UPDATE 2-PetMed Express Q1 misses Wall Street; shares fall

Mon Jul 19, 2010 11:09am EDT

* Q1 EPS $0.32 vs est. $0.38

* Q1 sales $74.4 mln vs est. $81.1 mln

* Customer additions fall to 220,000

* Shares fall 15 percent (Recasts; adds details from conference call, analyst comment; updates share movement)

BANGALORE, July 19 (Reuters) - Pet pharmacy PetMed Express Inc's (PETS.O) first-quarter profit missed Wall Street expectations, with sales posting a surprise fall as the company grappled with lack of advertising slots and stiffer competition, sending its shares down to a 52-week low.

Shares of the company fell 15 percent to $15 before paring some losses to trade down 8 percent at $16.17 on Nasdaq.

The company, which heavily relies on advertising to grow its customer base, was hit by lack of availability in the television remnant space at affordable prices this quarter.

PetMed's customer additions fell by a quarter to 220,000 from a year ago.

PetMed typically buys television advertising space left over after major advertisers have booked slots. However, during the downturn major advertisers have been increasingly booking in this remnant market, leaving less space available and pushing up prices for companies like PetMed.

Advertising expenses in the quarter fell 11 percent to $8.8 million from last year but still accounted for more than half the company's operating expenses.

General advertisers typically buy 80 percent of their advertising in advance and about 20 percent in the remnant market, Chief Executive Menderes Akdag said on a call with analysts.

"But In the last year or so they've been buying 60 percent in advance and 40 percent in the scatter market and that's why the remnant space is getting crowded."

Wedbush Securities analyst Edward Woo also said sales suffered from stiffer competition particularly from Wal-Mart Stores Inc (WMT.N), PetSmart Inc (PETM.O) and a lot of other specialty retailers online.

The company was beaten by competition on prices as well as availability of products, Woo, who has an "underperform" rating on the stock, said.

For the quarter ended June 30, the company which retails pet medications and health products online, through a toll-free number and a website as well as a catalog of items, earned a profit of $7.2 million, or 32 cents a share, compared with $8.1 million, or 36 cents a share, last year.

Sales in the quarter slipped 4 percent to $74.4 million.

Analysts on average were expecting the company to earn 38 cents a share on sales of $81.1 million, according to Thomson Reuters I/B/E/S. (Reporting by Abhishek Takle in Bangalore; Editing by Unnikrishnan Nair and Don Sebastian)

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