Chewy (CHWY): A few factors that work in favor of this pet supplies retailer

Shares of Chewy, Inc. (NYSE: CHWY) were down over 1% on Tuesday. The stock has gained 72% over the past 12 months. The company delivered sales and earnings growth for its most recent quarter and gained traction on several of its strategic initiatives. Here are a few factors that work in favor of the pet products retailer:

Growth in sales and profits

Chewy’s net sales increased approx. 5% year-over-year to $2.88 billion in the third quarter of 2024. The top line growth was supported by strength in the Autoship program and in non-discretionary categories, particularly consumables and health. Non-discretionary categories made up 85% of net sales in the third quarter. Adjusted earnings per share grew 33% to $0.20 in Q3 versus the prior-year period. Gross margin increased 80 basis points YoY to 29.3%.  

Progress on strategic initiatives

Chewy continues to see strength in its Autoship subscription program. Autoship customer sales increased around 9% YoY to $2.3 billion in Q3, and represented 80% of net sales in the quarter. The company is also seeing demand in its non-discretionary categories, including consumables and health. Its efforts to refresh its assortment by increasing its offerings in categories like vet food and supplements and the addition of new premium brands appear to be garnering good response from customers.

Chewy is making progress in building its digital capabilities. It is working on improving its on-site and in-app experiences to make shopping more convenient for its customers. The company is seeing strong engagement on its mobile app, with increases in the number of unique customers who placed at least one order on the app, and average app monthly active users (app MAU) during the third quarter.

CHWY had 20.2 million active customers at the end of Q3, which was slightly down from last year but up on a sequential basis. Net sales per active customer rose 4% YoY to $567.

Within healthcare, Chewy is making significant headway with its Chewy Vet Care (CVC) Clinics. The launch of these clinics will allow the company to take advantage of the $25 billion vet services total addressable market opportunity. CHWY currently has six CVC clinics and it expects to reach the high end of its target range of 4-8 clinic openings in fiscal year 2024.

Chewy appears to be gaining traction with its paid membership program, Chewy+, which could help accelerate wallet share consolidation and drive stronger cross-category engagement. The pet supplies retailer has been seeing Chewy+ customers consistently place more orders, have higher cross-category penetration, and greater mobile app engagement compared to non-Chewy+ customers. It is also seeing higher Autoship adoption rates from these customers, signalling further opportunity for growth.  

Encouraging outlook

For the fourth quarter of 2024, Chewy expects net sales to range between $3.18-3.20 billion, representing a growth of approx. 13% YoY. For fiscal year 2024, the company raised its sales outlook to a range of $11.79-11.81 billion from the previous range of $11.6-11.8 billion. The updated guidance represents a growth of approx. 6% YoY.