PetMed Express, Inc. (NASDAQ:PETS) Q3 2022 Earnings Call Transcript

We haven’t closed PetCareRx, and we’ll focus very much on digesting the acquisition of working with that team and executing. Corey, did I answer your question?

Corey Grady: Yeah, you did. That’s really helpful. For my follow-up, I wanted to just get some more color on gross margin. So you talked about going forward, focusing less on promos and more on cross-selling, but how should we think about gross margin for Q4 and into next year? Thanks.

Matthew Hulett: Thanks, Corey. Christine, would you mind answering that question?

Christine Chambers: Yeah. Thanks, Corey for the question. So as I mentioned on the call, our gross margin in the quarter was really impacted by the targeted acquisition of those lapsed customers, and we really did lean into that with some of the sort of one-time promotions. That was an intentional move on our part to acquire those customers because of the opportunity that we see with cross-selling products and expanding the sort of portion of that customer’s basket going forward. As I mentioned, there was — there’s that, and also, I would say that there was some — we have a co-op rebates that hit our cost of goods sold, and those can vary from quarter-to-quarter. Now both of those things negatively impacted gross margin. This quarter, we really don’t expect those to repeat to that extent going forward. And so we do expect to see our gross margin more in line with kind of the historic trends that we’ve seen in the past.

Corey Grady: Got it. Thank you.

Matthew Hulett: Thanks, Corey.

Operator: Our next question comes from the line of Anthony Lebiedzinski with Sidoti & Company. Please proceed with your question.

Anthony Lebiedzinski: Good afternoon and thank you for taking the questions. So it’s really nice to see new order sales growth in the quarter here. Your repeat sales or reorder sales were down about 4%. So kind of going forward, I mean did you expect — I mean, obviously, your repeat sales drive around 90% of your total revenue. So how are you thinking about maintaining that repeat base of customers? Do you expect to perhaps be more promotion to those customers or how are you just broadly thinking about that, making sure that you’re at least able to maintain those repeat customers?

Matthew Hulett: Yeah. Hey, Christine — Anthony, thank you for that question. Christine, why don’t you answer the overall returning revenue trends, and then I’ll follow up with maybe a strategy answer.

Christine Chambers: Yeah. That sounds great. Hey, Anthony. Great question. So as we look at the returning customers, you’re right, we did see that 4% decline year-over-year. If you look at that contextually within the last six quarters, that’s the lowest decline that we’ve seen year-over-year than we’ve seen, like I say, over the last six quarters. So we really do see some of the trends starting to change there and actually, starting to see less of a decline in that customer base. And then, of course, as we’re thinking about the new customer acquisition and building sort of the top of the funnel and then having a repeat — having the repeatability with our AutoShip program as well as that expanded catalog, we really see that opportunity to drive greater stickiness. I’ll hand back to Matt because I know he’ll have some additional comments here.