Showing just how resilient the pet care market is, no matter what the economic conditions are, online pet food and products retailer Chewy (CHWY -2.12%) reported first-quarter results that showed a surprise profit along with a revenue forecast that exceeded analyst expectations.
While other online pet care companies such as Bark continue to reel from a consumer spending pullback, Chewy's results highlight the difference between selling essentials and luxuries in times of turmoil, and why it's running ahead of the pack.
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Like a dog with a bone
Spending on pets is in a per-pet-ual state of growth. For example, pandemic-era spending on Fido and Fluffy rose from $97.1 billion in 2019 to $123.6 billion last year, a near 13% annual increase. In fact, 2020 was the first year consumers spent over $100 billion on their pets, according to the American Pet Products Association (APPA).
Chewy's net sales soared 13.7% in the first quarter to $2.43 billion and generated earnings of $18.5 billion, or $0.04 per share. Though that was down from the e-commerce retailer's $0.09 per-share profit last year, it handily topped Wall Street's forecast for an $0.11 per-share loss on sales of $2.41 billion (Corporate Event Data provided by Wall Street Horizon).
Chewy finds its business in the wheelhouse of consumer demand, with consumables like pet food being its biggest-selling product, accounting for 70% of total sales. It said consumables, healthcare, and specialty items were the primary drivers for sales growth this quarter, which aligns with national trends that saw pet owners spending 68% of their overall pet expenditures on pet food and vet care in 2021.
Image source: Getty Images.
The cat's out of the bag
What's really helping Chewy is its Autoship program, which, as the name suggests, automatically sends out products on a regular basis to subscribed customers and now represents over 72% of sales.
Because Autoship customers also spend more per order than other customers, net sales per active customer (NSPAC) jumped 15% year over year and reached a record $446. Chewy says NSPAC is a "powerful indicator" of its long-term revenue growth and has increased 24% since the beginning of the pandemic.
And it's not just that Autoship customers spend more -- it's that the amount they spend also grows over time. Chewy's found that in the first year of membership, customers spend less than $200, but it more than doubles to over $400 in the second year. By their fifth year of membership, Autoship customers are spending $700 annually, and its oldest customers spend nearly $1,000 a year.
Image source: Getty Images.
Puppy love for this stock
Chewy's stock lost nearly three-quarters of its value from the highs it hit last fall, and shares are down over 60% year to date, though they rocketed 15% higher out of the gate the day after earnings were released.
Wall Street is still looking for revenue to nearly double to more than $15 billion over the next five years, and Chewy is expected to be consistently profitable by 2026, helped along by the humanization-of-pets trend.
That's not going to lessen anytime soon, and the resilience of the pet industry for essentials like food and health ensures that even if the economy doesn't have a soft landing as hoped, consumer spending on their pets will still grow, indicating Chewy has massive potential waiting to be unleashed.
