PetMed Express, Inc. (NASDAQ:PETS) Q1 2019 Earnings Conference Call - Final Transcript

Jul 22, 2019 • 08:00 am ET

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PetMed Express, Inc. (NASDAQ:PETS) Q1 2019 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

[Operator Instructions] Our first question comes from Kevin Ellich from Craig-Hallum. Please proceed.

Analyst
Kevin Kim Ellich

Good morning. Thanks for taking my questions. Mendo, gross margin down almost 700 basis points year-over-year, little bit lower than what we were expecting. Wondering, where do you think that could bottom out or do you think this is the bottom with some of your initiatives you're putting in place and the changing on the marketing front?

Executive
Menderes Akdag

We think this may be the bottom out. We'd expect the pricing to stabilize in the market going forward and the reason for that is, the manufacturers are opening up and they have minimum advertised price policies which should allow a general pricing discipline in the market.

Analyst
Kevin Kim Ellich

Got it. And then, we noticed towards the end of Q1, you introduced some volume based discounts. By our math, it looks like it's a 5% to 10%. How much impact do these discounts have on gross margins if they remain in place?

Executive
Menderes Akdag

Again, we anticipate that the gross margins should improve in the future quarters and you will get a better feel for it I think in the next six months.

Analyst
Kevin Kim Ellich

Okay. So next six months. That answers I think one of my questions. And then, going back to your comment about the initiatives to purchase from major manufacturers, are you buying from all of the major manufacturers now and do you have contracts in place? If not, when do you think that will happen and how much should that help your gross margins?

Executive
Menderes Akdag

There is only one manufacturer left that we are anticipating that that's going to happen in the next two months. So by the end of September or latest by the end of the year, but we anticipate having direct relationships with all the major manufacturers.

Analyst
Kevin Kim Ellich

Okay. And is this something that's been going on across the industry with all of the e-commerce retailers like yourself or is this pretty much unique to PetMed Express?

Executive
Menderes Akdag

They are opening up to all the pet pharmacies.

Analyst
Kevin Kim Ellich

Okay. Got it. And then in the press release, you talked about investments you plan to make in your e-commerce platform to be more competitive. I guess, how much do you plan to spend this year, and how long will those investments take?

Executive
Menderes Akdag

Our current budget is about $5 million. We're anticipating to get on the new platform before the end of the year, probably it's going to be late November, early December of 2019, and our goal is to improve the user experience.

Analyst
Kevin Kim Ellich

Okay. Got it. That's helpful. What is it, like increased functionality that you plan to introduce? I guess, can you give us a little bit of color as to what the new platform will provide to improve the customer experience?

Executive
Menderes Akdag

The higher personalization, more hyper personalization, ease of use, speed, upselling, cross-selling capabilities. It will be easier also to add additional services, et cetera.

Analyst
Kevin Kim Ellich

Got it. And then, last one for me is, in the press release, again, you talked about optimizing