PETMED EXPRESS INC Q3 FY2023 earnings call

• The company announced a planned restatement of certain financial statements due to errors in accounting for tax-related matters. - Fiscal Q3 2023 sales were $65.3M, up 11% YOY including PetCareRx acquisition. - Gross margin was 27.4%, in line with expectations. - Returning customers' sales were $57.7M, up 8% YOY. - Entered partnership with Hill's Pet Nutrition to launch Hill's Science Diet, a premium food brand, starting next month. - Launched new AutoShip platform to enhance customer control and loyalty, with recurring sales at 52% of total sales.

For the quarter ending December 31, 2023, PetMed Express delivered sales of $65.3 million, an 11% year-over-year increase including the acquisition of PetCareRx. Gross margin was 27.4%, in line with expectations. Returning customers accounted for sales of $57.7 million, a 8% year-over-year growth. Recurring sales (including AutoShip & Save and PetCareRx membership) were 52% of total sales, up from 42% in the same period last year. Returning customers' sales contribution was significant, with $57.7 million out of $65.3 million total sales, and recurring sales made up 52% of the total revenue.

• No specific forward-looking guidance provided beyond ongoing initiatives like expanding food brands and enhancing AutoShip platform. The company aims to continue growing through adding more premium food brands and leveraging the upgraded AutoShip platform to drive recurring sales.

• Risk of accounting errors leading to restatement of financial statements. - Delay in the 10-Q filing for fiscal year 2024's third quarter due to the restatement process related to tax accounting issues.

Q: Can you just discuss or explain what actually happened with the sales tax accrual and essentially how this error happened?

A: Christine explained it involves the accounting treatment difference between ASC 450 (probable and estimable approach) and ASC 405 (legal liability approach), and historically there was diversity of practice, but now they believe ASC 405 is applicable instead.

Q: Can you comment on if you've seen further stabilization of the core PetMeds business?

A: Matt said the core returning customer base decline is being addressed by more customers on AutoShip buying more products, and the upgraded AutoShip & Save infrastructure is key to stabilizing the base.

Q: Can you comment on the food business?

A: Matt said they're expanding relationships with top prescription and premium food brands, launched Hill's Science Diet this quarter, and food sales are a fast-growing category as they get better at go-to-market and marketing the right brands to customers.