Please ensure Javascript is enabled for purposes of website accessibility

Chewy Sees Demand Surge in First Quarter From COVID-19

By Evan Niu, CFA – Updated Jun 11, 2020 at 5:07PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The online pet product retailer reported better-than-expected results.

The coronavirus pandemic has created a demand surge for a myriad of e-commerce companies as consumers buy stuff online from the safety of their homes. That includes broad platforms like Amazon.com, Shopify, and eBay but also specialty online retailers like Chewy (CHWY 3.46%), which reported first-quarter earnings earlier this week. Pet owners are stocking up due to the pandemic, and management believes the shift in consumer behavior will be permanent.

Here's what investors need to know.

Various types of pet food and treats

Image source: Getty Images.

A record quarter

Revenue in the first quarter jumped 46% to $1.62 billion, topping the consensus estimate of $1.53 billion. That translated into a net loss of $47.9 million, or $0.12 per share. That also beat the $0.17 per share in red ink that analysts were modeling for. Thanks to the better-than-expected results, Chewy posted its first quarter of adjusted EBITDA profits.

Gross margin ticked up by 50 basis points year-over-year, thanks in part to operating leverage and growing sales of Chewy's private label and pharmacy businesses. However, increased freight and logistics costs took a bite out of profitability. As the company scrambled to meet demand and struggled with inventory, it had to fulfill orders in multiple shipments.

Chewy added a record 1.6 million net active customers in the first quarter, bringing total active customers to 15 million. Revenue per customer also increased 7% to $357, which management attributed to consumers stocking up. On the conference call with analysts, CEO Sumit Singh noted: 

After the COVID-19 outbreak, our existing customers started creating bigger baskets. These baskets had a higher mix of consumables in them. We believe these larger baskets with a higher mix of consumables were evidence of pandemic-related pantry stocking, and we estimate this benefited first quarter net sales by approximately $70 million.

The Autoship subscription program, which automatically orders recurring products like pet food or medication, continues to drive the bulk of the business. Autoship revenue was $1.1 billion, or 68% of total sales. This was the first time Autoship revenue topped $1 billion, a momentous milestone. The sign-up and cancellation rates for Autoship among new customers are within historical ranges, but Chewy is optimistic that it can retain these new customers for the long haul.

Looking ahead

In terms of guidance, the pet product retailer expects revenue in the second quarter to be in the range of $1.62 billion to $1.64 billion, which would represent growth of 40% to 42%. Full-year 2020 sales are forecast at $6.55 billion to $6.65 billion, with adjusted EBITDA to be around breakeven for the year. The Street is currently expecting just $6.41 billion in sales for 2020.

In an interview with Bloomberg, Singh said he believes the "increased demand levels that we are experiencing are here to stay."

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Amazon and Shopify. The Motley Fool owns shares of and recommends Amazon and Shopify. The Motley Fool recommends eBay and recommends the following options: long January 2021 $18 calls on eBay, short January 2021 $37 calls on eBay, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Chewy, Inc. Stock Quote
Chewy, Inc.
CHWY
$37.94 (3.46%) $1.27
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$120.30 (-0.54%) $0.65
eBay Stock Quote
eBay
EBAY
$38.89 (-0.59%) $0.23
Shopify Inc. Stock Quote
Shopify Inc.
SHOP
$30.06 (-2.50%) $0.77

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
339%
 
S&P 500 Returns
109%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.