What happened
Shares of Chewy (CHWY 0.19%), the online pet products retailer, were moving lower today. While there was no company-specific news out on Chewy, the stock seemed to fall in sympathy with rival Petco (WOOF 0.61%), which posted disappointing results in its first-quarter earnings report this morning.
As of 12:12 p.m. ET, Chewy stock was down 3.7% after falling as much as 5.8% earlier in the session. Petco, meanwhile, was down 18.3% at the same time.
So what
In its first-quarter earnings report, Petco said comparable sales rose 5.1%, driving revenue growth of 5.4% to $1.56 billion, which topped estimates at $1.51 billion.
However, investors seemed more disappointed with the bottom-line performance. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell 7% to $111 million, and Chewy reported a free-cash-flow loss of $24.4 million. Adjusted earnings per share dropped from $0.14 to $0.06.
A 1% decline in gross profit seemed to be the reason for the slide in bottom-line profits. Gross margin fell from 41.1% in the quarter a year ago to 38.9%, which management said was due to a sales mix shift to consumables away from supplies and live pets.
The company maintained its guidance for the full year, but its revenue range was below the analyst consensus.
Chewy investors seem to fear that the online-only pet products retailer could face similar challenges when it reports earnings next week.
Now what
The pet products industry is generally recession-resistant, but inflation can have an impact on margins.
Additionally, the boom in pet adoption during the pandemic may still be unwinding.
Chewy is set to report earnings on May 31, and analysts are expecting revenue to increase 12.4% to $2.73 billion, and see an adjusted per-share loss of $0.04, down from a per-share profit of $0.04 in the quarter a year ago.
Analysts also expect a full-year loss from Chewy, meaning the stock could come down further as growth has slowed substantially from the pandemic boom.
