PetMed Express case

Review the PetMed Express at the end of the textbook case 11

If you have the short textbook version, the case is also located here -- Pet Med Case

For now look closely at the charts in the case

Note the data in the various tables are for 2017 and 2018

visit the company annual report/10k

Review instructions step 1. Click on 2019 annual report or 10k (or 2020 if out yet)

Do not work on the strengths, weakness, etc yet

Search recent data on internet Yahoo finance WSJ or CNBC

Assignment:

Bring the financial statements up to date

You will find this data in the annual report

Create an Excel table updating the exhibit 2

Create a bar chart for key data in each table.

Comment on the significance of each

Upload the tables, chart, comments. Preferably in one document.

Purpose of exercise

Helps you understand source of data

We will discuss results & significance

Data is used in future class assignments

www. 1800 petmeds.com, PETS Headquartered in Delray Beach, Florida, PetMed Express is a licensed online pharmacy that fills prescriptions written by veterinarians. The company has over 9 miltion satisfied customers and dispenses drugs only ia the Uaited States. The company competes with local veterinarians, many of whom make money selling drugs for pets. FetMed carries all the medications sold in veterinarian offices. The company says it employs the largest number of veterinary pharmacists in the world. The company has a history of legal problems with veterinaries across the country underculting their prices and other related concerns. PetMed does not disclose where it obtains its pet drugs and this fact irritates many veterinarians. PetMed Express is America's largest pet pharmacy, delivering preseription and nonprescription pet medications and other health prodects for small animals at competitive prices direct to consumers through its 1-800-PetMeds toll-free number and on the Internet through its corpocate website. The company's fiscal 2017 year ended March 31, 2017. Foe the company's Q3 2018 that ended Decenher 3, 2017, new order sales increased 15.5 percent, new income increased 88 percent, and revenues increased 13.7 percent wo PetMed is doing well. In January 2018 , the company's board of directors increased the firm's dividend by 25 percent froen $0.20 to 50.25 per share paid on February 16, 2018. PetMed markets prescription and non-prescription pet medicatioas, as well as health products and supplies for small animals to retail customers. A sampling of the company's products include flea and tick control products, bone and joint care products, vitamins, treats, nutritional supplements, hygiene products, and supplies; and prescription medications, including heartworm preventatives, flea and tick preventatives, arthritis, thyroid, diabetes, pain medications, antibiotics, and other specialty medications, as well as generic substitutes. PetMed also sells food, beds, crates, stairs, strollers, and other pet supplies through its website, direct mail, and its toll-free number. It markets its products through Internet; telephone contact center; and direct mail/print through 1-800-PetMeds catalogs, brochures, and postcards under various brands. Coyprighted by Find David Books, LLC; written by Merdith E Darid. History PetMed was founded in 1996 by Mare Pulco. The company got off to a rocky start. In 1999, the company settled charges with the Florida Pharmacy Bourd for selling drugs that did not have prescriptions, false advertising, poot record keeping, and not labeling drugs correctly. As part of the setdemeat, the compuny paid a fine but also agreed to send its pharmacists for further education, agreed to random inspections, and agreed to provide regular reports to the board. In 2002, PetMed was fined by the Environmental Protection Agency (EPA) for selling drugs marked with metric doses - the drugs that were made by Novartis for sale in Europe and Australia. PetMed is exclusively a U.S. firm and the doses and labeling were not FDA-approved-Novartis soed PetMed for damages. In 2002, PetMed was charged by the Florida Pharmacy Boand for contracting with veterinarians to write prescriptions for animals they had never ecamined, and for selling animals drugs that had not been approved by the FDA. In the same yeat, the company setted similar charges in Ohio. Also in 2002 , the pharmacy board in Texas filed a lawsuit charging PetMed Express with dispensing veterinary dnugs without prescriptions. The case was sented in 2006 . Even as Late as August 2017, PetMed has legal problems as the Rosen Law Firm filed a class action lawsuit against the company alleging that PetMed was marketing dangerous and aldictive animal drugs to bumans. As a result of this action. Google may halt PetMed's advertiving and business operations with that firm. Vision/Mission PetMed Express appears to not have a vision of mission statement provided at the corporate website or in the company's Anmual Report. Internal Issues Customers and Advertising PetMod says 2.3 million customers purchased from the company in fiscal 2016 and 2017. and that about 50 percent of those customers reside in Califonia. New York, Pennsylvania, North Carolina, Virginia, and Georgia. The company dispenses drugs acroes the United States, The company obtained 514,000 new customers during fiscal 2017, compared to 489,000 new customers from the priar year. As a pereent of revenue, the company's atvertising expenses were 7.1 and 9.3 percent, respectively, for fiseal 2017 and 2016 . In fiscal 2017, the company eliminated all television advertising. Employees PetMed has about 190 full-time employees, including 105 in marketing, 43 in pharmacy, 3 in information technology, 3 is administrative positions, and 5 top managern. Organizational Structure Based on the titles of their corporate executives, it appears that PetMed operates from a functional organizational structure with no divisions. The company is quite light on top executives and no one appears to heal up potential segments, sach as prescription verus non-prescription, online verus traditional, of pharmaceutical verus other. EXHIBIT 1 PetMed's Top Executives and Organizational Chart 7. Alisan Beres, Cuparate Sestetary ast General Counsel 4. Roould Kon Dinectoe, Phesident of Ronald Kom Conaulting Sowred Based on cumpany duewmenth. Segment Information PetMed does not provide mach segment information beyond what is wumamarized in Exhibit 2 . Note in Extibit 2 that Reorder Sales comprise about 8.3 perect of all sales, and ironically Internet sales also comprise about 83 percent of all sales. Finance PetMed's fiscal year ends March 31. For the company's Q3 2018 quarter that ended December 31. 2017, net sales were $60.1 million. compared to $52.9 million for the peiot year same quarter, an increase of 13.7 percent. Net sales for the 9 months ended December 31, 2017, and were $206.5 million, compared to $186.1 million for the 9 months previous, an inctease of 10.9 percent. The increase in sales for the company's Q3 2018 quarter Sixere: Based an the connpany's 2017 A Amwal Report. were up doe to increased new otder sales, which increased 15.5 percent, and reorder sales, which increaced 13.4 pereent. Net income for the Q3 2018 quarter was 59.1 million, compared to net income of $4.8 miltion the previous year same quarter, an 88 percent increase. Net income for the 9 months ended December 31,2017 was $27, 1 million, compared to net income of $16.3 million, for the 9 months the peior fiscal year, a 66 income increase to aet income. Average order size increased to $86 for the Q32018 quarter, compared to \$81 for the sume quarter in the prioe year. Alwo for the company's Q3 2018 quarter, onGine sales increased 15.0 percent to $50.4 million from $4.3.8 million for the same period the priot year, and were apptosimately 84 percent of all sales, compared to 83 pertent for the same quarter the priot year. The company's Q3. 2018 was the fourth consecutive quarter of increasing both new onder and reorder sales. In January 2018, the company's beard of directors declared and increased the quarterly dividend by 25 percent from 50.20 to 90.25 per share on the firm's common stock. The dividend was paid on February 16, 2018 . PetMed Expeess heat profit estimates again in its Q4 2018 that ended 3-31-18. For Q4 2018. the company reported net income of 5102mallion, up from 57.5million in the year-carlier period. Sales rose to $67.3 million from 9630 million. Also for that 04 , the company's markins rose to 37 percent from 35.1 percent, boosied by a product mix shift to higher margin items. Additionally, for Q4 2018. PetMed's average order value was 589 compared to 586 for the same quater the priot year. PetMed's income statements and balance sheets are provided in Exhibit 3 and Exhibit 4, respectively. Competitors Eight companies in particular generate ules in the billions for unimal pharmaceuticals: Zoetis, Merck Animal Health, Merial, Elanco Animal Health. Bayer Animal Health. Bochringer Ingelheim Animal Health, Novartis Animal Health, and Virbac. However, arguably two of PetMed's major rivals are Kroger and Walmart. Both furms fill animal prescriptions. Headquartered in Parsippany-Troy Hills, New Jersey, Zoetis develops vaccines, parasiticides, anti-infectives, mxdicinal feed additives and drugs for pain, sedation, and cancers for pets and farm animals. The company has annual sales of $5 billion. The company name has its root in "20". familiar in words such as zoo and zoology and derived from zoetic, meaning "pertaining to life." About 60 percent of Zoetis sales come from farm animal products and 40 percent from companion animal products, mainly medicines and vaccines. Headquartered in Kenilworth. New Jersey, Merck Animal Health manufactures vaccines. anti-infective and anti-parasitic drugs, fertility management drugs, and other specialry pharmaceutical products for companion animals and livestock Owned by Eli Lilly and headquartered in Indianapolis, Indiana, Elanco Animal Health develops and markets products to treat animal health and increase peotein production. Products feed additives for livestock and poultry. Headquartered in Ingelheim am Rhein, Germany, Bochringer Ingelheim Animal Health markets biologicals, vaccines, pharmaceuticals, and other care products for use in pets and livestock. Bochringer owns Merial that develops and markets veterinary products including anesthetics, antiparasitics, antimicrobials, and gastrointestinal, respiratory, and cardiovascular medicines. It also produces vaccines for livestock, poultry, and petc. Headquartered in Leverkusen, Germany, Bayer HealthCare Animal Health manufictures antimicrobials, parasiticides, sedatives, pain killers, and nutritional supplements and foed additives for dogs, cats, and horsek. Products for food animals include anti-infectives, vaccines, parasiticides, sevlatives, and pain killers. Headquartered in Basel, Switzerland, Novartis Animal Healih develops and markets healk product for companion animals, livestock, and the aquaculture market. Popular products include treatments for dermatitis, flea prolecticn, pain and heartworm prevention in pets, and antibiotics and antiparasitics in farm animals. Novartis also developed some of the first vaccines for combating viral and parasitic infoctions in fish. Novartis was acquired by Eli Lilly in 2015 for 55.4 billion. Headquartered in Carros, France, Virbac Group manufactures antibiotics, vaccines, antiparasities, dermatological, and dental products for the treatment and care of pets and food animals. Although the companies mentioned above are competitors to PetMed, including Kroger and Walmart, two other companies are major pet pharmacy rivals. They are PetiQ and Heska Corporation, even though as of right now neither sell drugs direct to consumers; they only sell to vets or businesses, but that could change anytime. PetlQ. Inc. (PETC; www.petiq.com) Founded in 2010 and headquartered in Eagle, Idaho, PetlQ manufactures and distributes pet medications, including veterinarian-grade prescription and over-the-counter products. The company develops, manufactures, and sells pet medications, and health and wellness products for dogs and cats in the United States, Canada, and Europe. PetlQ is quite similar to PetMed Express in offering pet prescription medications, including products for arthritis, thyroid, and diabetes and pain treatments, as well as heartworm preventatives, antibioties, and other specialty medications; over-the-counter medications and supplies, such as flea and tick control products in various forms comprising spot-on treatments, chewables, and collars; and health and wellness products consisting of specialty treats and other pet products, which include dental treats and nutritional supplements. Various PetlQ trade names include PetAction, Advecta, PetLock, Heart Shield, TruProfen, Betsy Farms, Minties, Vera, Delightibles, vetGuard, Mimi's Market, PAWS IQ. VET + CHOICE, VET WORKS, TEX RANCH, and VetlQ brands. PetlQ markets over-the-counter and prescription pet medications and pet wellness products through wholesale distributors and retail stores in mass, club, grocery, pharmacy, and online. In January 2018, PetlQ acquired Community Veterinary Clinics, LLC d/h/a VIP Petcare ("VIP"), a leading operator and provider of nationwide veterinary clinics and veterinarian services within major U.S. retailers. VIP is now a wholly-owned subsidiary of PetlQ. VIP has its national footprint in the veterinarian services and products industry. As evidenced by this acquisition, PetlQ is rapidly growing, executing upon its mission (paraphrased) "to enhance pet lives by educating pet parents on the basics of veterinary care and veterinary-recommended pet products and services" VIP Peteare has a nationwide network of community clinies and wellness centers that deliver high value pet preventive and wellness veterinary services to all pet owners. Heska Corporation (HSKA; www.heska.com) Headquariered in Leveland, Culoradu, Heaka sells veterinary diagnustic and other spectialiy veterinary products, including allergy testing, blood testing instruments, diagnostic tests, digital imaging equipment, and supplements. The company develops, manufactures, and markets advanced veterinary diagnostic and specialty products for the dog and cat healthcare markets in the United States, Canada, Europe, and internationally. Heska operates through two segments: 1) Core Companion Animal Health, and 2) Other Vaccines, Pharmaceuticals and Products. The Core Companion Animal Health segment offers such products as the Element DC and DRI-CHEM 7000 veterinary chemistry analyzers for blood chemistry and electrolyte analysis, as well as the HT5 and HEMATRUE veterinary hematology analyzers to measure white and red blood cell count, platelet count, and hemoglobin levels in animals. Other popular products include the Element POC blood gas and electrolyte analyzers and the Element i immunodiagnostic analyzers, as well as mobile digital radiography products, point-of-care heartworm diagnostic test products for dogs and cats, TRI-HEART Plus Chewable Tablets for the preventive treatment of heartworm infection in dogs, and treatment and control of ascarid and hookworm infections. Heska's Other Vaccines, Pharmaceuticals and Products segment offers bovine vaccines, biological, and pharmaceutical products for other animal-health companies, and various turnkey services comprising research, licensing, production, labeling, and packaging. This segment also sells its products to veterinarians through a field organization, a telephone sales force, and independent third-party distributors, as well as trade shows, print advertising, and other distribution relationships. Exhibit 5 provides a financial comparison of PetMed with PetlQ and Heska Corp. Notice that PetMed is the largest of the three firms and has the highest profit margin. EXHIBIT 5 A Financial Comparison of PetMed with PetlQ and Heska Corp. Source: Based on a variety of sources. External Issues As the year 2018 begins, worldwide sales of animal vaccines, medicines, and medical devices exceeds $8 billion annually with an additional $14 billion in sales of vaccines and medicines for livestock. An industry trade group named Animal Health Institute reports that the global market for animal medicines is about one-forticth of that spent on human medicines. The trade group estimated that today "24 billion chickens, more than 1 billion cattle and sheep, 750 million pigs and goats, 500 million dogs and 400 million cats" worldwide benefit from innovations in animal health. Animal health drugs dispensed in the United States require approval from the Food and Drug Administration (FDA). According to the Animal Health Institute, the development of a new animal drug can take up to 10 years and cost up to $100 million prior to appoval. A new vaccine takes 3 to 5 years to develop and averages around $80 million in costs. Animal health product manufacturess suppont the FDA approval process through user fees authorized by the Animal Drug User Fees Act (ADUF) and the Animal Generic Drug User Fee Act. The American Pet Products Manufacturers Association says pet spending in the United States increased 10.7 percent to 566.9 billion in 2016. Among that total, pet supplies and medications comprised 22 percent, or $14.7 billion. PetMed Express says the pet medicution market they target is worth about $4.3 billion in annual sales. According to the company's 2017 Form 10K, the dog and cat population in the United States is about 184 million, with about 68 percent of all households having a pet. There are numerous facts and figures related to pet ownenhip worldwide, but simply focusing on the United States as PetMed does. Exhibit 6 provides some relevant information for performing an external strategic management assessment. EXHIBIT 6 Relevant U.S. Facts and Figures for PetMed Express External Audit - 55 pervent of American bevereholds have pets - Dog ownentip is growing faver than any cater pet calegory - Aging bocimers are more likely than previcus generative to own pets - Aping bocimers prefer large dogs for security reavons - Dog ownentip has increased 29 persent in the past derade - Multiple-dog ownerstip howecholds is grow ing favest of all categories - Millennials are loday mare likely than previous generation to own pets - Non-Hiapunic whines are everropenented in the population of dog ownens - Half of dog owners live in the 25 larget American cities - Ownen of multiple dogs ate more likely wo splurge on their pets - 59 million Americans own cats - There is little growth in the cat pet population over the paut decade - Women are responsite for most of the cat pet ownership - Cat ownership among senions increased 43 perient in the last decade - Cat ewnensip among Hispanics is growing rapidly - 24 pereent of ewners have overweight cate - Ownen of multiple cats are more likely to by pet products at discount stares - Birds, fisth, and oeher non-cat-ondog pets live in 15 million US. houscholds - 23 percent of pet owners lave a pet other than a dog or cat - Pepulation of pess ather than dogs and cats reaches 86 million in the United States - Boomen are less interected in pets ocher than cats ar dogst - Latinos mont Ekely to own pet hirds - High income houncholan wasully are who rwns won dog-or-cat pets - Children are a mujor factor in ownership of non dog of -cat peta Pets hitml Future In the first two months of 2018, shares of PedMed stock declined 10 percent, even though the company's earnings per share (EPS) were $.44 for Q3 of fiscal 2018, up 83.3 percent from the year-ago quarter's $24. That year-over-year rise in earnings was accompanied by company sales in Q3 2018 rising 13.7 percent year-over-year to 660.1 million. Also, for Q3 2018, PedMed's reorder sales increased 13.4 percent to 550.9 million, while new order sales rose 15.5 percent to $9.2 million. The company's average order value was $86 in Q3, compared with $81 in the yearago quarter. There is seasoaality in the company's tusiness because of the proportion of flea, tick, and heartworm medications in the product mix. Spring and summer are considered peak seasons while fall and winter represent off-seasons. Also, during Q3 2018, PetMed acquired 106,000 new customers, up from 99,000 a year aga. Roughly, 84 percent of all orders was generated from its webvite (versus 835 in the prion-year quarter). Finally, for Q3, the company's advertiving expenses rose 30.2 peccent to $4.1 million. Given the excellent Q3 results, PetMed announced a 25 percent increase in quarterly dividend to $.25 cents per share that was paid to shareholders in March 2018. PetMed is performing quite well, but this success gives incentive for manufacturess of pet medications to forward integrate into PetMed's business, potentially crushing PetMed. The company needs a clear strategic plan going forward. www. 1800 petmeds.com, PETS Headquartered in Delray Beach, Florida, PetMed Express is a licensed online pharmacy that fills prescriptions written by veterinarians. The company has over 9 miltion satisfied customers and dispenses drugs only ia the Uaited States. The company competes with local veterinarians, many of whom make money selling drugs for pets. FetMed carries all the medications sold in veterinarian offices. The company says it employs the largest number of veterinary pharmacists in the world. The company has a history of legal problems with veterinaries across the country underculting their prices and other related concerns. PetMed does not disclose where it obtains its pet drugs and this fact irritates many veterinarians. PetMed Express is America's largest pet pharmacy, delivering preseription and nonprescription pet medications and other health prodects for small animals at competitive prices direct to consumers through its 1-800-PetMeds toll-free number and on the Internet through its corpocate website. The company's fiscal 2017 year ended March 31, 2017. Foe the company's Q3 2018 that ended Decenher 3, 2017, new order sales increased 15.5 percent, new income increased 88 percent, and revenues increased 13.7 percent wo PetMed is doing well. In January 2018 , the company's board of directors increased the firm's dividend by 25 percent froen $0.20 to 50.25 per share paid on February 16, 2018. PetMed markets prescription and non-prescription pet medicatioas, as well as health products and supplies for small animals to retail customers. A sampling of the company's products include flea and tick control products, bone and joint care products, vitamins, treats, nutritional supplements, hygiene products, and supplies; and prescription medications, including heartworm preventatives, flea and tick preventatives, arthritis, thyroid, diabetes, pain medications, antibiotics, and other specialty medications, as well as generic substitutes. PetMed also sells food, beds, crates, stairs, strollers, and other pet supplies through its website, direct mail, and its toll-free number. It markets its products through Internet; telephone contact center; and direct mail/print through 1-800-PetMeds catalogs, brochures, and postcards under various brands. Coyprighted by Find David Books, LLC; written by Merdith E Darid. History PetMed was founded in 1996 by Mare Pulco. The company got off to a rocky start. In 1999, the company settled charges with the Florida Pharmacy Bourd for selling drugs that did not have prescriptions, false advertising, poot record keeping, and not labeling drugs correctly. As part of the setdemeat, the compuny paid a fine but also agreed to send its pharmacists for further education, agreed to random inspections, and agreed to provide regular reports to the board. In 2002, PetMed was fined by the Environmental Protection Agency (EPA) for selling drugs marked with metric doses - the drugs that were made by Novartis for sale in Europe and Australia. PetMed is exclusively a U.S. firm and the doses and labeling were not FDA-approved-Novartis soed PetMed for damages. In 2002, PetMed was charged by the Florida Pharmacy Boand for contracting with veterinarians to write prescriptions for animals they had never ecamined, and for selling animals drugs that had not been approved by the FDA. In the same yeat, the company setted similar charges in Ohio. Also in 2002 , the pharmacy board in Texas filed a lawsuit charging PetMed Express with dispensing veterinary dnugs without prescriptions. The case was sented in 2006 . Even as Late as August 2017, PetMed has legal problems as the Rosen Law Firm filed a class action lawsuit against the company alleging that PetMed was marketing dangerous and aldictive animal drugs to bumans. As a result of this action. Google may halt PetMed's advertiving and business operations with that firm. Vision/Mission PetMed Express appears to not have a vision of mission statement provided at the corporate website or in the company's Anmual Report. Internal Issues Customers and Advertising PetMod says 2.3 million customers purchased from the company in fiscal 2016 and 2017. and that about 50 percent of those customers reside in Califonia. New York, Pennsylvania, North Carolina, Virginia, and Georgia. The company dispenses drugs acroes the United States, The company obtained 514,000 new customers during fiscal 2017, compared to 489,000 new customers from the priar year. As a pereent of revenue, the company's atvertising expenses were 7.1 and 9.3 percent, respectively, for fiseal 2017 and 2016 . In fiscal 2017, the company eliminated all television advertising. Employees PetMed has about 190 full-time employees, including 105 in marketing, 43 in pharmacy, 3 in information technology, 3 is administrative positions, and 5 top managern. Organizational Structure Based on the titles of their corporate executives, it appears that PetMed operates from a functional organizational structure with no divisions. The company is quite light on top executives and no one appears to heal up potential segments, sach as prescription verus non-prescription, online verus traditional, of pharmaceutical verus other. EXHIBIT 1 PetMed's Top Executives and Organizational Chart 7. Alisan Beres, Cuparate Sestetary ast General Counsel 4. Roould Kon Dinectoe, Phesident of Ronald Kom Conaulting Sowred Based on cumpany duewmenth. Segment Information PetMed does not provide mach segment information beyond what is wumamarized in Exhibit 2 . Note in Extibit 2 that Reorder Sales comprise about 8.3 perect of all sales, and ironically Internet sales also comprise about 83 percent of all sales. Finance PetMed's fiscal year ends March 31. For the company's Q3 2018 quarter that ended December 31. 2017, net sales were $60.1 million. compared to $52.9 million for the peiot year same quarter, an increase of 13.7 percent. Net sales for the 9 months ended December 31, 2017, and were $206.5 million, compared to $186.1 million for the 9 months previous, an inctease of 10.9 percent. The increase in sales for the company's Q3 2018 quarter Sixere: Based an the connpany's 2017 A Amwal Report. were up doe to increased new otder sales, which increased 15.5 percent, and reorder sales, which increaced 13.4 pereent. Net income for the Q3 2018 quarter was 59.1 million, compared to net income of $4.8 miltion the previous year same quarter, an 88 percent increase. Net income for the 9 months ended December 31,2017 was $27, 1 million, compared to net income of $16.3 million, for the 9 months the peior fiscal year, a 66 income increase to aet income. Average order size increased to $86 for the Q32018 quarter, compared to \$81 for the sume quarter in the prioe year. Alwo for the company's Q3 2018 quarter, onGine sales increased 15.0 percent to $50.4 million from $4.3.8 million for the same period the priot year, and were apptosimately 84 percent of all sales, compared to 83 pertent for the same quarter the priot year. The company's Q3. 2018 was the fourth consecutive quarter of increasing both new onder and reorder sales. In January 2018, the company's beard of directors declared and increased the quarterly dividend by 25 percent from 50.20 to 90.25 per share on the firm's common stock. The dividend was paid on February 16, 2018 . PetMed Expeess heat profit estimates again in its Q4 2018 that ended 3-31-18. For Q4 2018. the company reported net income of 5102mallion, up from 57.5million in the year-carlier period. Sales rose to $67.3 million from 9630 million. Also for that 04 , the company's markins rose to 37 percent from 35.1 percent, boosied by a product mix shift to higher margin items. Additionally, for Q4 2018. PetMed's average order value was 589 compared to 586 for the same quater the priot year. PetMed's income statements and balance sheets are provided in Exhibit 3 and Exhibit 4, respectively. Competitors Eight companies in particular generate ules in the billions for unimal pharmaceuticals: Zoetis, Merck Animal Health, Merial, Elanco Animal Health. Bayer Animal Health. Bochringer Ingelheim Animal Health, Novartis Animal Health, and Virbac. However, arguably two of PetMed's major rivals are Kroger and Walmart. Both furms fill animal prescriptions. Headquartered in Parsippany-Troy Hills, New Jersey, Zoetis develops vaccines, parasiticides, anti-infectives, mxdicinal feed additives and drugs for pain, sedation, and cancers for pets and farm animals. The company has annual sales of $5 billion. The company name has its root in "20". familiar in words such as zoo and zoology and derived from zoetic, meaning "pertaining to life." About 60 percent of Zoetis sales come from farm animal products and 40 percent from companion animal products, mainly medicines and vaccines. Headquartered in Kenilworth. New Jersey, Merck Animal Health manufactures vaccines. anti-infective and anti-parasitic drugs, fertility management drugs, and other specialry pharmaceutical products for companion animals and livestock Owned by Eli Lilly and headquartered in Indianapolis, Indiana, Elanco Animal Health develops and markets products to treat animal health and increase peotein production. Products feed additives for livestock and poultry. Headquartered in Ingelheim am Rhein, Germany, Bochringer Ingelheim Animal Health markets biologicals, vaccines, pharmaceuticals, and other care products for use in pets and livestock. Bochringer owns Merial that develops and markets veterinary products including anesthetics, antiparasitics, antimicrobials, and gastrointestinal, respiratory, and cardiovascular medicines. It also produces vaccines for livestock, poultry, and petc. Headquartered in Leverkusen, Germany, Bayer HealthCare Animal Health manufictures antimicrobials, parasiticides, sedatives, pain killers, and nutritional supplements and foed additives for dogs, cats, and horsek. Products for food animals include anti-infectives, vaccines, parasiticides, sevlatives, and pain killers. Headquartered in Basel, Switzerland, Novartis Animal Healih develops and markets healk product for companion animals, livestock, and the aquaculture market. Popular products include treatments for dermatitis, flea prolecticn, pain and heartworm prevention in pets, and antibiotics and antiparasitics in farm animals. Novartis also developed some of the first vaccines for combating viral and parasitic infoctions in fish. Novartis was acquired by Eli Lilly in 2015 for 55.4 billion. Headquartered in Carros, France, Virbac Group manufactures antibiotics, vaccines, antiparasities, dermatological, and dental products for the treatment and care of pets and food animals. Although the companies mentioned above are competitors to PetMed, including Kroger and Walmart, two other companies are major pet pharmacy rivals. They are PetiQ and Heska Corporation, even though as of right now neither sell drugs direct to consumers; they only sell to vets or businesses, but that could change anytime. PetlQ. Inc. (PETC; www.petiq.com) Founded in 2010 and headquartered in Eagle, Idaho, PetlQ manufactures and distributes pet medications, including veterinarian-grade prescription and over-the-counter products. The company develops, manufactures, and sells pet medications, and health and wellness products for dogs and cats in the United States, Canada, and Europe. PetlQ is quite similar to PetMed Express in offering pet prescription medications, including products for arthritis, thyroid, and diabetes and pain treatments, as well as heartworm preventatives, antibioties, and other specialty medications; over-the-counter medications and supplies, such as flea and tick control products in various forms comprising spot-on treatments, chewables, and collars; and health and wellness products consisting of specialty treats and other pet products, which include dental treats and nutritional supplements. Various PetlQ trade names include PetAction, Advecta, PetLock, Heart Shield, TruProfen, Betsy Farms, Minties, Vera, Delightibles, vetGuard, Mimi's Market, PAWS IQ. VET + CHOICE, VET WORKS, TEX RANCH, and VetlQ brands. PetlQ markets over-the-counter and prescription pet medications and pet wellness products through wholesale distributors and retail stores in mass, club, grocery, pharmacy, and online. In January 2018, PetlQ acquired Community Veterinary Clinics, LLC d/h/a VIP Petcare ("VIP"), a leading operator and provider of nationwide veterinary clinics and veterinarian services within major U.S. retailers. VIP is now a wholly-owned subsidiary of PetlQ. VIP has its national footprint in the veterinarian services and products industry. As evidenced by this acquisition, PetlQ is rapidly growing, executing upon its mission (paraphrased) "to enhance pet lives by educating pet parents on the basics of veterinary care and veterinary-recommended pet products and services" VIP Peteare has a nationwide network of community clinies and wellness centers that deliver high value pet preventive and wellness veterinary services to all pet owners. Heska Corporation (HSKA; www.heska.com) Headquariered in Leveland, Culoradu, Heaka sells veterinary diagnustic and other spectialiy veterinary products, including allergy testing, blood testing instruments, diagnostic tests, digital imaging equipment, and supplements. The company develops, manufactures, and markets advanced veterinary diagnostic and specialty products for the dog and cat healthcare markets in the United States, Canada, Europe, and internationally. Heska operates through two segments: 1) Core Companion Animal Health, and 2) Other Vaccines, Pharmaceuticals and Products. The Core Companion Animal Health segment offers such products as the Element DC and DRI-CHEM 7000 veterinary chemistry analyzers for blood chemistry and electrolyte analysis, as well as the HT5 and HEMATRUE veterinary hematology analyzers to measure white and red blood cell count, platelet count, and hemoglobin levels in animals. Other popular products include the Element POC blood gas and electrolyte analyzers and the Element i immunodiagnostic analyzers, as well as mobile digital radiography products, point-of-care heartworm diagnostic test products for dogs and cats, TRI-HEART Plus Chewable Tablets for the preventive treatment of heartworm infection in dogs, and treatment and control of ascarid and hookworm infections. Heska's Other Vaccines, Pharmaceuticals and Products segment offers bovine vaccines, biological, and pharmaceutical products for other animal-health companies, and various turnkey services comprising research, licensing, production, labeling, and packaging. This segment also sells its products to veterinarians through a field organization, a telephone sales force, and independent third-party distributors, as well as trade shows, print advertising, and other distribution relationships. Exhibit 5 provides a financial comparison of PetMed with PetlQ and Heska Corp. Notice that PetMed is the largest of the three firms and has the highest profit margin. EXHIBIT 5 A Financial Comparison of PetMed with PetlQ and Heska Corp. Source: Based on a variety of sources. External Issues As the year 2018 begins, worldwide sales of animal vaccines, medicines, and medical devices exceeds $8 billion annually with an additional $14 billion in sales of vaccines and medicines for livestock. An industry trade group named Animal Health Institute reports that the global market for animal medicines is about one-forticth of that spent on human medicines. The trade group estimated that today "24 billion chickens, more than 1 billion cattle and sheep, 750 million pigs and goats, 500 million dogs and 400 million cats" worldwide benefit from innovations in animal health. Animal health drugs dispensed in the United States require approval from the Food and Drug Administration (FDA). According to the Animal Health Institute, the development of a new animal drug can take up to 10 years and cost up to $100 million prior to appoval. A new vaccine takes 3 to 5 years to develop and averages around $80 million in costs. Animal health product manufacturess suppont the FDA approval process through user fees authorized by the Animal Drug User Fees Act (ADUF) and the Animal Generic Drug User Fee Act. The American Pet Products Manufacturers Association says pet spending in the United States increased 10.7 percent to 566.9 billion in 2016. Among that total, pet supplies and medications comprised 22 percent, or $14.7 billion. PetMed Express says the pet medicution market they target is worth about $4.3 billion in annual sales. According to the company's 2017 Form 10K, the dog and cat population in the United States is about 184 million, with about 68 percent of all households having a pet. There are numerous facts and figures related to pet ownenhip worldwide, but simply focusing on the United States as PetMed does. Exhibit 6 provides some relevant information for performing an external strategic management assessment. EXHIBIT 6 Relevant U.S. Facts and Figures for PetMed Express External Audit - 55 pervent of American bevereholds have pets - Dog ownentip is growing faver than any cater pet calegory - Aging bocimers are more likely than previcus generative to own pets - Aping bocimers prefer large dogs for security reavons - Dog ownentip has increased 29 persent in the past derade - Multiple-dog ownerstip howecholds is grow ing favest of all categories - Millennials are loday mare likely than previous generation to own pets - Non-Hiapunic whines are everropenented in the population of dog ownens - Half of dog owners live in the 25 larget American cities - Ownen of multiple dogs ate more likely wo splurge on their pets - 59 million Americans own cats - There is little growth in the cat pet population over the paut decade - Women are responsite for most of the cat pet ownership - Cat ownership among senions increased 43 perient in the last decade - Cat ewnensip among Hispanics is growing rapidly - 24 pereent of ewners have overweight cate - Ownen of multiple cats are more likely to by pet products at discount stares - Birds, fisth, and oeher non-cat-ondog pets live in 15 million US. houscholds - 23 percent of pet owners lave a pet other than a dog or cat - Pepulation of pess ather than dogs and cats reaches 86 million in the United States - Boomen are less interected in pets ocher than cats ar dogst - Latinos mont Ekely to own pet hirds - High income houncholan wasully are who rwns won dog-or-cat pets - Children are a mujor factor in ownership of non dog of -cat peta Pets hitml Future In the first two months of 2018, shares of PedMed stock declined 10 percent, even though the company's earnings per share (EPS) were $.44 for Q3 of fiscal 2018, up 83.3 percent from the year-ago quarter's $24. That year-over-year rise in earnings was accompanied by company sales in Q3 2018 rising 13.7 percent year-over-year to 660.1 million. Also, for Q3 2018, PedMed's reorder sales increased 13.4 percent to 550.9 million, while new order sales rose 15.5 percent to $9.2 million. The company's average order value was $86 in Q3, compared with $81 in the yearago quarter. There is seasoaality in the company's tusiness because of the proportion of flea, tick, and heartworm medications in the product mix. Spring and summer are considered peak seasons while fall and winter represent off-seasons. Also, during Q3 2018, PetMed acquired 106,000 new customers, up from 99,000 a year aga. Roughly, 84 percent of all orders was generated from its webvite (versus 835 in the prion-year quarter). Finally, for Q3, the company's advertiving expenses rose 30.2 peccent to $4.1 million. Given the excellent Q3 results, PetMed announced a 25 percent increase in quarterly dividend to $.25 cents per share that was paid to shareholders in March 2018. PetMed is performing quite well, but this success gives incentive for manufacturess of pet medications to forward integrate into PetMed's business, potentially crushing PetMed. The company needs a clear strategic plan going forward