PetMeds Case Analysis: Financial Ratio Analysis and Internal Factor Evaluation Matrix

Colangelo College of Business, Grand Canyon University

MGT-660: Strategic Management

Professor

June 21, 2023

 Financial Ratio Analysis and Internal Factor Evaluation Matrix
PetMeds operates in the fiercely competitive market of pet medications and supplies. The

company boasts several strengths: a highly skilled workforce, a strong brand portfolio, and

successful Go to Market strategies. Additional data reveals that PetMeds has invested

significantly in training and learning programs, resulting in a workforce with advanced skills and

knowledge. Moreover, PetMeds has a wide range of popular and trusted brands. The data

indicates the company's brand recognition and customer loyalty have been instrumental in its

success thus far. Building upon this strength, PetMeds has the potential to expand into new

product categories, leveraging its brand equity and customer trust.

Nevertheless, PetMeds also needs to improve in the marketing of products and garner

more efficient financial planning. The historical data highlights the company's lower marketing

expenditure compared to competitors in the industry. PetMeds weakness in this area suggests a

need for increased marketing efforts to raise product awareness and drive customer acquisition

(Gee et al., 2008). Furthermore, the data also indicates that PetMeds' financial planning may

need to be revised, as reflected lower in current and liquid asset ratios. These financial indicators

indicate potential inefficiencies in working capital and cash flow management. Diminished

financial performance and stability will increase weaknesses and long-term productivity.

Opportunities in the external environment include expanding product offerings,

enhancing e-commerce capabilities, personalized marketing campaigns, and international

expansion. The data reveals a growing demand for online shopping in the pet supplies market,

highlighting the potential for PetMeds to strengthen its e-commerce presence and capture a

larger customer base. PetMeds could use personalized marketing campaigns to drive customer

engagement and loyalty (Cetin, 2020). Moreover, PetMeds' can leverage customer analytics data

to tailor marketing messages and offers to individual pet owners, enhancing the customer
experience and fostering brand loyalty. PetMeds also has the potential for international

expansion, as the pet medication and supplies market are not limited to a single geographical

region. The company can explore strategic partnerships or establish its presence in key

international markets to tap into new revenue streams.

Threats to PetMeds' success include the increasing strength of local distributors, rising

raw material costs, and a shortage of skilled workforce. The data indicates that local distributors

are gaining market share by offering competitive pricing and personalized services. PetMeds

must carefully monitor these competitors and develop strategies to maintain its competitive edge.

Moreover, the data highlights the impact of rising raw material costs on PetMeds' profitability.

The company should proactively manage its supply chain, explore alternative sourcing options,

and negotiate favorable supplier contracts to mitigate the impact of cost increases (Spieske et al.,

2022). Lastly, the shortage of skilled workforce is a potential threat; therefore, attracting and

retaining top talent in the industry is of utmost importance. PetMeds can invest in employee

training and development programs, offer competitive compensation packages, and foster a

positive work culture to address this challenge.

Findings and Implications for Strategy Creation

Historical Data:

Historical Ratios

6/19/2023 4/1/2022

Current Ratio 3.60 4.55

Quick Ratio 3.08 3.57

Total Debt-to-Total-
Assets Ratio 0.25 0.19

Total Debt-to-Equity
Ratio 0.16 0.12
Times-Interest-Earned
Ratio NA NA

Inventory Turnover 9.96 6.10

Fixed Assets Turnover 9.81 11.18

Total Assets Turnover 1.57 1.55

Accounts Receivable
Turnover 148 143

Average Collection Period 2.47 2.55

Gross Profit Margin % 26% 28%

Operating Profit Margin

% -2% 8%

ROA % -4% 10%

ROE % -3% 6%

An analysis of PetMeds' financial data reveals a decline in net income compared to the

previous year, primarily due to decreased revenue and increased operating expenses. Other

historical data demonstrates that PetMeds experienced a 6% decrease in revenue and a 28%

increase in operating expenses. In addition, the company's gross profit margin has also

decreased, highlighting the need for cost optimization and operational efficiency improvements.

Therefore, based on the findings and additional data, several implications arise for strategy

creation at PetMeds.

First, it is imperative to strengthen marketing efforts to address the weakness of weak

product marketing. Increasing marketing expenditure and implementing targeted campaigns will

help raise awareness, attract new customers, and drive sales growth. Second, addressing the

inefficiencies in financial planning and improving working capital management is crucial for

enhancing profitability and long-term financial stability. Developing robust financial forecasting
models and optimizing inventory management processes will improve financial performance.

Third, capitalizing on opportunities in e-commerce and personalized marketing can accelerate

growth and enhance customer engagement. Investing in technology infrastructure, data analytics

capabilities, and customer relationship management systems will enable PetMeds to deliver

personalized experiences and build stronger customer relationships. Finally, PetMeds should

consider diversifying its product offerings and exploring international expansion to tap into new

revenue streams. It will require market research, strategic partnerships, and careful evaluation of

market entry strategies.

Findings and Implications of IFE (Internal Factor Evaluation) Data

IFE Matrix:
 The Internal Factors Evaluation Matrix is defined as “a strategy-formulation tool that

summarizes and evaluates a firm’s major strengths and weaknesses in the functional areas of a

business, and provides a basis for identifying and evaluating relationships among those areas,”

(David et al., 2020). When looking at the internal and external evaluative factors it is easy to see

some relative characteristics. For example, in the strength section we see that PetMeds has a

highly skilled workforce through training and learning programs. However, the employee

turnover rate is high compared to other organizations. Based on the ratings, we can see that

PetMeds has a moderately skilled work force but has a problem retaining employees. The related

topics within strengths and weaknesses show the complexity in each factor and the need for a

firm to address these factors from all angles. Marketing is heavily related to strong brand

portfolio, sales, lack of marketing, and limited success in other product segments. Likewise,

research and development are related to moving into other product segments. Being that PetMeds

is a smaller company compared to similar competitors, it is understandable that brand

recognition and marketing efforts might be rated lower based on the industry.

A weak move into other product segments and smaller marketing pushes may be related

to low quarterly growth. The current quarterly growth percentage sits at -35.70% and next

quarter is projected to be -23.10% (Yahoo!, 2023). However, the financial analysis does not

imply a negative performance for the company. PetMeds seems to be managing money and

making enough sales to sustain a positive performance in some areas. For example, the current

P/S ratio of PetMeds sits at 1.12 and a current sales growth of 15% (Yahoo!, 2023). Repeat

customer sales, positive sales growth, and a good P/S ratio imply that PetMeds is a strong firm in

the industry and makes PetMeds an attractive investment. Overall, while PetMeds has customer

loyalty and longevity on its side, there is always room for improvement, wherein companies
swimming in a red ocean, like PetMeds, must find ways to capitalize on their strengths and

improve upon their weaknesses.

Strategies for Future Growth

Fortunately, because PetMeds remains relevant in the pet industry, it has strengths it can

capitalize on to propel sales. For one, it is necessary for PetMeds to continue investing in

employee development by providing continuous training to enhance the skills of the workforce.

Incorporating development opportunities into operational practices invariably leads to improved

productivity, innovation, and customer service, wherein learning and improving, as a team, also

fosters a positive work environment. Secondly, clearly communicating PetMeds’ mission and

benefits to customers will capitalize on the strength of the brand and continue to differentiate it

from competitors. PetMeds must focus on reinforcing core values, prioritizing superb customer

service, and highlighting its use of quality products. Thirdly, PetMeds could capitalize on its

consumer retention rates by prioritizing marketing strategies that track customer trends in the

forms of loyalty programs, competitive pricing, or other user experiences. Finally, optimizing

price-to-sales to ensure competitiveness and maintain profitability, is imperative. For PetMeds,

this entails monitoring costs, streamlining operations, and negotiating with suppliers to keep

profitable margins.

Improving weaknesses for large corporations like PetMeds will require a strategic

approach. For instance, PetMeds could develop a more productive marketing plan that increases

its social media presence, improves the user experience, and optimizes search engine results. In

the current age of technology, content marketing, influencer partnerships, and targeted

advertising campaigns that target specific audiences are the best ways to use social media

platforms to increase revenue. Furthermore, exploring new market segments, especially

internationally, would expand PetMeds’ customer base; and considering 50% of the company’s

revenue comes from only 8 states, this would be a relevant risk to take.

Oftentimes, fostering relationships between the company supply chain and internal

departments can aid in creating innovative tactics and strategies. On an operational level,

PetMeds needs to allocate a higher budget for the research and development team, as their R&D

intensity is one of the lowest in the industry. In addition, collaborating with suppliers to

implement inventory management software and instill just-in-time methods would reduce excess

stock and minimize carrying costs. Unfortunately, PetMeds also has a turnover rate higher than

most in the industry, and as a retail company this is a frequent and costly occurrence. Because

employes are the face of the company, enhancing employee engagement through effective

communication, recognition programs, and offering career development opportunities must be a

priority for PetMeds. Another way to gain insight into turnover is to conduct exit interviews or

conduct anonymous surveys or questionnaires. The company must also ensure they are offering

competitive compensation packages to attract and retain skilled employees; and in turn, invest in

training and developing that workforce to keep up the motivation.

A strategic plan with distinct goals, actionable steps, and measurable metrics to monitor

progress could be paramount in PetMeds continued success. Fortunately, PetMeds operates in a

highly competitive market, and with its strengths of a skilled workforce and strong brand

portfolio, it sits on a solid foundation for success. By addressing weaknesses, leveraging

opportunities, and mitigating threats, PetMeds can develop a comprehensive strategy focusing on

marketing enhancement, financial optimization, digital transformation, and strategic

diversification. These strategic initiatives will position PetMeds for long-term success and enable
it to navigate the evolving landscape of the pet medication and supplies industry; or it may be

time to venture into the blue ocean.

References

Cetin, G. (2020). Experience vs. quality: predicting satisfaction and loyalty in services. The

Service Industries Journal, 40(15-16), 1167–1182.

David, F. R., David, F. R., & David, M. E. (2020). Strategic management concepts and cases: A

competitive advantage approach (17th ed.). Pearson Education.

Gee, R., Coates, G., & Nicholson, M. (2008). Understanding and profitably managing customer

loyalty. Marketing Intelligence & Planning, 26(4), 359–374.

Yahoo! (2023, June 20). PetMed Express, inc. (PETS) analyst ratings, estimates & forecasts.

Yahoo! Finance. https://finance.yahoo.com/quote/PETS/analysis?p=PETS