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Chewy Idea Proposal (CHWY)

Chewy Idea Proposal (CHWY)
 

Will Chewy’s growth slow as reopening accelerates?

Report Available: August 19, 2021

 

Blueshift’s ongoing research found CHWY still posting strong sales results and continued high expectations for growth. The company has nearly 20 million active customers and its autoship feature accounts for nearly 70% of revenue. But sales growth slowed from the prior quarter, there are supply chain and labor shortage worries, and with some pet owners returning to in-store shopping, there are concerns that CHWY may not see the same level of growth it did during the height of the pandemic.

 

Observations

  1. CHWY beat earnings and revenue expectations for its Q1, with revenue 32% higher than a year ago. The company saw a 31.6% year-to-year increase in active customers for a total of 19.8 million, and experienced an 8.7% increase in net sales per active customer. Autoship customers accounted for 69.3% of revenue in the quarter, up 34.4% from a year ago. Expectations are for 26% to 28% growth in its Q2. Baird initiated coverage of CHWY on July 28 with an outperform rating and belief the stock can grow more than 20%.
  2. Of concern for CHWY, its 32% growth in Q1 was down considerably from its 51% growth rate in the prior quarter. CHWY also experienced higher out-of-stock levels in the quarter, which the company estimates lowered sales by $40 million and could continue to affect sales for the bulk of the year. And it is battling labor shortages, with the company saying it may invest up to $30 million in recruiting and hiring incentives over the next two quarters.
  3. Another red flag for CHWY may be seen in comments from UPS which said Q2 domestic volume fell 2.9%, with ground shipping, made up primarily of ecommerce deliveries, dropping 4% from a year ago. This shows that some shoppers are returning to in-store shopping, which may lead to a slowdown for CHWY in the second half of the year.
  4. Pet ownership rose significantly in 2020 during stay-at-home orders and work-from-home mandates. A report from the American Pet Products Association said pet ownership climbed to 70% of U.S. households and spending on pet food increased by 11% last year. But now as restrictions ease and workers return to the office, some say pet abandonment is increasing, while others point to data that says it is not.
  5. Blueshift’s June 4, 2020, report said the sales gains CHWY experienced during the COVID-19 pandemic, as customers increased their online shopping for pet food while under stay-at-home orders, will sustain for many of the new customers the company acquired, even as states and stores reopen. While much of the panic buying and hoarding will subside, overall online pet food sales numbers will continue to be higher for the rest of the year than they were pre-pandemic. All nine sources said CHWY’s sales increases are sticky, as customers experienced the ease and convenience of ordering pet food online via its platform and are taking advantage of CHWY’s Autoship feature, as well as the discounts provided. CHWY’s $50 minimum order for free shipping was not noted as a deterrent, as sources said online ordering in the last two months was in higher-than-average quantities as customers stocked up.

 

What trends are pet food manufacturers seeing with pet food sales? How are sales with CHWY trending? How are in-store sales trending? Is CHWY keeping the customers it gained during the pandemic? How important is the autoship feature? What affect are pet ownership trends having on CHWY? What are expectations for CHWY’s growth rate? What role is Amazon playing as a competitor to CHWY? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Pet food manufacturers, Supply chain, Competitors, and Industry specialists. 

 

Companies: Chewy (CHWY), Amazon.com (AMZN), Costco (COST), Target (TGT), Walmart (WMT)

 

Research Begins: August 2, 2021

 

To see other ideas Blueshift Research is currently working on, please click here.

 

Blueshift Research’s sister company, Intro-act, has launched the Intro-act Scorecard, the C-suite’s standard, ongoing measure of corporate investor engagement.