A dog high-fives it’s owner during Chewy Inc.’s initial public offering. Chewy today reported fourth … [+]
© 2019 Bloomberg Finance LP
Online pet retailer Chewy didn’t wow Wall Street with the fourth quarter results it released today, but the surge in demand it is seeing right now makes it well positioned to weather the coronavirus crisis.
Chewy is hiring between 6,000 and 10,000 employees at its fulfillment centers to handle a spike in orders, both from existing customers who are stockpiling pet food and supplies, and new customers, CEO Sumit Singh told investors in a conference call following the results release today after the market closed.
However, Singh warned that the coronavirus tailwinds Chewy is benefiting from, in the form of increased sales and new customers, also come with headwinds, including increased labor costs for new and existing employees, and increased health and safety costs, such as added sanitation measures.
Singh said Chewy’s online orders began accelerating significantly in late February and have remained elevated since then.
For the fourth quarter of 2019, the results reported today were largely in line with expectations, with sales for the quarter up 34.7% over the prior year, at $1.35 billion and a net loss of $60.9 million, which included share-based compensation of $45.9 million.
Those results include sales through Feb. 2, the last day of the fourth quarter, and don’t reflect the surge Chewy has been experiencing since the coronavirus crisis hit.
Chewy expects first quarter sales growth of $1.5 billion to $1.52 billion, up 35% to 37% over the first quarter of 2019. It did not, however, issue guidance for the full year, saying there are too many uncertainties at this time.
While Chewy currently appears to be benefiting from the crisis and stay-at-home orders around the country, “the situation is evolving daily,” and therefore it would not be prudent to make predictions for the full year, Singh said.
“In light of the unprecedented nature of the current pandemic, the steps being taken to mitigate the outbreak and the sheer number of other variables outside of our control,” the company feels it is wisest not to make full year forecasts just yet, Singh said.
Chewy has been a retail bright spot in a volatile market, with its stock up, as of the end of March, over 20% for the year.
On Thursday, however, its stock closed down just under 3% for the day, at $35.06. It continued to decline during after hours trading.
Investors have remained generally bullish on Chewy, and its stock has risen or held steady has the market has been hit by steep declines.
Chewy is viewed as one of the retailers that is better positioned to withstand or even benefit from the impact of the COVID-19 outbreak. It doesn’t have stores, and doesn’t have to worry about store closings. All of its sales are delivered directly to customers’ homes, with 70% of its sales generated by automatic subscription renewals of pet food and supplies. And past recessions have shown that Americans will cut back on themselves before they stop spending on their pets.
As Chewy noted in its IPO filing, during the 2008-2010 recession, pet spending rose 12% while overall consumer spending declined. In 2010, according to American Pet Products Association figures, Americans spent 7% less on entertainment, 3.8% less on food, but 6.2% more on their pets.
Market research firm Packaged Facts Tuesday released a pessimistic forecast for the pet industry in 2020, but called out Chewy and online pet retailers as the bright spots in the industry. The Packaged Facts report, U.S. Pet Market Outlook 2020-21, forecasts a 17% decline in sales of pet products and services, but services such as kennels, pet boarders, groomers and vets are expected to account for most of that decline.
The report projects a 47% drop in non-medical pet services, particularly boarding facilities, because of the expected steep declines in business and leisure travel.
Packaged Facts expects the online share of pet product sales to reach 24% this year and 26.5% by 2024.
Chewy and Singh have maintained, long before the current crisis, that online pet sales had the potential to capture 25%—and maybe a lot more—of the market. Asked in today’s conference call if the pandemic would speed up the shift to online, Singh said “we remain bullish on that trend. We don’t know why online penetration cannot get north of 30%, 35%, 40%,” he said.
“Occurrences like the one that we’re in right now provide motivation and tailwinds to a shift in consumer pattern and behavior,” Singh said. “We are yet to obviously see how much of that is going to be sticky over the long term but there is definitely going to be an impact here over the long term.”
And Chewy, right now, is in the right place at a rough time.