Chewy's annual results encapsulate pandemic trend of accelerated e-commerce

13:29 PM | April 6, 2021 | Joseph Harvey

US-based online pet product retailer Chewy witnessed a 51% upturn in sales during its fourth quarter of 2020. For the three months ended January 31, the company again signaled the growing strength of e-commerce in the companion animal market under lockdown conditions, as revenues came to $2.04 billion. This is the first time Chewy’s quarterly sales have exceeded $2bn.

The company added 1.4 million active customers in the fourth quarter alone. This meant the firm ended fiscal 2020 with 19.2 million active customers.

During the latest three months, the firm also posted its first ever quarter of positive net income at $21 million. This is compared to a loss of around $61m at this point last year.

Across the full year, sales increased 47% to $7.15bn and built on a prosperous first nine months of the year. Chewy has now more than doubled its 2018 revenues. In 2020, the firm’s customer base grew 43% year-on-year. While Chewy sells a wide range of products for pets, the company said its pharmacy business returned around $500m in annual revenues during 2020.

Chewy benefited from a surge in volume across the year, as it improved its customer retention and added extra pet owners to its roster. The businesses added 5.7 million active customers in 2020 – 43% annual growth.

In an analyst call, Chewy chief executive Sumit Singh – citing “industry analysts” – said the number of pet-owning households in the US increased by 5.7% in 2020, which was a significant acceleration compared to the pre-pandemic five-year CAGR of 0.6%. Chewy saw a 35% year-on-year increase in the creation of pet profiles on its platform for puppies and kittens, as well as a 40% upturn in the creation of profiles for newly adopted pets.

Mr Singh added: “Despite the disruptions caused by COVID-19 and in some cases, because of them, we accelerated the rollout of several strategic initiatives, including the launch of eGift cards and personalized products, the introduction of service innovations like our telehealth offering, Connect with a Vet and compounding services, and the opening of our first automated and first high-velocity fulfillment centers.”

Chewy’s first automated fulfillment center was opened last year in Archbald, Pennsylvania. The company expects to open its second automated fulfillment facility in the second quarter of 2021 in Kansas City. The firm will also begin automation retrofits at select fulfillment centers during 2022.

While Chewy still reported a net loss for the year ($92.5m), it was significantly lower than the previous year’s total of $252.4m. The Dania Beach, Florida-headquartered firm also recorded its first full year of positive adjusted EBITDA ($85m versus -$81m for 2019).

Mr Singh remarked: “2020 was an incredibly challenging and unpredictable year for all of us. During this time, Chewy performed exceptionally well and made significant strategic and operational progress.

“Years of preparation and focus have positioned us as the internet’s preeminent neighborhood pet store and a leading pure-play e-commerce company in the pet space. We look forward to a future marked by ongoing innovation and to winning customers’ hearts and minds as we grow to become the most trusted and convenient online destination for pet parents (and partners) everywhere.”

Chewy now has a market capitalization of over $33bn on the New York Stock Exchange.

Guidance suggests growth slow-down

Chewy believes it will secure first-quarter revenues of $2.11bn to $2.13bn. This would represent year-on-year growth of 36-37%. The company also forecast 2021 turnover of between $8.85bn and $8.95bn, which would be yearly growth of 25-26%.

The firm’s chief financial officer Mario Marte said: “In 2020, we benefited from many tailwinds, some of which we expect to continue into 2021 and some of which may not. On balance, while we believe consumer behavior post pandemic is still somewhat challenging to predict, we also believe our strong value proposition, which includes expanding customer choices, provides us real and tangible advantages as we execute on our mission.

“The positive demand trends we saw in Q4 have carried over into the new year. Customer spending on our platform remains strong and business vertical mix remains structurally sound. Additionally, the pricing and promotional environment has thus far remained stable and in line with our expectations. On the other hand, there are certain headwinds we continue to navigate through the first quarter. We expect some of these to be temporary in nature, while others are likely to remain active hotspots for us to manage throughout the year.

“For example, we are observing an industry-wide disruption in the availability and supply of wet canned food, which is driving elevated out of stock levels and suboptimal inventory positioning across our network. Thus far, this has not had a material impact on our business, but it is an area where we intend to remain vigilant.”

Longer-term growth trends

Mr Singh assessed the company’s growth opportunity over the coming years.

“We compete in roughly 70% of the $100bn US pet market, and we do so primarily in the areas of food supplies and prescription drugs and diet,” he commented. “That leaves us with an additional $30bn opportunity in healthcare and services to grow into, and we are confident in our vision and our ability to do so. Equally exciting to note is that we are continuing to increase our penetration into a growing US pet market that is expected to reach $120bn by 2024.”

The chief executive also highlighted the growing e-commerce penetration in the US pet market.

He stated: “Online penetration rates in the retail food and supplies category are estimated to have grown from 7% in 2015 to 30% in 2020, and are expected to reach 53% by 2025, which is in line with the current online penetration rate of categories like books and electronics. Further, as we are observing, healthcare and services have already begun to shift online, and we believe this trend will continue and accelerate.

“We believe these shifts in favor of e-commerce channels are durable and largely permanent. This is where we believe Chewy has won and will continue to win for years to come. We see the past year as a catalyst that sped up a secular shift towards e-commerce that was already underway.”

To capitalize on the growth opportunity facing it, Chewy plans to: acquire new customers; increase the amount of spending by existing customers; add to its proprietary brands and healthcare offering; launch new services; and expand outside of the US.