Shares of Chewy (CHWY 4.42%) soared 26.7% last month, according to data from S&P Global Market Intelligence. That was enough to drive the stock from $30 per share to $37, while the S&P 500 declined about 13%.
Chewy is an online retailer of pet food and pet supplies in the U.S. In March, after some extreme stock price volatility, investors quickly realized that Chewy is one of the few companies well positioned to benefit from so many housebound people. Many Americans are avoiding going to crowded places these days, and that includes pet stores and grocery stores.
But pet food is not a discretionary purchase. Pet owners will continue to buy food through thick and thin, and would cut back on almost everything else before letting their pets go hungry.
The company's earnings report for its fiscal fourth quarter showed net sales grew 35% year over year, adjusting for the extra week in last year's quarter. The company also reported its gross profit margin expanded to 24.1% from 20.9% in the year-ago quarter, and its adjusted EBITDA margin improved to negative 0.4% from negative 5.1% in the year-ago quarter. The company is clearly growing rapidly and achieving impressive margin expansion.
"Beginning in late February, we saw an acceleration in sales, which has continued through today, and our first-quarter guidance reflects these trends," management said. This is due to the coronavirus pandemic. Management's guidance for the fiscal first quarter calls for net sales growth of 35% to 37%.
In the U.S., e-commerce's share of the pet food and supplies market is less than 20%. The food, drug, and mass channel (retailers like grocery stores and big-box stores like Walmart and Costco) still has close to a 50% share of the market. But the coronavirus is almost certainly driving up e-commerce's market share, and Chewy is a key beneficiary of that trend.
To the extent that some of Chewy's new customers have a positive first experience, we could see the category shift online even faster than it already is. Investors should appreciate that Chewy's business is getting better, not worse, amid the coronavirus outbreak.