Petco, Chewy See Shift In Pet Pampering Trend

American consumers may be spending more time back at the office, but they aren't spending any less on pets just yet, judging from the latest results from Petco and Chewy. And both are looking to build market share in new ways.

Petco is introducing a subscription with FreshPet, a popular D2C brand. It’s an industry first from a national bricks-and-mortar chain.

Customers complete a short questionnaire about their dog's sensitivities and health goals and get a plan personalized to breed, age and activity level. Priced at about $3 per day, the program is starting in 15 states and is expected to be available nationally later this year.

Based in San Diego, Petco cites industry data predicting sales of fresh and frozen pet foods may grow to $6 billion annually in the next four years, an increase of roughly four times the current size.



Petco also announced that sales in its fourth quarter rose 4.2% to $1.58 billion -- a record. Comparable sales gained 5.3%. Those gains were fueled by strength in consumable products, which improved more than 12% in the quarter

Net income advanced 12.9% to $32.7 million, up from $29 million in the comparable period of 2021.The company says the healthy performance proves "the enduring strength of the pet category and Petco's ability to grow through economic cycles."

Resilience in its consumables and services growth and continued expense discipline are all positives, writes Peter Benedict, an analyst who covers the company for Baird. But Petco's sustained weakness in discretionary categories and disappointing guidance for the year ahead aren't.

The pessimistic outlook also concerns Seth Basham, who follows Petco for Wedbush. Still, he expects it to continue to outperform competitors. "We continue to see long-term value in Petco's holistic pet care model and growing recurring revenue streams."

Chewy, its ecommerce rival, also posted record sales, as well as a subdued forecast. The Plantation, Florida-based company says revenue for its fiscal fourth quarter jumped $2.71 billion, a gain of 13.4%. Adjusted net income clocked in at $69.6 million, an increase of $117.4 million from the comparable period of 2021.

And Basham notes the company now expects most of its growth to come from existing customers and is still dealing with a "hangover from the outsized and higher churning pandemic cohorts persisting at least through the first half of this year."

He still expects the company to outperform. "We believe that the underlying customer fundamentals and operating performance are on the right trajectory, with long-term potential now augmented by international expansion, while initiatives such as sponsored ads and healthcare ramp in 2023."

But Deutsche Bank's Lee Horowitz is downgrading Chewy, recommending it as a hold rather than a buy. Calling the move "a prolonged puppy pause," he points to a quarterly decline of 120,000 customers.

“Most concerning to us, the outlook for 2023 suggests that while users will flip positive this year, the magnitude of that user growth is likely tepid at best."

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