Executive Summary

PetMed Express (the "Company") was incorporated in the state of Florida in
January 1996, and since 2004 its common stock has traded on the NASDAQ Global
Select Market under the symbol "PETS." The Company began selling pet medications
and other pet health products in September 1996, and in March 2010, the Company
started offering additional pet supplies on its website for sale, and these
items are drop shipped to customers by third party vendors. Presently, the
Company's product line includes approximately 3,000 of the most popular pet
medications, health products, and supplies for dogs, cats, and horses.



The Company markets its products through national advertising campaigns which
aim to increase the recognition of the "PetMeds" brand name, increase traffic on
its website at www.petmeds.com, acquire new customers, and maximize repeat
purchases. Approximately 84% of all sales were generated via the Internet in
both fiscal 2022 and fiscal 2021. The twelve-month average purchase was
approximately $93 per order for the fiscal year ended March 31, 2022, compared
to $89 for the fiscal year ended March 31, 2021.



Critical Accounting Policies



Our discussion and analysis of our financial condition and the results of our
operations contained herein are based upon our Consolidated Financial Statements
and the data used to prepare them. The Company's Consolidated Financial
Statements have been prepared in accordance with accounting principles generally
accepted in the United States of America. On an ongoing basis we re-evaluate our
judgments and estimates including those related to product returns, bad debts,
inventories, and income taxes. We base our estimates and judgments on our
historical experience, knowledge of current conditions, and our beliefs of what
could occur in the future considering available information. Actual results may
differ from these estimates under different assumptions or conditions. Our
estimates are guided by observing the following critical accounting policies.



Revenue recognition



The Company generates revenue by selling pet medication products and pet
supplies mainly to retail customers. Certain pet supplies offered on the
Company's website are drop shipped to customers. The Company considers itself
the principal in the arrangement because the Company controls the specified good
before it is transferred to the customer. Revenue contracts contain one
performance obligation, which is delivery of the product; customer care and
support is deemed not to be a material right to the contract. The transaction
price is adjusted at the date of sale for any applicable sales discounts and an
estimate of product returns, which are estimated based on historical patterns;
however, this is not considered a key judgment. There are no amounts excluded
from variable consideration. Revenue is recognized when control transfers to the
customer at the point in time in which the shipment of the product occurs.
Outbound shipping and handling fees are an accounting policy election and are
included in sales as the Company considers itself the principal in the
arrangement given responsibility for supplier selection and discretion over
pricing. Shipping costs associated with outbound freight after control over a
product has transferred to a customer are an accounting policy election and are
accounted for as fulfillment costs and are included in cost of sales.



The Company disaggregates revenue in the following two categories: (1) reorder
sales vs new order sales, and (2) internet sales vs contact center sales. The
following table illustrates sales by various classifications:



                                              Year Ended March 31,
Sales (In thousands)      2022            %             2021            %   

$ Variance % Variance



Reorder Sales          $  250,401           91.6 %   $  272,648           88.2 %   $    (22,247 )           -8.2 %
New Order Sales        $   23,016            8.4 %   $   36,567

11.8 % $ (13,551 ) -37.1 %

Total Net Sales $ 273,417 100.0 % $ 309,215 100.0 % $ (35,798 ) -11.6 %



Internet Sales         $  230,263           84.2 %   $  259,404           83.9 %   $    (29,141 )          -11.2 %
Contact Center Sales   $   43,154           15.8 %   $   49,811

16.1 % $ (6,657 ) -13.4 %

Total Net Sales $ 273,417 100.0 % $ 309,215 100.0 % $ (35,798 ) -11.6 %






                                       18
--------------------------------------------------------------------------------




                                              Year Ended March 31,
Sales (In thousands)      2021            %             2020            %   

$ Variance % Variance



Reorder Sales          $  272,648           88.2 %   $  248,560           87.5 %   $     24,088              9.7 %
New Order Sales        $   36,567           11.8 %   $   35,565           12.5 %   $      1,002              2.8 %

Total Net Sales $ 309,215 100.0 % $ 284,125 100.0 % $ 25,090

              8.8 %

Internet Sales         $  259,404           83.9 %   $  238,054           83.8 %   $     21,350              9.0 %
Contact Center Sales   $   49,811           16.1 %   $   46,071           16.2 %   $      3,740              8.1 %

Total Net Sales $ 309,215 100.0 % $ 284,125 100.0 % $ 25,090

              8.8 %




Virtually all of the Company's sales are paid by credit cards and the Company
usually receives the cash settlement in two to three banking days. Credit card
sales minimize accounts receivable balances relative to sales. The Company had
no material contract asset or contract liability balances as of March 31, 2022,
or March 31, 2021.



The Company maintains an allowance for doubtful accounts for losses that the
Company estimates will arise from customers' inability to make required
payments, arising from either credit card chargebacks or insufficient funds
checks. The Company determines its estimates of the un-collectability of
accounts receivable by analyzing historical bad debts and current economic
trends. The allowance for doubtful accounts was approximately $39,000 at both
March 31, 2021, and March 31, 2022.



Valuation of inventory



Inventories consist of prescription and non-prescription pet medications and pet
supplies that are available for sale and are priced at the lower of cost or net
realizable value using a weighted average cost method. The Company writes down
its inventory for estimated obsolescence. The inventory reserve was
approximately $81,000 and $86,000 at March 31, 2022 and 2021, respectively.



Advertising



The Company's advertising expense consists primarily of Internet marketing,
direct mail/print, and television advertising. Internet costs are expensed in
the month incurred and direct mail/print advertising costs are expensed when the
related brochures and postcards are produced, distributed, or superseded.
Television advertising costs are expensed as the advertisements are televised.



Accounting for income taxes



The Company accounts for income taxes under the provisions of ASC Topic 740,
("Accounting for Income Taxes"), which generally requires the recognition of
deferred tax assets and liabilities for the expected future tax benefits or
consequences of events that have been included in the Consolidated Financial
Statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting
carrying values and the tax bases of assets and liabilities and are measured by
applying enacted tax rates and laws for the taxable years in which those
differences are expected to reverse.



                                       19
--------------------------------------------------------------------------------





Results of Operations



The following should be read in conjunction with the Company's Consolidated
Financial Statements and the related notes thereto included elsewhere herein.
The following table sets forth, as a percentage of sales, certain operating data
appearing in the Company's Consolidated Statements of Income:



                                               Fiscal Year Ended March 31,

                                              2022           2021        2020

Sales                                           100.0 %       100.0 %     100.0 %
Cost of sales                                    71.4          70.9        71.4

Gross profit                                     28.6          29.1        28.6

Operating expenses:
General and administrative                       11.3           9.1         8.9
Advertising                                       6.9           7.0         8.0
Depreciation                                      1.0           0.8         0.8
Total operating expenses                         19.2          16.9        17.7

Income from operations                            9.4          12.2        10.9

Total other income                                0.5           0.5         1.0

Income before provision for income taxes          9.9          12.7        11.9

Provision for income taxes                        2.2           2.8         2.8

Net income                                        7.7 %         9.9 %       9.1 %




Non-GAAP Financial Measures


Adjusted EBITDA and Adjusted EBITDA per share





To provide investors and the market with additional information regarding our
financial results, we have disclosed (see below) adjusted EBITDA and adjusted
EBITDA per share, non-GAAP financial measures that we calculate as net income
excluding; share-based compensation expense; depreciation and amortization;
income tax provision; and interest income (expense). We have provided
reconciliations below of adjusted EBITDA to net income and adjusted EBITDA per
share to diluted earnings per share, the most directly comparable GAAP financial
measures.



We have included adjusted EBITDA and adjusted EBITDA per share, herein, because
they are key measures used by our management and Board of Directors to evaluate
our operating performance, generate future operating plans and make strategic
decisions regarding the allocation of capital. In particular, the exclusion of
certain expenses in calculating adjusted EBITDA facilitates operating
performance comparability across reporting periods by removing the effect of
non-cash expenses. Accordingly, we believe that adjusted EBITDA and adjusted
EBITDA per share provide useful information to investors and others in
understanding and evaluating our operating results in the same manner as our
management and Board of Directors.



                                       20
--------------------------------------------------------------------------------




We believe it is useful to exclude non-cash charges, such as, share-based
compensation expense, depreciation and amortization from our adjusted EBITDA and
adjusted EBITDA per share because the amount of such expenses in any specific
period may not directly correlate to the underlying performance of our business
operations. In addition, we believe it is useful to exclude in our adjusted
EBITDA and adjusted EBITDA per share income tax provision and interest income
(expense), as neither are components of our core business operations. Adjusted
EBITDA and adjusted EBITDA per share have limitations as financial measures,
these non-GAAP measures should not be considered in isolation or as a substitute
for analysis of our results as reported under GAAP. Some of these limitations
are:


? Although depreciation and amortization are non-cash charges, the assets being

depreciated and amortized may have to be replaced in the future and adjusted


    EBITDA and adjusted EBITDA per share do not reflect capital expenditure
    requirements for such replacements or for new capital expenditures;



? Adjusted EBITDA and adjusted EBITDA per share do not reflect share-based

compensation. Share-based compensation has been, and will continue to be for

the foreseeable future, a material recurring expense in our business and an


    important part of our compensation strategy;



? Adjusted EBITDA and adjusted EBITDA per share do not reflect interest income

(expense), net; or changes in, or cash requirements for, our working capital;


    and



? Other companies, including companies in our industry, may calculate adjusted


    EBITDA and adjusted EBITDA per share differently, which reduces these
    measures' usefulness as comparative measures.




Because of these and other limitations, you should consider adjusted EBITDA and
adjusted EBITDA per share only as supplemental to, and alongside with other GAAP
based financial performance measures, including various cash flow metrics, net
income, net margin, and our other GAAP results.



The following table presents a reconciliation of net income, the most directly
comparable GAAP measure to adjusted EBITDA and adjusted EBITDA per share for
each of the periods indicated:



                Reconciliation of Non-GAAP Measures
                       PetMed Express, Inc.




                             Three Months Ended                                            Year Ended
                         March 31,        March 31,          $           %          March 31,       March 31,          $            %
($ in thousands,
except percentages)         2022            2021          Change       Change         2022            2021          Change        Change

Consolidated Reconciliation of GAAP Net Income to Adjusted EBITDA:



Net income               $    6,066      $     6,812     $   (746 )        -11 %   $    21,100     $    30,603     $  (9,503 )        -31 %

Add (subtract):
Share-based
compensation             $    1,509      $     1,013     $    496           49 %   $     4,549     $     3,307     $   1,242           38 %
Income Taxes             $    1,368      $     2,037     $   (669 )        -33 %   $     5,971     $     8,613     $  (2,642 )        -31 %
Depreciation             $      687      $       636     $     51            8 %   $     2,738     $     2,427     $     311           13 %
Interest
Income/Expense           $      (92 )    $       (85 )   $     (7 )          8 %   $      (335 )   $      (314 )   $     (21 )          7 %

Adjusted EBITDA          $    9,538      $    10,413     $   (875 )         -8 %   $    34,023     $    44,636     $ (10,613 )        -24 %






                             Three Months Ended                                           Year Ended
($ in thousands,
except percentages       March 31,        March 31,         $           %          March 31,       March 31,         $           %
and per share amounts)      2022             2021        Change       Change         2022            2021         Change       Change

Consolidated Reconciliation of GAAP Net Income Per Share to Adjusted EBITDA per share:



Net income per share,
diluted                  $     0.30       $     0.34     $ (0.04 )        -12 %   $      1.04     $      1.52     $ (0.48 )        -32 %

Add (subtract):
Share-based
compensation             $     0.07       $     0.05     $  0.02           40 %   $      0.22     $      0.16     $  0.06           38 %
Income Taxes             $     0.07       $     0.10     $ (0.03 )        -30 %   $      0.29     $      0.43     $ (0.14 )        -33 %
Depreciation             $     0.03       $     0.03     $     -            0 %   $      0.13     $      0.12     $  0.01            8 %
Interest
Income/Expense           $        -       $        -     $     -            0 %   $     (0.01 )   $     (0.01 )   $     -            0 %

Adjusted EBITDA Per
Share                    $     0.47       $     0.52     $ (0.05 )         -9 %   $      1.67     $      2.22     $ (0.55 )        -25 %




                                       21

--------------------------------------------------------------------------------

Fiscal 2022 Compared to Fiscal 2021





COVID-19



We are dedicated to making every effort to ensure our customers' pets receive
the medications they need. We are also dedicated to making every effort to
ensure the health and safety of our employees. We have continued with working
from home where possible and enhanced disinfection and social distancing within
our workplace. The Company has been open during our normal business hours
without any material disruptions to our operations. We have not seen any major
disruptions in our supply chain; however, we have experienced some delays in the
delivery of some inventory items. See risk factor "The outbreak of the COVID-19
global pandemic and related government, private sector and individual consumer
responsive actions may adversely affect our business operations, employee
availability, financial performance, liquidity and cash flow for an unknown
period of time" in Part I, Item 1A of this Form 10-K.



Sales



Sales decreased by approximately $35.8 million, or 11.6%, to $273.4 million for
the fiscal year ended March 31, 2022, from approximately $309.2 million for the
fiscal year ended March 31, 2021. The decrease in sales for the fiscal year
ended March 31, 2022, was primarily due to decreases in reorder and new order
sales. Sales for fiscal year 2022 were impacted by a much more competitive
environment, and a crowded advertising market which had substantially higher
advertising costs compared to the same period in the prior year. Veterinary
visits increased during fiscal year 2022, compared to being down during the
prior year. We believe the increase in veterinary visits was primarily due to
pet owners needing to visit their veterinarian for their pets' annual exam in
order to renew their prescriptions, as many veterinarians were closed in the
prior year due to the pandemic. The Company acquired approximately 263,000 new
customers for the fiscal year ended March 31, 2022, compared to approximately
443,000 new customers for the same period the prior year. The following chart
illustrates sales by various sales classifications:



                                              Year Ended March 31,
Sales (In thousands)      2022            %             2021            %   

$ Variance % Variance



Reorder Sales          $  250,401           91.6 %   $  272,648           88.2 %   $    (22,247 )           -8.2 %
New Order Sales        $   23,016            8.4 %   $   36,567

11.8 % $ (13,551 ) -37.1 %

Total Net Sales $ 273,417 100.0 % $ 309,215 100.0 % $ (35,798 ) -11.6 %



Internet Sales         $  230,263           84.2 %   $  259,404           83.9 %   $    (29,141 )          -11.2 %
Contact Center Sales   $   43,154           15.8 %   $   49,811

16.1 % $ (6,657 ) -13.4 %

Total Net Sales $ 273,417 100.0 % $ 309,215 100.0 % $ (35,798 ) -11.6 %






Going forward sales may be adversely affected due to increased competition and
consumers giving more consideration to price. The changes in consumer behavior
post pandemic makes future sales somewhat challenging to predict. No guarantees
can be made that sales will continue to grow in the future. The majority of our
product sales are affected by the seasons, due to the seasonality of mainly
heartworm, and flea and tick medications. For the quarters ended June 30,
September 30, December 31, and March 31 of fiscal year 2022, the Company's sales
were approximately 29%, 25%, 22%, and 24%, respectively. For the quarters ended
June 30, September 30, December 31, and March 31 of fiscal year 2021, the
Company's sales were approximately 31%, 25%, 21%, and 23%, respectively.



Cost of sales



Cost of sales decreased by approximately $24.0 million, or 10.9% to $195.3
million for the fiscal year ended March 31, 2022, from $219.3 million for the
fiscal year ended March 31, 2021. The cost of sales decrease can be directly
related to the decrease in sales during fiscal year 2022. As a percentage of
sales, cost of sales was 71.4% in fiscal year 2022, as compared to 70.9% in
fiscal 2021. The cost of sales percentage increase was adversely impacted due to
the major manufacturers, with whom we have a purchasing relationship, shifting
their rebate funding from discounting product costs to more cooperative
marketing rebates.



                                       22

--------------------------------------------------------------------------------





Gross profit



Gross profit decreased by approximately $11.8 million, or 13.2%, to $78.1
million for the fiscal year ended March 31, 2022, from $89.9 million for the
fiscal year ended March 31, 2021. The decrease in gross profit can be directly
related to the decrease in sales during fiscal 2022. Gross profit as a
percentage of sales for fiscal 2022 was 28.6% compared to 29.1% for fiscal 2021.
The decrease in the gross profit percentage was adversely impacted due to the
major manufacturers, with whom we have a purchasing relationship, shifting their
rebate funding from discounting product costs to more cooperative marketing
rebates.



General and administrative expenses





General and administrative expenses increased by approximately $2.5 million, or
9.0%, to $30.8 million for the fiscal year ended March 31, 2022, from $28.3
million for the fiscal year ended March 31, 2021. The increase in general and
administrative expenses for the fiscal year ended March 31, 2022 was primarily
due to the following: a $1.4 million increase in payroll expenses, the majority
of which related to increased stock compensation expense; a $989,000 increase in
professional fees related to brand and marketing consultation, legal, and
investment banking; and a $514,000 increase in other expenses which include
property expenses, travel related expense, insurance expense, and other
expenses. Offsetting the increase was a decrease of $397,000 primarily related
to decreased bank service fees due to the decrease in sales. General and
administrative expenses as a percentage of sales was 11.3% for the fiscal year
ended March 31, 2022, compared to 9.1% for the fiscal year ended March 31, 2021.
The Company expects general and administrative expense as a percentage of sales
to approximate 12.5% and expects stock compensation expense to approximate $6.4
million in fiscal 2023.



Advertising expenses



Advertising expenses decreased by approximately $2.8 million to $18.8 million
for the fiscal year ended March 31, 2022, from $21.6 million for the fiscal year
ended March 31, 2021. The decrease in advertising expenses for fiscal 2022 was
due to the Company receiving increased cooperative marketing funds from product
manufacturers to offset our advertising expenses, within the terms of our
contractual relationships. Overall advertising spending was flat compared to
fiscal 2021, yet total net advertising expenses decreased due to increased
cooperative advertising rebates. The advertising costs of acquiring a new
customer, defined as total advertising costs divided by new customers acquired,
was $72 for the fiscal year ended March 31, 2022, compared to $49 for the fiscal
year ended March 31, 2021. The increase to customer acquisition costs for the
fiscal year ended March 31, 2022, was due to an increase in overall advertising
prices and a less efficient variable marketing spend. Advertising cost of
acquiring a new customer can be impacted by the advertising environment, the
effectiveness of our advertising creative, advertising spending, and price
competition. Historically, the advertising environment fluctuates due to supply
and demand. A more favorable advertising environment may positively impact
future sales, whereas a less favorable advertising environment may negatively
impact future sales. As a percentage of sales, advertising expense was 6.9% and
7.0% for the fiscal years ended March 31, 2022, and 2021, respectively. The
Company currently anticipates advertising as a percentage of sales to be
approximately 7.0% for fiscal year 2023. However, the advertising percentage may
fluctuate quarter to quarter due to seasonality and advertising availability.



Depreciation



Depreciation expense for the fiscal year ended March 31, 2022, increased to
approximately $2.7 million from $2.4 million for the fiscal year ended March 31,
2021. This increase to depreciation expense for the fiscal year ended March 31,
2022, can be attributed to increased new property and equipment additions in
fiscal 2022.



Other income



Other income decreased by approximately $268,000, to $1.4 million for the fiscal
year ended March 31, 2022, from $1.6 million for the fiscal year ended March 31,
2021. The decrease was related to a reduction in advertising income in fiscal
2022. Interest income was flat compared to the prior year. Interest income may
decrease in the future as the Company utilizes its cash balances on its share
repurchase plan, with approximately $28.7 million remaining as of March 31,
2022, on any quarterly dividend payment, on future investment/partnerships, or
on its operating activities.



                                       23

--------------------------------------------------------------------------------





Provision for income taxes



For the fiscal years ended March 31, 2022 and 2021, the Company recorded an
income tax provision of approximately $6.0 million and $8.6 million,
respectively. The decrease to the income tax provision for fiscal 2022 is
related to a decrease in operating income compared to fiscal 2021. The effective
tax rate for the fiscal years ended March 31, 2022, and 2021 were 22.1% and
22.0%, respectively. The slight increase to the effective rate for the fiscal
year ended March 31, 2022, can be attributed to the Company receiving more
one-time tax benefits in fiscal 2021 than in fiscal 2022. The one-time tax
benefits received in fiscal 2021 included a one-time state income tax refund of
$285,000 in the June 2020 quarter and a $135,000 income tax benefit related to
restricted stock compensation in the September 2020 and March 2021 quarters.
This compared to a $196,000 one-time state income tax refund and a $131,000
benefit due to a state rate reduction in the March 2022 quarter. The Company
estimates its effective tax rate will be approximately 23.0% for fiscal 2023.



Net income



Net income decreased by approximately $9.5 million, or 31%, to approximately
$21.1 million for the fiscal year ended March 31, 2022, from approximately $30.6
million for the fiscal year ended March 31, 2021. The decrease to net income was
primarily related to a decrease in sales and resulting gross profit, and an
increase in general and administrative expenses, all partially offset by a
decrease in advertising expenses, during the fiscal year.



Fiscal 2021 Compared to Fiscal 2020





Sales



Sales increased by approximately $25.1 million, or 8.8%, to $309.2 million for
the fiscal year ended March 31, 2021, from approximately $284.1 million for the
fiscal year ended March 31, 2020. The increase in sales for the fiscal year
ended March 31, 2021 was primarily due to increased reorder sales and new order
sales. Fiscal 2021 started out with greater than expected e-commerce demand due
to COVID-19, with consumers shifting their purchases to online, which positively
impacted our reorder and new order sales during the year. In the latter half of
fiscal 2021, veterinarian clinics and retail stores re-opened. The Company
acquired approximately 443,000 new customers for the fiscal year ended March 31,
2021, compared to approximately 421,000 new customers for the same period the
prior year. The following chart illustrates sales by various sales
classifications:



                                              Year Ended March 31,
Sales (In thousands)      2021            %             2020            %   

$ Variance % Variance



Reorder Sales          $  272,648           88.2 %   $  248,560           87.5 %   $     24,088              9.7 %
New Order Sales        $   36,567           11.8 %   $   35,565           12.5 %   $      1,002              2.8 %

Total Net Sales $ 309,215 100.0 % $ 284,125 100.0 % $ 25,090

              8.8 %

Internet Sales         $  259,404           83.9 %   $  238,054           83.8 %   $     21,350              9.0 %
Contact Center Sales   $   49,811           16.1 %   $   46,071           16.2 %   $      3,740              8.1 %

Total Net Sales $ 309,215 100.0 % $ 284,125 100.0 % $ 25,090

              8.8 %




Going forward sales may be adversely affected due to increased competition and
consumers giving more consideration to price. The changes in consumer behavior
post pandemic makes future sales somewhat challenging to predict. No guarantees
can be made that sales will continue to grow in the future. The majority of our
product sales are affected by the seasons, due to the seasonality of mainly
heartworm, and flea and tick medications. For the quarters ended June 30,
September 30, December 31, and March 31 of fiscal 2021, the Company's sales were
approximately 31%, 25%, 21%, and 23%, respectively. For the quarters ended June
30, September 30, December 31, and March 31 of fiscal 2020, the Company's sales
were approximately 28%, 25%, 21%, and 26%, respectively.



Cost of sales



Cost of sales increased by approximately $16.4 million, or 8.1% to $219.3
million for the fiscal year ended March 31, 2021, from $202.9 million for the
fiscal year ended March 31, 2020. The cost of sales increase can be directly
related to the increase in sales during fiscal 2021. As a percentage of sales,
cost of sales was 70.9% in fiscal 2021, as compared to 71.4% in fiscal 2020. The
cost of sales percentage decrease can be attributed to the benefit of having
direct relationships with all major manufacturers, which helped reduce product
costs, and these manufacturers having minimum advertised price policies. In the
future, cost of sales may be adversely impacted due to the major manufacturers
shifting their rebate funding from discounting product costs to cooperative
marketing rebates.



                                       24

--------------------------------------------------------------------------------





Gross profit



Gross profit increased by approximately $8.7 million, or 10.7%, to $89.9 million
for the fiscal year ended March 31, 2021, from $81.2 million for the fiscal year
ended March 31, 2020. The increase in gross profit can be directly related to
the increase in sales during fiscal 2021. Gross profit as a percentage of sales
for fiscal 2021 was 29.1% compared to 28.6% for fiscal 2020. The increase in
gross profit percentage can be attributed to the benefit of having direct
relationships with all major manufacturers, which helped reduce product costs,
and these manufacturers having minimum advertised price policies. Going forward
gross profit may be adversely affected due to increased competition and
consumers giving more consideration to price. In the future, gross profit may
also be adversely impacted due to the major manufacturers shifting their rebate
funding from discounting product costs to cooperative marketing rebates.



General and administrative expenses





General and administrative expenses increased by approximately $3.0 million, or
12.0%, to $28.3 million for the fiscal year ended March 31, 2021 from $25.3
million for the fiscal year ended March 31, 2020. The increase in general and
administrative expenses for the fiscal year ended March 31, 2021 was primarily
due to the following: a $1.9 million increase in payroll expenses, due to
increased sales and increased COVID-19 related work from home expenses, with
$485,000 related to increased stock compensation expense due to the accelerated
release of restrictions of the Company's former Chairman Robert Schweitzer's
restricted stock upon his passing on February 23, 2021; a $619,000 increase in
bank service fees due to increased sales; a $388,000 increase in property
expenses related to the Company's e-commerce platform; and a $207,000 increase
in telephone expenses due to employees working from home in response to
COVID-19. Offsetting the increase was a net decrease of $48,000 to other
expenses which include insurance, professional fees, and bad debt expense.
General and administrative expenses as a percentage of sales was 9.1% for the
fiscal year ended March 31, 2021, compared to 8.9% for the fiscal year ended
March 31, 2020.



Advertising expenses



Advertising expenses decreased by approximately $1.1 million to $21.6 million
for the fiscal year ended March 31, 2021, from $22.7 million for the fiscal year
ended March 31, 2020. The decrease in advertising expenses for fiscal 2021 was
due to the Company receiving increased cooperative marketing funds from product
manufacturers to offset our advertising expenses, within the terms of our
contractual relationships. Overall advertising spending increased over the prior
year, yet total net advertising expenses decreased due to increased cooperative
advertising rebates. The advertising costs of acquiring a new customer, defined
as total advertising costs divided by new customers acquired, was $49 for the
fiscal year ended March 31, 2021, compared to $54 for the fiscal year ended
March 31, 2020. The decrease to customer acquisition costs for the fiscal year
ended March 31, 2021 can also be attributed to receiving increased cooperative
marketing funds from product manufacturers. Advertising cost of acquiring a new
customer can be impacted by the advertising environment, the effectiveness of
our advertising creative, advertising spending, and price competition.
Historically, the advertising environment fluctuates due to supply and demand. A
more favorable advertising environment may positively impact future sales,
whereas a less favorable advertising environment may negatively impact future
sales.



As a percentage of sales, advertising expense was 7.0% and 8.0% for the fiscal
years ended March 31, 2021 and 2020, respectively. The decrease in advertising
expense as a percentage of total sales for the fiscal year ended March 31, 2021
can be attributed to a decrease in advertising expenses and an increase in sales
as compared to the same period in the prior year. The Company currently
anticipates advertising as a percentage of sales to be approximately 7% for
fiscal 2022. However, the advertising percentage may fluctuate quarter to
quarter due to seasonality and advertising availability.



Depreciation



Depreciation expense for the fiscal year ended March 31, 2021 increased slightly
to approximately $2.4 million from $2.3 million for the fiscal year ended March
31, 2020. This increase to depreciation expense for the fiscal year ended March
31, 2021 can be attributed to increased new property and equipment additions in
fiscal 2021.



                                       25

--------------------------------------------------------------------------------





Other income



Other income decreased by approximately $1.3 million to $1.6 million for the
fiscal year ended March 31, 2021, from $2.9 million for the fiscal year ended
March 31, 2020. The decrease to other income was primarily related to decreased
interest income due to decreased interest rates compared to the prior year.
Interest income may decrease in the future as the Company utilizes its cash
balances on its share repurchase plan, with approximately $28.7 million
remaining at March 31, 2021, on any quarterly dividend payment, on its operating
activities, or with further decreases in interest rates.



Provision for income taxes



For the fiscal years ended March 31, 2021 and 2020, the Company recorded an
income tax provision of approximately $8.6 million and $8.0 million,
respectively. The increase to the income tax provision for fiscal 2021 is
related to an increase in operating income compared to fiscal 2020. The
effective tax rate for the fiscal years ended March 31, 2021 and 2020 were 22.0%
and 23.7%, respectively. The decrease to the effective rate for the fiscal year
ended March 31, 2021 can be attributed to the Company receiving a one-time state
income tax refund of $285,000 in the June 2020 quarter and a $135,000 income tax
benefit related to restricted stock compensation in the September 2020 and March
2021 quarters, compared to a $322,000 income tax charge related to restricted
stock compensation, which was recognized in the September 2019 quarter. The
Company estimates its effective tax rate will be approximately 23.5% for fiscal
2022.



Net income



Net income increased by approximately $4.7 million, or 18.4%, to approximately
$30.6 million for the fiscal year ended March 31, 2021 from approximately $25.9
million for the fiscal year ended March 31, 2020. The increase to net income was
primarily related to an increase in gross profit, offset by an increase in
operating expenses and a decrease to interest income during the fiscal year.



Liquidity and Capital Resources





The Company's working capital at March 31, 2022 and 2021 was approximately
$117.8 million and approximately $116.3 million, respectively. The $1.5 million
increase in working capital was primarily attributable to income generated by
operations and a reduction to accounts payable, offset by dividends paid in the
period. Net cash provided by operating activities was $18.5 million and $40.1
million for the fiscal years ended March 31, 2022 and 2021, respectively. This
change can be mainly attributed to a decrease in the Company's net income for
the fiscal year ended March 31, 2022 and a decrease to accounts payable compared
to the prior year. Net cash used in investing activities was $1.8 million and
$2.4 million for the fiscal years ended March 31, 2022 and 2021, respectively.
This change in investing activities is related to decreased property and
equipment additions acquired in fiscal 2022. Net cash used in financing
activities was $24.4 million and $22.7 million for the fiscal years ended March
31, 2022 and 2021, respectively. The increase to financing activities relates to
an increase in the dividend paid in fiscal 2022, compared to the dividend paid
in fiscal 2021. At March 31, 2022, the Company had approximately $28.7 million
remaining under the Company's share repurchase plan.



Subsequent to March 31, 2022, the Company's Board of Directors declared a
quarterly dividend of $0.30 per share on May 9, 2022. The Board established a
May 20, 2022 record date and a May 27, 2022 payment date. Depending on future
market conditions the Company may utilize its cash and cash equivalents on the
remaining balance of its current share repurchase plan, on quarterly dividends,
or on its operating activities.



At March 31, 2022 the Company had no material outstanding lease commitments. We
are not currently bound by any long- or short-term agreements for the purchase
or lease of capital expenditures. Any material amounts expended for capital
expenditures would be the result of an increase in the capacity needed to
adequately provide for any future increase in our business. To date we have paid
for any needed additions to our capital equipment infrastructure from working
capital funds and anticipate this being the case in the future. Presently, we
have approximately $5.0 million forecasted for capital expenditures in fiscal
2023, which will be funded through cash from operations. The Company's primary
source of working capital is cash from operations. The Company presently has no
need for alternative sources of working capital and has no commitments or plans
to obtain additional capital.


Recent Accounting Pronouncements





Other than disclosures included in Note 1 of the Consolidated Financial
Statements, which are incorporated by reference as if fully set forth herein,
the Company does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, will have a material effect on the
Company's consolidated financial position, results of operations, or cash flows.



                                       26

--------------------------------------------------------------------------------

© Edgar Online, source Glimpses