PetMed's stock plunges to 19-year low as dividend yield to drop from 19% to zero

By Tomi Kilgore

Pet medication and supplies company's stock suffering worst day in 23 years

Investors in PetMed Express Inc.'s stock are suffering their worst day in 23 years, after the pet medication and supplies company reported disappointing quarterly results and said it would suspend its dividend to save cash.

The stock (PETS) plummeted 32.1% in midday trading. That put the stock on track for the lowest close since Nov. 19, 2004, and for the biggest one-day selloff since the record 37.5% plunge on May 5, 2000.

"Today's announced change in capital allocation follows a thorough and detailed analysis by our Board of Directors along with the management team," said Chief Executive Matt Hulett. "By suspending the quarterly dividend, we have the opportunity to invest the company's cash flow in projects and initiatives that we believe will yield higher returns."

The company last paid out a quarterly dividend of 30 cents a share on Aug. 18. At current stock prices, the previous annual dividend rate of $1.20 implied a dividend yield of 19.26%, which compares with the implied yield on the S&P 500 index SPX of 1.67%.

The dividend cut was part of the company's fiscal second-quarter report released late Monday.

For the quarter to Sept. 30, the company swung to a net loss of about $70,000, or essentially breakeven on a per-share basis, from net income of $2.6 million, or 13 cents a share, in the same period a year ago. (There weren't enough analysts estimates provided to FactSet to have a consensus.)

Revenue rose 8.6% to $71.0 million, as 75,600 new customers were added during the quarter, representing a 25% increase from last year. The latest quarter's revenue includes results from the acquisition of PetCareRx, which closed on April 3, 2023.

"While we were excited about the sequential growth in new customers, we continue face challenges with stabilizing the core PetMeds returning customer base," Hulett said on the post-earnings conference call with analysts, according to an AlphaSense transcript.

He said returning customers, which accounted for $62.4 million in sales during the quarter, was up 4.5% from a year ago, but that growth was "solely attributable" to the addition of the PetCareRx business.

"[T]he returning PetMeds customer base is still declining at approximately the same single-digit [percentage] rate from the previous quarter," Hulett said on the call. "And while this decline is less than it was a year ago, we have not yet achieved a stabilized returning customer base."

Beside having fewer returning customers, the remaining ones are spending less, Hulett said.

Basically, since a large number of PetMed's customers are "price-conscious pet parents," Hulett said the company is not immune to overall market conditions, which include higher inflation and interest rates and a more cautious consumer.

As Stifel analyst Jonathan Block wrote in a recent note to clients, that for the animal health industry, findings from the latest survey of veterinarians were "largely downbeat."

"[W]ellness visits into the veterinarians' practice have weakened of late, and recently decoupled from non-wellness visits," Block wrote. "Our survey diligence also identifies that the clients' appetite/willingness to spend for an average wellness visit (defined as annual exams, vaccinations or routine checkups) has stepped down relative to our 2Q2023 checks."

PetMed's stock has dropped 64.8% year to date. In comparison, shares of pet supplies and meds seller Chewy Inc. (CHWY), which doesn't pay a dividend, have tumbled 47.6% this year while the S&P 500 has gained 8.7%.

-Tomi Kilgore

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10-31-23 1318ET

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