Chewy Struggles to Turn Record Spending Into Profits, Investors Push Stock to 2-Year Low

In many ways, Chewy’s fourth-quarter earnings results look a lot like those little “pill pockets” it sells — a delicious morsel that conceals a far less appetizing dose of medicine hidden inside of it.

In the case of the online pet supply retailer, the three months and fiscal year ending Jan. 30 were, on the one hand, filled with delectable achievements and positive metrics related to sales, spending, subscriptions and new commercial ventures, while on the other hand, Chewy was unable to mask the reality that the fast-growing company delivered a $63 million quarterly loss.

For new and returning customers, Chewy continues to stand as a convenient option for purchasing all the food, treats, toys and meds they need for their pets. But for investors, the Miami-based retailer has been nothing short of nightmare for the past year, as its stock has dropped over 60% from a peak of $120 to overnight, extended hours trades below $45 per share — a level not seen since the pandemic lows two years ago.

It begs the question: Are Chewy’s prospects today, in the wake of posting its third consecutive quarterly loss, as bleak and dire as they were in the dark early days of the pandemic lockdowns?

The answer to that question depends on who you ask, but for the company’s leadership team, it is clearly “No.”

“Each of us is looking beyond the present operating volatility and into the future with the firm belief that the secular trends of higher pet ownership and increasing online pet penetration will long outlast the near-term disruption that we see today from the pandemic and its aftereffects,” Chewy CEO Sumit Singh told investors on the company’s conference call Tuesday afternoon (March 29).

“We are as optimistic as we have ever been on the long-term growth opportunity ahead of us,” Singh added, while stressing the online retailer’s plans and strategy to attract customers, build loyalty, drive engagement and capture a greater share of wallet, this year and beyond.

Long-Term Optimism Versus Short-Term Reality

The company’s go-forward strategy comes in the wake of trailing results that saw Q4 revenue rise 17%, in which sales per active customer hit an all-time high at $430 and the fact that 70% of its business came from AutoShip orders that were done via subscription. That latter stat, while significant, also comes at a time when consumers are rethinking the value versus convenience metrics of their subscriptions that they have amassed in record numbers for the past two years.

The company’s pharmacy sales were also a bright spot, rising 75% last quarter, and the number of vets using its newly created Practice Hub professional B2B marketplace has jumped from 50 to 300 since being launched in September.

“We expanded our rollout of Practice Hub in January, and it is now available to clinics nationwide,” Singh said. “This is giving our veterinary partners another opportunity to earn revenue with Chewy.”

Other active growth opportunities the company is pursuing include the secular shift to fresh, human-grade pet foods, a category that Chewy expects will triple to $3 billion by 2025 and that it will lead, given its “reliable delivery” and “world class fulfillment network” that it said will support its effort to become the No. 1 destination for fresh and prepared pet food.

That is a proposition that is largely dependent in the near term on consumers’ response to inflation, and the subsequent household spending decisions that will need to be made in the coming weeks and months.

For investors that are willing to wait, or perhaps those who are starting to see value in a company that has seen its market cap shrink from $50 billion in 15 months to less than $20 billion today, Singh also said the eCommerce pet supplier is preparing to launch a suite of pet health insurance plans and wellness and preventative care plans under the Chewy Health banner.

“Our phased rollout is set to launch soon, and we look forward to sharing more with you at that time,” Singh said, without providing further details.

“These plans will be another step forward for Chewy Health’s mission to make pet healthcare more affordable and accessible for everyone,” he added.

At the same time, after adding just 300,000 new active customers in Q4 to an existing base of over 20 million, Singh said the company is also preparing to launch a loyalty program aimed at driving engagement with members.