Chewy (CHWY) optimistic about capturing half of total forecasted online pet product sales in the US this year

Shares of Chewy Inc. (NYSE: CHWY) have jumped over 88% since the beginning of this year and over 13% in the past three months. The company reported second quarter 2020 earnings results a day ago that exceeded Street expectations, and raised its sales guidance for the full year of 2020.

Quarterly numbers

Sales increased 47% to $1.70 billion, driven by increases in active customers and net sales per active customer. Net loss per share narrowed to $0.08 from $0.21 last year. Autoship customer sales increased 45% to $1.16 billion while net sales per active customer (NSPAC) increased 3.2% to $356.

Customer acquisition

Chewy ended the quarter with 16.6 million active customers, up nearly 38% from the same period last year. Overall customer acquisition rates stayed above pre-pandemic levels and metrics such as basket size, reorder rates and Autoship sign-up were healthy and stable.

The new active customers added in the first two quarters of this year exceeded the total active customers added across the whole of 2019. Based on engagement levels, the company believes these cohorts are likely to be significant in their contribution to future revenue and profitability, with their NSPAC increasing over time to reach approx. $500 by year two and over $700 by year five.

“We continue to monitor the behavior of post-COVID customer cohorts we acquired in Q1 and Q2 for any notable variances against our more mature pre-COVID customer cohorts and are encouraged to observe a high degree of consistency in customer behavior between the two. The Q1 cohorts remained positively engaged and the initial engagement levels of the Q2 cohorts matched their Q1 peers.” – Sumit Singh, Chief Executive Officer 

Holiday season and ecommerce growth

On its quarterly conference call, Chewy stated that the rapid changes in retail and ecommerce are likely to rewrite the rules of this year’s holiday and cyber seasons. The company is preparing for the holiday season by expanding its assortment of products as well as making sure its systems, inventory and staff are well-positioned to meet any contingencies that might arise.

After launching gift cards last quarter, Chewy rolled out a service in the second quarter that allows customers to personalize products for their pets, as the pet personalization trend gains popularity.

According to industry data provider Packaged Facts, online pet product sales in the US is estimated to increase by $3.9 billion this year with online sales gaining five points of market share year-over-year to reach 27% of all pet product sales. Chewy’s 2020 guidance has revenue growing around $2 billion year-over-year at the midpoint, which would mean the company could capture over half of the total forecasted growth of online pet product sales this year.

Outlook

For the third quarter of 2020, net sales are expected to grow 38-40% year-over-year to $1.70-1.72 billion. For the full year of 2020, net sales are estimated to grow 40-41% year-over-year to $6.7-6.8 billion. The company expects to deliver around $2 billion of net sales growth in 2020 divided roughly equally between the first and second half of the year.

Click here to read Chewy Q2 2020 earnings conference call transcript