October 18, 2010 / 12:38 PM / 9 years ago

UPDATE 2-PetMed Q2 misses view as advertisement costs rise

* Sees challenging advertisement market for the quarter

* Expects to continue promotional activities in flea range

* Q2 EPS $0.22 vs Est EPS $0.26

* Q2 sales $61.2 mln vs Est $63 mln

* Shares fall as much as 8 percent

(Rewrites; adds analysts’ comments, updates share data)

By NR Sethuraman

BANGALORE, Oct 18 (Reuters) - PetMed Express Inc’s (PETS.O) quarterly results missed estimates, hurt by higher promotional activities and soft demand from customers, despite the quarter usually getting a strong boost from sales of highly profitable flea and tick products.

Shares of the Pompano Beach, Florida-based pet pharmacy were trading down 3 percent in nearly four times their 10-day average volume at $15.5 in morning trade on Nasdaq.

The shares had dropped as much as eight percent to $14.68.

Competition from peers made the company discount its products heavily, and also made it difficult for it to pass on rising input costs to customers, Chief Executive Menderes Akdag said in a conference call with analysts.

“I would anticipate that to continue especially on the flea category, I would anticipate more sales promotions,” Akdag said.

The company’s flea and tick products prevents pets from getting infected by insects.

A tough advertising market also impacted PetMed’s results, Piper Jaffary senior research analyst Mark Arnold said.

Akdag said the advertising market for the current quarter is going to be expensive due to the elections.

PetMed, which buys remnant television advertising space — the ones left over after major advertisers book primary slots — found it increasingly difficult as the market became expensive after media companies raised rates and slashed space.

“We don’t see anything in the near- to intermediate-term that makes us confident about the direction on both competition and advertisement market is going to change anytime soon.” analyst Arnold said.

He said the flea and tick business would stay challenging in the current quarter too.

While advertising expenses in the second quarter rose 10 percent, new customer additions fell 21 percent — dropping for the fifth consecutive quarter.

For the July-September quarter, the company which retails pet medications and health products online, earned $5 million, or 22 cents a share, compared with $6.3 million, or 28 cents a share, a year ago.

Sales of the company, which competes with Petsmart Inc PETM.O, slipped 2 percent to $61.2 million.

Analysts on an average were expecting the company to earn 26 cents a share, on a revenue of $63 million, according to Thomson Reuters I/B/E/S.

Shares of the company had shed 4 percent since it announced first quarter results in July, till Friday’s close.

Reporting by NR Sethuraman in Bangalore; Editing by Prem Udayabhanu

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