Chewy (CHWY -6.07%) reached a big milestone last year when it shifted to profitability. But the share performance hasn't reflected this victory. Chewy's number of active customers slipped slightly in the last quarter of the year. And investors, wary of consumer stocks in today's weak economic environment, saw that as a red flag.
But the online retailer of pet supplies is proving it can excel even in a tough environment. In the first quarter of this year, it announced more gains in earnings -- from revenue to profit and gross margin. And the number of active customers stabilized. Even better, Chewy reported something that should lead to increasingly more growth moving forward. Let's check out the one number you won't want to miss.
All your pets' needs
First, a quick look at Chewy in case you're unfamiliar with the company. As you would expect, Chewy sells pet food and supplies. But it also sells medication and offers a complete healthcare service. Basically, pet owners can come to the e-commerce site for just about all their needs.
Now, let's move on to the subject of this important number. It has to do with Chewy's Autoship service. Chewy calls it "your superpower." But I actually see it as Chewy's superpower. Autoship allows you to set up automatic deliveries of all your favorite pet products -- from food to medications. You set the schedule. And you even get a discount on all your orders.
So you don't have to remember to order cat food or refill your dog's prescription medication. You can just set it all up on Chewy, and the products are delivered to your door when you need them. Chewy doesn't charge sign-up fees -- it doesn't even require a commitment to the service.
As you can imagine, this combination of freedom, savings, and efficiency is a winner with customers. And now, it's time for that number I've been talking about. It's 75. In the first-quarter earnings report, Chewy said Autoship customer sales represented almost 75% of total sales.
"Our Autoship subscription service is a powerful tool for us, driving recurring and predictable revenue and long-term customer loyalty," CEO Sumit Singh said during the earnings call.
Visibility on potential growth
This is key because it shows, as Singh says, customers aren't just visiting Chewy and ordering randomly. They have chosen the e-commerce company as the provider for their daily pet needs. This offers the company and investors visibility on potential growth from quarter to quarter.
Autoship customer sales soared more than 18% in the first quarter to about $2 billion, reaching a record level. So these customers are not only loyal but also spending more and more.
Considering the percentage of regular customers contributing to total sales, growth seems unlikely to suddenly halt or drop drastically. This helps us as we look at the stock's valuation and try to determine whether it's a good deal right now.
Chewy shares trade for 61 times forward earnings estimates today. That's compared to nearly 150 just a year ago. This looks very reasonable in light of Chewy's loyal customer base -- an element that suggests Chewy's sales figures may keep climbing.
The stock may not take off overnight. Investors remain cautious these days about companies that depend on consumer spending. But it's worth getting in on Chewy now -- it's still at an early stage in its growth story. There may be a lot to gain over the long term, thanks to the relationship the company has built with pet parents.
