Welcome to the PetMed Express Incorporated, doing business as 1-800-PetMeds conference call to review the financial results for the first fiscal quarter ended on June 30, 2020. At the request of the company, this conference is being recorded. Founded in 1996, 1-800-PetMeds is America's largest pet pharmacy, delivering prescription and non-prescription pet medications and other health products for dogs, cats, and horses direct to the consumer. 1-800-PetMeds markets its products through national advertising campaigns, which direct consumers to order by phone or on the Internet, and aim to increase the recognition of the PetMeds family of brand names. 1-800-PetMeds provides an attractive alternative for obtaining pet medications in terms of convenience, price, ease of ordering, and rapid home delivery. At this time, I would like to turn the call over to the company's Chief Financial Officer, Mr. Bruce Rosenbloom. Mr. Rosenbloom, please go ahead.
Thank you. I'd like to welcome everybody here today. Before I turn the call over to Menderes Akdag, our President and Chief Executive Officer, I'd like to remind everyone that the first portion of this conference call will be listen only until the question and answer session, which will be later in the call. Certain information that will be included in this press conference may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 or the Securities and Exchange Commission that may involve a number of risks and uncertainties. These statements are based on our beliefs as well as assumptions we have used based upon information currently available to us. Because these statements reflect our current views concerning future events, these statements involve risks, uncertainties, and assumptions.
Actual future results may vary significantly based on a number of factors that may cause the actual results or events to be materially different from future results, performance or achievements expressed or implied by these statements. We have identified various risk factors associated with our operations in our most recent annual report and other filings with the Securities and Exchange Commission. Let me introduce today's speaker, Menderes Akdag, the President and Chief Executive Officer of 1-800-PetMeds. Mendel.
Thank you, Bruce. Welcome, and thank you for joining us. During the June quarter, consumer demand continued to be strong for e-commerce, with pet owners shifting their purchases to online. Our sales have been positively impacted due to this increased demand coinciding with our peak season. As an essential business, we have been open during our normal business hours without any material disruptions in our operations. We have also taken measures to ensure the health and safety of our employees. We have implemented working from home where possible and enhanced disinfection of our workplace. So far, we have not seen any material disruptions in our supply chain. As a precaution, we have temporarily increased our inventory during the quarter. Now we'll compare our first fiscal quarter ended on June 30, 2020 to last year's quarter ended on June 30, 2019.
For the first fiscal quarter ended on June 30, 2020, sales were $96.2 million compared to sales of $80 million for the same period the prior year, an increase of 20%. The increase in sales was due to increases in new order and reorder sales. Our average order value was approximately $89 for the quarter, compared to $86 for the same quarter last year. For the first fiscal quarter, net income was $7.8 million, or $0.39 diluted per share, compared to $5.3 million or $0.26 diluted per share for the same quarter last year, an increase to diluted earnings per share of 47%. In addition to sales growth, operating income margin improvement of 2.1% positively impacted earnings. New order sales increased by 29% to $15.8 million for the quarter, compared to $12.2 million for the same quarter the prior year.
Reorder sales increased by 19% to $80.4 million for the quarter, compared to reorder sales of $67.7 million for the same quarter last year. We acquired approximately 186,000 new customers in our first fiscal quarter, compared to 140,000 for the same period the prior year. Seasonality in our business is due to the proportion of flea, tick, and heartworm medications in our product mix. Spring and summer are considered peak season, with fall and winter being the off-season. For the first fiscal quarter, our gross profit as a percent of sales was 27.8%, compared to 27.3% for the same period a year ago, a 50 basis points improvement. General and administrative expenses increased by approximately $1.2 million for the quarter. The majority of this increase was related to increased payroll expenses, bank service fees, and telephone expenses. Stock-related compensation increased by $430,000 due to an increased stock price.
Additional expenses of approximately $240,000 were incurred due to COVID-19, which included increased payroll, telephone, and sanitation expenses. We spent $9 million in advertising for the quarter, compared to $8.6 million for the same quarter the prior year, an increase of about 5%. Advertising cost of acquiring a customer for the quarter, defined as total advertising expenses divided by total new customers acquired, was approximately $48, compared to $62 for the same quarter a year ago, a 21% improvement. We had $86.8 million in cash and cash equivalents and $43.1 million in inventory with no debt as of June 30, 2020. Cash from operations for the quarter was negatively impacted by a $25.2 million increase in inventory as a precaution due to possible shortages as a result of COVID-19. We intend to return to normal inventory levels in future quarters. This ends the financial review.
Operator, we are ready to take questions.
Thank you. We will now begin the question and answer session. To ask a question, please first unmute your phone and then press star one. You will be prompted to record your name, and please record your company as well. If at any time while waiting for your question to be answered, you may remove your request by pressing star then two. Once again, that is star one for questions at this time. One moment for our first questions. The first question comes from Anthony Lebiedzinski of Sidoti & Company. Sir, please go ahead.
Good morning, thank you for taking the questions.
Sure.
First, as far as the sales increase, part of the sales increase was an increase in AOV. Perhaps, Mendo, if you could maybe expand on what drove the increase in the average order value.
Our campaigns have encouraged the upselling and the cross-selling, that was the reason for the increase.
Got it. Okay. As far as the gross margin, obviously, it was up from a year ago, but sequentially down from the last, really, 3 quarters. You were tracking above 29% the last couple of quarters. Can you just expand on that? Are you seeing more competition, or is it something else is driving the sequential downtick in the gross margin?
Sure. Product mix was different. We had more over-the-counter sales that has lower margins. Also, reorders were very strong in the quarter that caused higher loyalty program credit accruals, which negatively impacted gross margins.
Okay, great. Thank you for that. Last question from me. As far as the inventory increase, was this across the board, or were there any certain product categories that you focused on as far as your inventory increases?
Fast movers were the ones that we increased the inventory. We intend to return to normal inventory levels starting in this quarter with that we are in.
Okay. All right. Thank you, and best of luck.
Thank you.
Thank you. Once again, if you would like to ask a question, please press star then one. Our next question comes from Ben Rose of Battle Road Research.
Yes. Good morning, Mendo, and good morning, Bruce.
Good morning.
Sorry, I don't know that the actual results have come across the wire, could you repeat the new order sales number, if you don't mind?
New order sales increased by 29% to $15.8 million for the quarter, compared to $12.2 million for the same quarter last year.
Great. This is obviously by far and away the largest % increase that you've had in new order sales. Reorder sales have been trending up, just to focus on the new order sales for a moment, could you maybe just speak to what accounts for such a dramatic shift? Was it in part the shift to the over-the-counter medications, or was it perhaps a change in the way you're advertising or reaching out to new customers?
Demand has been strong for e-commerce, that coincided with our peak season, so that helped new orders. We advertised. Our advertising was more effective. Advertising pricing was more favorable in the quarter, demand was strong, as I said.
Okay. Just in a general sense, I think what may be on the mind of many investors is kind of looking out over the next year or so, year and a half. What is the general plan for PetMeds to sustain and perhaps extend its market share gains that you've seen now for the last couple of quarters, due in part to the crisis?
Continue advertising, also we're working on redesigning our website and mobile app to optimize the user experience. Personalization and using artificial intelligence is the focus for this fiscal year.
Okay. If I may, just one more for Bruce. With the inventory build, were there perhaps some favorable terms that the drug manufacturers were offering, or was it sort of normal pricing for you to get the inventory that you needed?
Yeah. For the most part, it was normal pricing. It was really more of a reaction to increased sales, increased demand, and stocking up on the inventory. Obviously, hitting prior inventory levels allows us to, I guess, hit volume requirements for us to receive better rebates down the road.
Okay. Thank you very much.
You're welcome.
Thank you. As a reminder, please press star one for questions. The next question is from Calvin Ellich of Vince Research.
Good morning, guys. Hey, Menderes. First off, with the sales mix increase to OTC that you cited, were there specific promotions this quarter, or was it maybe more with coronavirus? Do you think that led to fewer vet visits, that would drive the over-the-counter increase?
Probably, yes. The veterinarian offices, some of them were closed, so that shifted the sales from prescription to OTC. Brick-and-mortar retailers were closed.
Okay. That makes sense. Then, with the advertising spend, even though new customer acquisition cost was lower year-over-year, do you think that trend is going to continue? On top of that, is the $9 million, or 9% as a percent of sales, a target for the year? I can't remember if I saw that in the K or not.
I believe in the 10-K we have 9% as a percent for the year. It's going to fluctuate from quarter-to-quarter depending on advertising availability and if the pricing is favorable or not to us. We budgeted more than last year, so we'll be more aggressive during peak season when demand is stronger. We'll see what happens.
Got it. That makes sense. Remind me, you're spending primarily on online advertising, right? Have you launched any TV campaigns?
We do have TV campaign, it's small. The majority of the money is being spent on the online digital.
Okay. Got it. Lastly, clearly, we saw a lot of competition in the last couple of years coming from other big online retailers as well as maybe the vet channel, trying to increase their e-commerce platforms. Have you seen any change in the competitive landscape?
Online was very competitive, prices stabilized in the market with manufacturers enforcing MAP policies. Veterinarians still have the majority of the market share on prescription medications, that's really the opportunity we anticipate continuing market share shift to direct-to-consumer online channel.
Got it. That makes sense. One last one for me. With coronavirus as well as some large industry consolidation that's happened, have you seen any changes in the inventory and any issues with the supply chain?
We did not have any issues with the supply chain in the June quarter, but as a precaution, we increased our inventory, as I included in my presentation.
Okay, that's great. Thanks, guys.
You're welcome.
Thank you. Our last question for today will come from Anthony Lebiedzinski. Excuse me, Lebiedzinski, Sidoti & Company.
Yes. Good morning, guys. Just one follow-up question. As far as advertising expenses, just curious with the presidential election coming up, will that have any impact, you think, as far as your ability to advertise? If so, maybe you could talk about your expectations for costs for advertising. Thanks.
We advertise minimally on television. We will stop advertising on television starting in August. It will probably mostly impact television. It may have some impact on digital, the prices may be slightly higher. That's my input on that.
Okay, thank you.
You're welcome.
At this time, I will turn the call over to Menderes Akdag.
Thank you. In fiscal 2021, we are focusing on redesigning our website and mobile app to optimize our customers' digital experience. This wraps up today's conference call. Thank you for joining us. Operator, this ends the conference call.
Thank you all for your participation on today's conference call. At this time, all parties may disconnect.