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PetMed Bites Back at Recession


In tough times, Americans spend on what really matters: Their dogs.

PrintPRINT was the dot-com bubble's poster child in 2000 - the last company to go public before the bubble burst. But I'm starting to think the company was simply ahead of its time.

The pet products market is booming. Now is a good time to be Fido. The American Pet Products Manufacturers Association says spending in 2007 topped $41 billion, more than twice the $21 billion spent in 1996. For 2008, the group early this year projected the market at a record $43.4 billion. This may be the most insulated industry from the gloomy U.S. economic environment. Companies that sell chew toys, rawhide bones, dog sweaters, organic dog treats (very tasty), and so forth say business is up even as consumer spending overall plummets.

That may sound illogical, but then again, people treat their pets like their children in this country. I think this is purely an American phenomenon. In my trips to South America and Europe, I watched feral dogs roam the streets like marauding gangs of vigilantes. But here, socialites tote their dogs around in several-thousand-dollar Louis Vuitton bags. Even in my own household, my parents gave our dog, a beagle named Maggie (she's 12 now), better birthday presents than I ever got.

"You know, for some families, the pet comes first," said Carol Perkins, president and co-founder of Harry Barker, a Charleston, South Carolina-based pet toy company whose sales are up 40% this year. "The dog goes to the vet first and the dog gets organic food. Maybe some people will cut back on a dog bed, but they'll still buy dog treats, toys and collars and leashes."

Want additional evidence of how strong this trend is? Check out the 52-week high list, and there, among only a dozen or so stocks, you will find PetMed Express (PETS). PetMed Express is the leading pet pharmacy company. It was founded in 1996, and delivers prescription and non-prescription pet medications and other health products for dogs, cats, and horses directly to buyers, who place their orders over the phone or online.

Two weeks ago, PetMed beats quarterly earnings estimates and reported a 16% rise in revenue. In a conference call with analysts, CEO Menderes Akdag acknowledged that the current economic downturn has had no impact so far. "We're probably in a recession-resistant industry, but we are not immune from it," he said.

PetMed has a market cap of more than $400 million, but it is gaining market share in an industry that is estimated near $3.4 billion. That number is only expected to grow. The dog and cat population is approximately 163 million in this country, with 63% of households owning a pet.

The action is so good that Wal-Mart (WMT) is flexing its muscles in the space with plans focus on pet products with enhanced merchandise and better advertising. For PetMed, let's hope it has enough bark and bite to fend off Goliath.
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No positions in stocks mentioned.

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