What happened
Shares of Chewy (CHWY 4.13%) are falling 5.5% at 10:43 a.m. ET on Tuesday morning following disappointing overall retail earnings reports that hint at a coming recession.
It follows a Wall Street Journal story last week on the rising cost of keeping a pet. Although the online pet supplies retailer wasn't specifically mentioned in the article, the story noted pet costs are up 15% from last year, and owners are cutting back on spending.
Image source: Getty Images.
So what
Higher costs are pressuring retailers, and in Walmart's (WMT -0.20%) just-issued fourth-quarter earnings report, although the retailer beat analyst expectations, its outlook for the full year was one of caution because of ongoing macroeconomic worries about the consumer. Home Depot (HD 0.56%) also had similar concerns in its first-quarter report and said it expected lower earnings for the rest of the year.
A rapidly deteriorating economy is not a good sign amid persistent inflation, even for pets that are looked upon as members of the family. The Journal article notes pet food inflation surpasses that of even human food costs.
Now what
Chewy has held up better than many other pet-centric stocks because of the long-term ongoing humanization of pets that has seen spending on them rise over time, even during the pandemic. Pet food accounts for 40% of all money spent on pets in a year and represents the bulk of what consumers buy from Chewy.
In its third-quarter earnings report for the period ended Oct. 30, the online pet supplies retailer reported a 15% increase in net sales to $2.5 billion. Its stock had risen nearly 20% to start the year but has since given back some of those gains and now sits 13% higher than where it started 2023.
