Chewy is still growing, but Wall Street wants to see if it can be trained to show a profit. The … [+]
Chewy’s third-quarter earnings results didn’t win the e-commerce pet retailer a pat on the head from Wall Street.
Its stock, which had closed down 3% Monday before the earnings release, continued to decline in after hours trading.
While Chewy beat revenue expectations with $1.23 billion in sales for the quarter, it missed on earnings per share, reporting a loss of 20 cents per share, four cents more than analysts’ estimates.
Its net loss for the third quarter, $79 million, almost matched the net loss it incurred in the third quarter of 2018.
Chewy’s third quarter results contained plenty of numbers the company can brag about: 40.4% year-over-year growth in net sales, 32.8% increase in the number of active users, 11.4% boost in net sales per active customer, gross margin of 23.7%, up from 19.6% the prior year.
But investors want to see a positive number in the earnings per share line, and a net gain rather than a net loss.
The bulls in Chewy’s corner say be patient, that Chewy is still a very young pup as a public company, with only two public quarters under its belt since its June IPO.
The bears, and investors in general, are increasingly reluctant to wait for newly public companies to show a profit.
The Chewy bears argue that the high retail facing hurdles Chewy make them doubt that Chewy can ever achieve that goal.
Questions the Chewy bears are asking include:
- Grocery stores and retailers like Walmart and Target are expanding their pet food and supplies aisles. Why wouldn’t a consumer just get their pet food and supplies where they are doing the rest of their shopping?
- The fresh, refrigerated, pet food category is growing. Physical stores like Walmart, Target, and Petsmart can stock it, and have refrigerated cases available for pickup of online orders. Chewy can’t do that.
- Yes, getting a 50 pound bag of dog food delivered is better than lugging it home, but that bag is very expensive to ship. Can Chewy survive shipping costs that are likely to increase?
- Yes, we believe you that Chewy is the trusted pet adviser and that your customers love you. But what’s to prevent them from getting advice and recommendations from Chewy, and then buying from Amazon?
Chewy CEO Sumit Singh can counter those arguments with convincing reasons to be bullish on Chewy.
First, as he noted on CNBC Monday, after the earnings results were released, “40% year-over-year [sales] growth is nothing to sneeze on.”
Singh’s other reasons to bet on Chewy include:
- There are 90 million pet households in America. Chewy has 12.7 million of them now. That give it a lot of runway for growth.
- Not only is Chewy growing its customer base rapidly, it has shown that those customers remain customers for a long time. “They stick,” according to Singh.
- The longer someone has been a Chewy customer, the more money they tend to spend on the site.
- Chewy is developing an important new revenue source with the expansion of its pharmacy customers and other pet healthcare offerings.
Chewy was Wall Street’s pet when it went public on June 14, 2019, when it shares soared 71% in … [+]
Singh, in a interview last month, told me that one of the hardest things about going public is not letting the day-to-day fluctuations of the stock market cause employees and managers to lose focus on the customer experience.
“We have to be long-range oriented,” he said then. “And I believe that we do a good job in not letting our teams get distracted by quarter-to-quarter results orientation and in keeping the teams focused on the core priorities,”
Chewy faces another test this week, when its post-IPO lockup period expires, giving company insiders the first opportunity to sell their stock. The bulls and the bears will be watching to see if those shareholders are as loyal as Chewy’s customers.