are to that
becoming a reality?
Mendo Akdag: Really I can't comment on it. Our purchasing is
proprietary so.
Marcos Kaminas: Okay. Thank you.
Mendo Akdag: We don't have anything new.
Marcos Kaminas: Thank you.
Coordinator: And your next question comes from Brian Post with
Roth Capital Partners.
Brian Post: Just a follow-up, tax rate looked a little higher
than in previous quarters at 40%. Should we
expect that going forward?
Mendo Akdag: This is for the quarter it was higher?
Brian Post: Yes.
Mendo Akdag: I think we estimated probably lower during the
prior three quarters that's why it was a little
higher. Am I correct with that Bruce?
Bruce Rosenbloom: In the first quarter our tax rate is usually lower
because of the loss carry-forward that we take.
We also had taxable income as well but, you know,
for the year it was consistent year over year.
But what Mendo said is correct for the fourth
quarter.
Coordinator: Thank you. Once again that's star one to ask a
question. Our next question comes from Anthony
Lebiedzinski with Sidoti & Company.
A. Lebiedzinski: Good morning, just a couple of follow-up
questions.
Exhibit 99.1 Page 7 - 8
As far as, you know, the inventory is that - it
was up year over year and I think in the last
quarter it was actually down a little bit. Can
you just comment as far as, you know, inventory
concerned?
Mendo Akdag: Inventory was at about 15 million I believe for -
as of March 31 and it depends on buying
opportunities so as I said in earlier calls it
will fluctuate our inventory depending on buying
opportunities. If there are any promotions from
manufacturers we take advantage of that.
Mendo Akdag: Then obviously we are also going into our peak
season so.
A. Lebiedzinski: Okay and just a housekeeping question. The fourth
quarter diluted share count do you have that?
Mendo Akdag: Yes. Diluted share is 24,211,000.
Bruce Rosenbloom: That's for the year.
Mendo Akdag: Oh that's for the - oh it's for the quarter you
mean?
A. Lebiedzinski: For the quarter - yes, for the fourth quarter.
Mendo Akdag: I'm sorry, 24,432,000.
A. Lebiedzinski: Okay. Thank you.
Coordinator: Thank you. Once again it's star one if you'd like
to ask a question, one moment to let the question
register please. Thank you. I show no further
questions and I'd like to turn the call back over
to today's host for any closing statements.
Mendo Akdag: Thank you. According to the American Pet Products
Manufacturers Association spending on pets in the
US increased about 5.5% and reached $36.3 billion
in 2005. There's a continuing trend that pets in
the US are thought of more like children, part of
the family. This mindset is driving pet owners to
more high-end products and pet products, that
mirror what they want for themselves.
To capitalize on the pet industry's growth trend
we'll be focusing our efforts on two areas. One,
personalized communication and health education
content to build value for our customers, to
increase loyalty and to differentiate our brand
and help our customers choose the right product
for their pet's condition. And two, targeting our
advertising media buys to acquire the right
customer.
This wraps up today's conference call. Thank you
for joining us.
Coordinator: Thank you. This concludes today's teleconference.
Thank you for your participation and have a great
day and you may disconnect at this time. Thank
you.
Exhibit 99.1 Page 8 - 8