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PE

PETMED EXPRESS INC (PETS)·Q2 2025 Earnings Summary

Executive Summary

  • Net sales declined 16% year over year to $59.6M, but gross margin expanded 80 bps to 29.1%; diluted EPS improved to $0.11 (vs. $0.03 LY) as a $1.4M tax benefit and lower G&A supported profitability .
  • Adjusted EBITDA was $2.1M, a strong sequential swing from a $(1.5)M loss in Q1, reflecting cost reductions and operational consolidation; however, it was below $3.4M LY as revenue fell .
  • Management is on track to deliver $5M in annualized cost savings and plans to materially ramp marketing in 2H (Q3 and more in Q4); gross margin is expected to be seasonally lower in Q3 given heavier promotions .
  • Strategic updates post-quarter: CFO Robyn D’Elia appointed (Sept 12) and Ordergroove selected to modernize subscriptions and membership, enhancing Autoship capability and retention economics .

What Went Well and What Went Wrong

  • What Went Well
    • Gross margin improved to 29.1% (+80 bps YoY; +270 bps QoQ), driven by favorable mix and lower discounting; net income rose to $2.3M ($0.11) vs. $0.7M ($0.03) LY .
    • Sequential EBITDA improvement to $2.1M from $(1.5)M in Q1 as consolidation of PetMeds/PetCareRx lowered the cost structure; management reiterated $5M annualized savings are on track .
    • Customer experience and tech stack improved: Trustpilot rating lifted to 4.5 stars by end-October (from 1.5 in early June), website relaunched with modern UX/UI, and AI recommendation engine, BNPL, and advanced cross-sell slated for Q3 .
  • What Went Wrong
    • Revenue fell 16% YoY as management intentionally pulled back on marketing to rebalance for profitability amid pressured consumer demand and a more promotional environment .
    • Q3 gross margin expected to be seasonally lower due to heavier promotions while marketing spend steps up, creating near-term profitability headwinds despite structural cost reductions .
    • 1H FY25 operating cash flow was $(1.1)M, reflecting working capital movements amid inventory reductions and accounts payable timing; cash ended Q2 at $52.0M with no debt .

Financial Results

MetricQ4 FY2024Q1 FY2025Q2 FY2025
Net Sales ($MM)$66.504 $67.952 $59.570
Gross Margin (%)27.3% 26.4% 29.1%
Net Income ($MM)$(5.016) $3.754 $2.326
Diluted EPS ($)$(0.25) $0.18 $0.11
Adjusted EBITDA ($MM)$0.548 $(1.537) $2.098

KPIs and Operating Detail

KPI / MetricQ4 FY2024Q1 FY2025Q2 FY2025
New Customers (000s)~73 ~75 ~77
Advertising Expense ($MM)$5.969 $6.990 $4.606
Cash & Equivalents ($MM)$55.296 $45.992 $52.045
Inventories, net ($MM)$28.556 $25.520 $13.092

Versus Estimates (S&P Global)

MetricQ2 FY2025 ActualQ2 FY2025 ConsensusSurprise
Revenue ($MM)$59.570 Unavailable—
Diluted EPS ($)$0.11 Unavailable—
Note: Consensus estimates unavailable at the time of analysis due to S&P Global API limit. Values would be sourced from S&P Global when accessible.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Gross MarginQ3 FY2025n/aExpect lower vs Q2 given heavier promotions and typical seasonal pattern Maintained seasonal view
Marketing Spend2H FY2025Rebalanced for profitability in 1H Increasing in Q3; “substantial increase” into Q4 Raised spend trajectory
Cost SavingsFY2025 (run-rate)~$5M annualized savings (Q1 disclosure) On track to deliver $5M annualized savings Maintained
DividendQ2 FY2025$0.30 declared in prior-year Q2 No dividend declared Q2 FY25; none in Q1 FY25 Suspended vs LY

Earnings Call Themes & Trends

TopicQ4 FY2024 (prior)Q1 FY2025 (prior)Q2 FY2025 (current)Trend
Cost Structure / SynergiesLaid out consolidation of PetMeds & PetCareRx; focus on liquidity and opex discipline Began execution; ~$5M annualized savings identified On track for $5M; sequential EBITDA inflection Improving
Technology & CXModernize tech stack; call center upgrade plan Addressed OMS/Autoship issues; tech fixes underway Relaunched website; AI rec engine and mobile app slated for Q3 Improving
Marketing & Customer AcquisitionEmphasized loyalty/recurring revenue Strategic 20% pullback to rebalance profitability Ramp new customer acquisition in Q3; larger step-up in Q4 Re-accelerating
Macro/PromotionsNoted challenging macro and promo intensity Higher promo usage pressured margin Consumer pressure persists; promo environment remains heavy Ongoing headwind
Subscription/AutoshipRecurring revenue 54% in Q4 Stabilizing after OMS/Autoship transition Ordergroove partnership announced to elevate Autoship/membership Structural upgrade
LeadershipNew CEO focus and board additions New CMO, COO, CD&TO; CAO forthcoming New CFO (Robyn D’Elia) in Sept ; sales/ops commentary by CFO Team strengthened

Management Commentary

  • “We demonstrated significant progress on key initiatives… consolidating and streamlining our PetMeds and PetCareRX back-of-the-house operations… materially lowered our cost structure… strong sequential improvement in Adjusted EBITDA.” — CEO Sandra Campos .
  • “Gross Profit margin was 29.1%… primarily due to a favorable sales mix and lower discount activity… Adjusted EBITDA… improved sequentially versus the $1.5 million… loss we reported in the first quarter.” — CFO Robyn D’Elia .
  • “We’re now prepared to increase investment in our gross marketing spend to drive new customer acquisition… our content site, pethealthmd.com launching later this month… AI-enhanced product recommendation engine… Buy Now, Pay Later… updated mobile app… planned to go live in Q3.” — CEO Sandra Campos .

Q&A Highlights

  • Growth cadence: Management intentionally reduced marketing in 1H; will lean into acquisition in Q3 with a substantial step-up in Q4 to re-accelerate top-line, after focusing on lapsed and retained customers in 1H .
  • Gross margin trajectory: Q3 margins likely lower due to heavier promotions and seasonal pattern; follow historical trend while marketing investment increases .
  • Macro dynamics: Consumers remain price sensitive; conversion spikes during promotions; pet owner compliance with meds and vet visits appears lower vs past, weighing on demand frequency .

Estimates Context

  • S&P Global consensus estimates for Q2 FY2025 revenue and EPS were unavailable at the time of analysis due to data access limits. Default benchmarking to S&P Global will be provided when accessible.
  • Implications: Street models likely need to reflect the sequential EBITDA inflection, lower near-term gross margin (Q3), higher marketing spend in 2H, and the structural cost base reset and subscription stack modernization .

Key Takeaways for Investors

  • Sequential EBITDA inflection is meaningful: cost actions and operational consolidation are flowing through; watch for margin seasonality in Q3 before benefits of higher 2H marketing and tech upgrades kick in .
  • Revenue headwinds remain near term: consumer pressure and promotional intensity persist; growth investments will ramp through Q4 to pursue stabilization and recovery .
  • Subscription engine upgrade is a structural positive: Ordergroove should enhance Autoship adoption, retention, and LTV, a key strategic lever for durable mix/margin improvement .
  • Liquidity is solid with no debt: $52.0M cash at Q2; inventory reduced sharply to $13.1M, improving working capital agility for growth initiatives .
  • Leadership depth increased: New CFO, and broader senior team additions (marketing, ops, tech) support execution of turnaround initiatives .
  • Near-term setup: Expect Q3 gross margin compression and higher opex from marketing; catalysts include conversion lift from new UX, AI recommendations, Q4 marketing ramp, and subscription/membership improvements .
  • Dividend suspended vs prior-year levels; capital remains focused on transformation, growth, and CX investments .

Appendix: Source Documents Read

  • Q2 FY2025 8-K/Press Release (Nov 6, 2024) including full financials and non-GAAP reconciliation .
  • Q2 FY2025 Earnings Call Transcript (Nov 6, 2024) .
  • Q1 FY2025 8-K/Press Release and Call (Aug 6, 2024) .
  • Q4 FY2024 8-K/Press Release and Call (Jun 11, 2024) .
  • Other relevant press releases: Ordergroove partnership (Nov 14, 2024) ; CFO appointment (Sept 12, 2024) .