Online pet retailer Chewy is a big dog now, but the company continues to grow like a young pup.
Chewy released first-quarter earnings that beat expectations, posting net sales of $2.14 billion – up 32% year over year. Net income was $38.7 million and adjusted earnings were $77.4 million.
It added 600,000 active customers during the quarter, compared to the fourth quarter total, bringing the number of active customers to 19.2 million.
Wall Street has been worrying of late that the momentum Chewy gained during the pandemic will stall once vaccinated consumers return to stores, and offices, and begin spending less time at home with their pets.
Chewy has been something of a Wall Street pet since its June 14, 2019 IPO, but concerns about its post-pandemic prospects have had an impact recently. The stock closed at $79.35 before the after-market earnings release, up more than 250% over its $22 IPO price, but down about 35% from its 52-week high of $120 on February 16 of this year.
The stock dipped slightly after the earnings release, down about 1% for most of the four hours following the release.
Chewy, however, makes a convincing case that the customers it added during the pandemic will stay loyal, and that those customers’ biggest spending years are still ahead of them.
“Our average active customer is still squarely on the left side of their lifetime spending curve with us,” said Chewy CEO Sumit Singh.
Chewy customers, he said, historically spend over $400 in their second year of buying from Chewy, approximately $700 in their fifth year, and $900 in their ninth year.
The influx of an additional 8.4 million active customers over the past two years means that the average tenure of a Chewy customer is just under two years.
“We believe that we still have significant share of wallet gain left to realize from a substantial component of our customer base,” he said.
Average spend per active customer continued to increase during the quarter, rising 8.7% to reach $388.
Average spend by new customers rose 13% during the first quarter.
Chewy also is trying to create more pet parents with one of its newest initiatives, a partnership with animal rescue organizations that post links to dogs and cats available for adoption.
A report this week by Cardify.ai, a consumer data analytics firm that collects anonymized credit and debit card data, found that Chewy is stealing market share from older competitors Petco and PetSmart, and growing average basket size more rapidly that those predominantly brick-and-mortar rivals.
While all three brands gained revenue during the pandemic and into 2021, “Chewy’s revenue growth has significantly outpaced both Petco and PetSmart,” Cardify.ai said.
Chewy’s average basket size (or total purchase per visit to the site) jumped from $55 to $65 between 2019 and 2021, while Petco and PetSmart both hovered around $35 to $40 during that period.
Chewy grew its market share from 33.5% in the first quarter of 2019 to 42.4% in the first quarter of this year, according to Cardify.ai. Chewy’s gains appear to come mostly at the expense of PetSmart, the report said, with that retailer seeing its market share drop to 33%, down from 41.4%, during the same period.
Derrick Fung, CEO of Cardify.ai, attributes the more robust spending by Chewy customers to the online retailers’ customer service, which is frequently praised in Cardify.ai surveys.
Chewy’s biggest challenge is awareness, Fung said, Cardify.ai surveys found that pet owners who don’t shop at Chewy “haven’t used it because they haven’t heard of it,” or haven’t yet had a chance to try it. The ones who do tend to stick with it, and Fung expects that to continue after the pandemic ends.
“There’s been a lot of chatter around when things open up, is e-commerce going to fall off, are we going to go back to our old ways,” Fung said. “The data says no. It shows convenience is still very important and once you try it I don’t think you’ll want to go back to the store again.”
The earnings report comes almost two years after Chewy’s IPO debut on June 14, 2019.
Before the after-market earnings release, Chewy’s stock closed at $xx.xx Thursday, down x% from its 52.week high of $120 on February 16.