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3 Underrated Factors Driving Growth for Chewy

By Parkev Tatevosian - Jun 17, 2021 at 9:32AM

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The pandemic is not the only thing contributing to increased sales for this online pet retailer.

E-commerce pet products giant Chewy (CHWY -1.10%) was one of several companies that actually benefited during the pandemic as many people were forced to quickly change their shopping habits to minimize in-person contact with potential virus carriers. But the company, which IPO'd in June 2019, has also benefitted from several key initiatives it has developed in that time to drive growth. 

The initiatives include a free telehealth service for pets, a robust Autoship program, and an increasing variety of available items on its website. Let's look at these three somewhat underrated factors that have contributed to increased sales and helped the company become a growth stock. 

A woman outside with her pet dog.

Image source: Getty Images.

1. Telehealth 

In October 2020, Chewy launched Connect With a Vet, a telehealth service that allows customers to talk with licensed veterinarians. The service is available seven days a week through text, phone, or video chat until 11 p.m. Eastern time, 365 days a year. As a result, pet parents now have access to a vet from the comfort of their homes.

The service is free for Chewy's Autoship customers, which should increase sign-ups for its Autoship program and raise customer retention rates. 

2. Autoship 

Speaking of the Autoship program, it's similar to Amazon's Subscribe and Save. Pet parents can sign up to have items delivered automatically on a recurring basis -- whether weekly, monthly, or twice a year -- and receive a discount on the price. The program is popular: In the second quarter, which ended on May 2, Autoship sales as a percentage of overall sales increased to 69.3% from 67.9% in the year prior.

The Autoship program adds another layer of convenience -- with a few clicks, your pets' monthly food needs, flea medications, and other essentials are taken care of. And nearly half of Chewy's products are available for Autoship.

3. Item selection 

Chewy keeps adding products to its online catalog and is working to become a one-stop shop for pet parents. "In 2018, we were mostly a provider of food and treats," the company said. "Today, just three years later, we are delivering a multi-dimensional customer experience that spans food, treats, personalized accessories, healthcare, and most recently services."

A small dog trotting with a toy in its mouth.

Chewy's stock fell after reporting first-quarter earnings. Image source: Getty Images.

Its health products have expanded to include over-the-counter medicine, veterinary diets, a pharmacy, and medicine compounding (an innovative solution for pets that sometimes will not consume their medication in its manufactured form). 

Customers are responding to that selection, with sales other than food and treats making up the fastest-growing part of its catalog in the most recent quarter. While overall revenue grew 31.7% from the same time last year, revenue from hard goods private label brands (in-house brands that give Chewy a bigger margin on sales), pharmacy, and specialty brands (outside products that are sold exclusively by Chewy through partnerships) have collectively grown net sales by 51.9% year over year.

The investor takeaway 

These three factors may help Chewy continue growing sales sustainably even as the positive effects of the pandemic economy begin to wear off. They add value for customers and give those customers concerned about the health and wellness of their pets a reason to return. 

Chewy's stock price fell as much as 6.8% in the days after reporting fiscal 2021 first-quarter results on June 10. Investors were spooked about reported labor shortages and supply chain disruptions caused by the coronavirus. But the stock has since recovered most of those losses, although it is still well down from record highs set back in February. The stock took a hit along with many other tech-focused stocks that fell around that time after experiencing a big runup in 2020. There's still a good opportunity right now to start accumulating shares in this pet-friendly growth stock as it makes its way back up.

 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Chewy, Inc. and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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