Oct 22, 2012
Operator
Welcome to the PetMeds Express Inc. doing business at 1-800-PetMeds Conference Call to review the financial results for the second fiscal quarter and 6 month ended on September 30, 2012.
At the request of the company, this conference call is being recorded.
Operator
Founded in 1996, 1-800-PetMeds is America's largest pet pharmacy, delivering prescription and nonprescription pet medications and other health products for dogs and cats direct to the consumer. 1-800-PetMeds markets its products through national television, online, direct mail and print advertising campaigns, which direct consumers to order by phone or on the Internet and aim to increase the recognition of the PetMeds family of brand names.
1-800-PetMeds provides an attractive alternative for obtaining pet medication in terms of convenience, price, ease of ordering and rapid home delivery.
Operator
At this time, I would like to turn the call over to the company's Chief Financial Officer, Mr. Bruce Rosenbloom.
And sir, you may begin.
Bruce Rosenbloom
Thank you. I'd like to welcome everybody here today.
Before I turn the call over to Mendo Akdag, our President and Chief Executive Officer, I would 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.
Bruce Rosenbloom
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.
Bruce Rosenbloom
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.
Bruce Rosenbloom
Now let me introduce today's speaker, Mendo Akdag, the President and Chief Executive Officer of 1-800-PetMeds. Mendo?
Menderes Akdag
Thank you, Bruce. Welcome, everybody.
Thank you for joining us. Today, we will review the highlights of our financial results.
We'll compare our second fiscal quarter and 6 months ended on September 30, 2012, to last year's quarter and 6 months ended on September 30, 2011.
Menderes Akdag
For the second fiscal quarter ended on September 30, 2012, sales were relatively flat at $58.1 million compared to sales of $58.2 million for the same period the prior year. For the 6 months ended on September 30, 2012, sales were $127.1 million compared to $131.8 million for the 6 months the prior year, a decrease of 3.6%.
Menderes Akdag
The sales stabilized for the quarter even though the average order value was about 5% lower at $72 compared to $76 for the same quarter the prior year. The decrease in average order value was due to additional discounts given and a change in product mix to lower-priced items, mainly generics.
Also, the unavailability of Novartis brands continue to negatively impact our sales.
Menderes Akdag
For the second fiscal quarter, net income was $4 million or $0.20 diluted per share compared to $3.9 million or $0.19 diluted per share for the same quarter the prior year, an increase to earnings per share of 6%. For the 6 months, net income was $8 million or $0.40 diluted per share compared to $8.8 million or $0.41 diluted per share a year ago, a decrease to earnings per share of 4%.
The increase for the quarter was due to a decrease in operating expenses and the decrease for the 6 months was mainly due to lower sales in the June quarter.
Menderes Akdag
Reorder sales increased by 2.1% to $46.4 million for the quarter compared to reorder sales of $45.5 million for the same quarter the prior year. For the 6 months, the reorder sales slightly decreased to $101.5 million compared to $102.1 million for the same period last year.
Reorder sales decreased by 8.1% to $11.7 million for the quarter compared to $12.7 million for the same period last year.
Menderes Akdag
For the 6 months, the new order sales decreased by 13.8% to $25.6 million compared to $29.7 million for the same period last year. The decreases were mainly due to reduction in advertising and decreases in average order value.
Menderes Akdag
We acquired approximately 177,000 new customers in our second fiscal quarter compared to 184,000 for the same period the prior year. And we acquired approximately 374,000 new customers in the 6 months compared to 410,000 for the same period a year ago.
Approximately 77% of our sales were generated on our website for the quarter compared to 74% for the same period the prior year, which resulted in a 2.9% increase to our online sales for the quarter compared to the same quarter last year. The seasonality in our business is due to the proportion of flea, tick & heartworm medications in our product mix.
Spring and summer are considered peak seasons, with fall and winter being the off seasons.
Menderes Akdag
For the second fiscal quarter, our gross profit as a percent of sales was 33.3% compared to 34.2% for the same period the prior year. And for the 6 months, our gross profit as a percent of sales was 32.8% compared to 33.4% for the same period a year ago.
The percentage decreases can be attributed to increases in freight costs to improve service level.
Menderes Akdag
Our general and administrative expenses as a percent of sales improved to 9.2% for the quarter compared to 9.6% for the same period a year ago. And for the 6 months, it was 8.9%, which was the same as the 6 months the prior year.
For the quarter, we spent $7.4 million in advertising compared to $7.9 million for the same quarter the prior year. The reduction of advertising for the quarter was due to the unavailability of TV remnant space inventory.
For the 6 months, we spent $17.3 million in advertising compared to $18 million during the same period a year ago. The advertising cost of acquiring a customer improved to $42 for the quarter compared to $43 for the same quarter the prior year.
For the 6 months, it was $46 compared to $44 for the same period a year ago.
Menderes Akdag
We had $47 million in cash and cash equivalents, $15.4 million in short-term investments and $19.6 million in inventory, with no debt as of September 30, 2012. Net cash from operations for the 6 months was $15.7 million.
Capital expenditures for the 6 months were approximately $290,000.
Menderes Akdag
In accordance with our share repurchase program, we repurchased approximately 397,000 shares, paying approximately $3.9 million during the quarter at an average price of $9.74.
Menderes Akdag
This ends the financial review. Operator, we are ready to take questions.
Operator
[Operator Instructions] And we do have a question coming in from Kevin Ellich, Piper Jaffray.
Kevin Ellich
Just a couple of questions. I guess, first of all, Mendo, you mentioned the unavailability of TV advertising remnant space this quarter.
Are you still seeing that impact? Or have things started to open up?
Menderes Akdag
We are still seeing the impact and we expect to see it until November 6.
Kevin Ellich
Until after -- so it's really due to the election. So is it safe to assume that we should be looking at advertising expenditures being lower on a year-over-year basis similar to what we saw this quarter?
Menderes Akdag
Probably, yes.
Kevin Ellich
Okay. And then you also mentioned the discounts that impacted this quarter.
Are you still offering any discount programs?
Menderes Akdag
Yes, we are. But right now it's similar to what we did last year.
Kevin Ellich
Got it, got it. And then do you have any update or thought on when Novartis might be back online?
We've heard maybe by the end of that year, but it seems to be it seems like there's some conflicting information out there.
Menderes Akdag
The latest information we have is the beginning of 2013.
Kevin Ellich
Beginning of 2013, okay, got it. And then last question here.
It looks like, Bruce, maybe on the cash flow statement, we saw some investments. Just wondering if there's anything we can talk about on that front?
Bruce Rosenbloom
We did invest additional cash into some short-term investments. We've held those short-term investments for a few years now, and we just upped our balance from about $10 million to about $50 million [ph].
Kevin Ellich
Got it. Okay.
And then can you remind us where the buyback authorization is? Is it around $10 million now?
Menderes Akdag
About $10 million remaining, yes.
Operator
Next question comes from Erin Wilson, Bank of America Merrill Lynch.
Erin Wilson
Can you give us an update on the supplies and accessories business and how that's progressing?
Menderes Akdag
It's increasing, but we're not going to get into the specifics.
Erin Wilson
Okay. And then I guess I understand it's an inherently lower margin business, but I mean are there ways to improve the profitability for that segment?
And are you still considering switching from your third party fulfillment strategy?
Menderes Akdag
We're still using third-party fulfillment. As far as profitability is concerned, that depends on the product mix.
We will only really carry it if it adds value and loyalty to our customer base. Increased loyalty, I should say.
Erin Wilson
Okay. And then I'm curious what your thoughts were on the FTC discussion a few weeks ago.
Did you expect or do you expect, I guess, a follow-up to that with some sort of a broader investigation or legislation?
Menderes Akdag
We are not going to speculate on what FTC may or may not do. If and when they take any action, we can talk about it.
Operator
Next question comes from Michael Kupinski, Noble Financial.
Michael Kupinski
On the pet accessories, are you still planning on carrying inventory pet accessories at this point and I just want to follow up on that one question there?
Menderes Akdag
We are currently using third party fulfillment. If that changes, we'll let you know.
Michael Kupinski
Okay. And did you notice any difference in the competitive landscape in the quarter for particularly for flea and tick?
Menderes Akdag
No. It was similar to last year's.
Michael Kupinski
Okay. And then could you identify the revenue impact from the Novartis plant closing in the quarter?
What would you say was the revenue impact?
Menderes Akdag
Our rough estimate is about $2 million.
Michael Kupinski
Okay. And then just some housekeeping items.
The depreciation and amortization was a little lower. Is that a good run rate going forward?
Or was there any particular reason for that to be down in the quarter from my estimate at least?
Menderes Akdag
Right. There's been a reduction in capital expenditures, and that's the reason it has been down.
It depends on if we make any major capital expenditure spending. At this time, we are not planning on it.
But if we do, we'll let you know.
Michael Kupinski
And if you can just remind me, is the prospect [ph] for capital expenditures, is that -- for updating the warehouse that you have in Pompano or what would be the reason why you would have an increase in CapEx?
Menderes Akdag
The distribution center is one possibility. The other possibility change in our systems and software.
Operator
Your next question comes from Anthony Lebiedzinski with Sidoti & Company.
Anthony Lebiedzinski
A couple of questions. So first, are you still seeing more customers ordering 3 packs versus 6 packs for example of flea & tick products?
I know you mentioned this on your previous calls.
Menderes Akdag
It was, in the September quarter, it was similar to the same quarter last year.
Anthony Lebiedzinski
Okay. And your G&A costs were down a little bit more so than what we had expected.
Is there anything -- I know there's some seasonality in the expenses, just wondering if perhaps you cut back on certain incentives, compensation expenses or anything else that we should think about?
Menderes Akdag
It was credit card processing fees, professional fees and a slight decrease in payroll were the 3 that caused the reduction.
Operator
[Operator Instructions] And our next question comes from Mitch Bartlett, Craig-Hallum Company.
Mitchell Bartlett
Just wondering if you could characterize kind of the pharmacy and the nonprescription side of the business, what is the trends on those 2 sides of the business broadly?
Menderes Akdag
Actually in the September quarter the OTC was -- went up and Rx went down slightly, but the main reason is the unavailability of the Novartis brands.
Mitchell Bartlett
And the strength in the OTC, how do you -- is that new creative? What are you doing to see that kind of a response after a couple of years where it's been a little rocky?
Menderes Akdag
Generics and being more aggressive offering more discounts.
Mitchell Bartlett
In the generics, what do you think that contributed to the decline in the AOB? How did that look?
Menderes Akdag
We're not going to comment on that.
Operator
And our next question comes from Ross Taylor, CL King.
Ross Taylor
My first question just has to do with some of your generic offerings or your initiatives on that side. I mean has the generic products and particularly the Flea4X, they progressed as you expected as a percent of your sales mix?
Menderes Akdag
Yes. We are cautiously optimistic with it.
But other than that, we're not going to get into any specific data points.
Ross Taylor
Okay. My second question, your customer acquisition costs were down a little bit year-over-year and certainly down a lot from what you had in the June quarter.
Is -- you're able to potentially increase your TV advertising once you get past the election, is that likely to boost your customer acquisition cost materially or how much you manage that?
Menderes Akdag
We were more efficient in the September quarter compared to the June quarter, and the June quarter we forced it, and that's never a good idea. We stuck to the fundamentals in the September quarter and took what was there.
And we intend to continue to do that.
Ross Taylor
Okay. And my final question, just trying to against a sense as to how the mild winter maybe has affected the flea & tick business over the first 9 months of this year.
I just wonder if you had any sense if in the September quarter, the mix of flea & tick sales if you adjust for Novartis was kind of where it might normally be and whether you just see any evidence that maybe a lot of business was pulled forward into the March quarter from June?
Menderes Akdag
That is correct. It was stronger.
The flea business was stronger in the September quarter. And as you know, the March quarter was strong and June quarter was weak, probably there were some revenue shift from June to March.
Operator
And now I'd like to turn the call back over to Mendo Akdag. And sir, you may begin.
Menderes Akdag
Thank you. Going forward, we are focusing on advertising efficiency and shifting sales to higher-margin items, while continuing to expand our product offerings.
This wraps up today's conference call. Thank you for joining us.
Operator, please end the conference call.
Operator
Thank you. That does conclude today's conference call.
You may disconnect at this time.