pets

Chewy Sees Growth In Vet Care, Ad Sales


Chewy, which has just begun opening its new Vet Care offices, says the company is still in growth mode despite the slowdown in pet adoptions.

The ecommerce company’s fiscal fourth-quarter results bested expectations and continued to gain market share. Net sales rose 4.2% to $2.83 billion. And net income reached $31.9 million, up from $6.8 million in the year-ago period. Ad and marketing expenses totaled $194 million for the quarter, or 6.9% of net sales.

While the company is clear that the number of new pet households in the U.S. is declining, it sees plenty of room for growth. Autoshipment sales rose 8% in the quarter and 15% for the full year. And net sales per active customer grew 12% to $555.

In a conference call webcast for investors, company executives took time to detail the Vet Care rollout and discuss revenue opportunities in advertising.

advertisement

advertisement

“We believe Chewy Vet Care is a natural extension of our ecosystem and that our thoughtfully designed clinics will be unlike anything in the market, thanks to our proprietary first-party health tech platform and the seamless vertically integrated connectivity to all aspects of the Chewy ecosystem,” said Sumit Singh, chief executive officer.

The first clinic near Chewy’s Plantation, Florida headquarters, is already accepting patients. The company expects to have between four to eight clinics up and running by the end of the year, and says veterinarian recruitment efforts are promising.

Singh added that, like many other retailers, Chewy expects sponsored ads to continue to drive profits, with ad sales expected to reach 1% of revenue this year. “We have recently launched branded product and are currently ramping up the on-site portion of the ad revenue,” he says, expecting off-site ad revenue to increase in the year's second half. Eventually, he expects the split to be 70% on-site and 30% off-site.

Some observers like the way Chewy is navigating the challenged petcare category. “Chewy continues to gain market share and materially expand margins in a weak industry environment, with pet adoptions trending down 30% year-over-year,” writes Seth Basham, an analyst who follows the company for Wedbush. He expects Chewy to outperform its peers.

Others aren’t so sure the ecommerce company can overcome macroeconomic pressures and the shrinking pet universe. “Despite being a share gainer, Chewy continues to suffer from a market that is seeing pet adoptions decline,” writes Lee Horowitz, who covers Chewy for Deutsche Bank and rates the company as a hold. He notes that searches for pets declined 16% last year and continued to show weakness in the first quarter.

He also points out that Chewy’s results include the largest user decline in the company’s history.

Customers using Chewy since before the pandemic seem to have returned to their usual shopping behaviors. However, many who flocked to the brand in 2022/23 are leaving, looking for cheaper pet options.

“Those 22/23 cohorts continue to exhibit churn dynamics that are a couple of points worse than the core,” he writes, “as a value orientation amongst these is leading to more cross-platform shopping behavior.”

Next story loading loading..