Shares of Chewy, Inc. (NYSE: CHWY) stayed red on Tuesday. The stock has gained 25% over the past three months. The company delivered sales and earnings growth for its most recent quarter and its business has been showing some encouraging signs for growth, but there are still some challenges. Here’s a look at some of the headwinds and tailwinds it is facing:
Sales and profit growth
In the first quarter of 2024, Chewy’s net sales increased 3% year-over-year to $2.88 billion, helped by strong customer loyalty in non-discretionary categories like consumables and health, as well as growth in Autoship customer sales. Consumables and health accounted for around 85% of total sales in Q1.
Autoship customer sales grew over 6% YoY to $2.2 billion in the quarter and made up over 77% of net sales. On its quarterly call, the company said the Autoship customer base remains healthy and continues to grow.
Chewy’s GAAP net income in Q1 tripled to $66.9 million, or $0.15 per share, versus last year. Adjusted EPS rose 55% to $0.31. Gross margin increased 130 basis points to 29.7%, helped by strength in the sponsored ads business and a higher mix shift into healthcare.
Customer trends
Chewy saw a 2% decrease in active customers in Q1. On the other hand, net sales per active customer increased 9.6% YoY to $562. The company’s efforts to strengthen its value proposition, through measures like pet type personalization, are beginning to pay off. These efforts have had a positive effect on new customer acquisition and customer reactivation, both of which were better than expected in Q1.
In addition, Chewy remains optimistic on pet household formation trends. The pet supplies retailer saw healthy growth rates in adoption during the first quarter on a YoY basis. Although it is too early to confirm a rebound, the company believes the pet industry is on its way to normalization.
Strategic initiatives and market expansion
Chewy has been implementing several strategic initiatives and working on expanding into new markets. Last month, the company launched a paid membership program called Chewy Plus. Chewy Plus offers benefits like free shipping, cash accrual rewards, and exclusive member perks.
Within Chewy Health, the company opened three vet care clinics, bringing the current total to four clinics. It plans to open more clinics this year, with a target of 4-8 openings for 2024. The company is pleased with the demand trends it is currently seeing for its veterinary services.
Chewy’s expansion into Canada appears to be progressing as expected. The company launched its mobile app and additional payment options, and it is also expanding its assortment, especially in categories like premium consumables. As mentioned on its call, Chewy is seeing demand gradually building and it expects to be a meaningful player in the Canadian market over time.
Outlook
Despite the slight pickup in demand trends, there is still uncertainty about the overall outlook for the pet industry for the remainder of the year. Chewy expects net sales for the second quarter of 2024 to range between $2.84-2.86 billion, reflecting a YoY growth of 2-3%. Full-year 2024 sales are expected to grow 4-6% YoY to $11.6-11.8 billion.