Shares of Chewy Inc. gained after hours on Wednesday after the online pet-supplies retailer reported a surprise second-quarter profit and sales that beat expectations, even though active customers fell and executives held to their full-year outlook amid a cautious spending backdrop.
Chewy
CHWY,
reported the results amid concerns about weaker spending on pets, pet food and other supplies. Executives noted an environment marked by price cuts amid more sluggish demand.
“As anticipated, promotional activity in the second quarter was higher than in the first quarter,” management said in a letter to shareholders. “However, the promotional environment on the whole remains largely rational.”
The company reported second-quarter net income of $18.9 million, or 4 cents a share, compared with $22.3 million, or 5 cents a share, in the same quarter last year.
Revenue rose 14.3% to $2.78 billion, compared with $2.43 billion in the prior-year quarter. The company finished the quarter with 20.4 million active customers, or customers who paid for something via Chewy at least once during roughly the prior 12 months. That figure was down 0.6% year over year.
Analysts polled by FactSet expected a loss of 5 cents a share on $2.76 billion in sales. They expected 20.4 million active customers during the quarter.
Chewy said it expects third-quarter net sales of between $2.74 billion and $2.76 billion, compared with FactSet expectations for $2.79 billion. For the full year, it still expects $11.15 billion to $11.35 billion in sales. FactSet estimates call for $11.29 billion.
The company, in its letter to shareholders, said customers were becoming more selective but also more loyal. It also said it was shielded from those shifts, helped by its pet health-care business and Autoship subscription service.
“Coming out of the summer months, we are sensing a shift in consumer mindset toward being more discerning, and at the same time, with a higher willingness to consolidate their share of wallet to their trusted retailer of choice,” the company said in its shareholder letter.
“This behavior is driven by a more fluid macro environment, including high levels of inflation, which have been passed through the industry over the past 18 months,” the letter continued. “Our dialogue with our suppliers confirms that these trends are permeating throughout the pet industry.”
Shares rose 4.7% after hours on Wednesday.
Pet-store chain Petco Health & Wellness Co.
WOOF,
said last week that “discretionary spending was continuing to be pressured” amid higher prices for other things, like groceries. Executives there also noted that customer shopping patterns had diverged — toward both cheaper pet food and premium offerings.
Chewy’s chief financial officer, Mario Marte, retired from the company last month. In May, executives said they expected to open up shop in Canada in the third quarter. The company in June also said it would expand its pet-insurance and wellness offerings.
JPMorgan analysts recently said they expected trends at Chewy to “remain muted” through the second half of the fiscal year. Wedbush analysts, in a research note last week, said Chewy might be more insulated from the pet industry’s difficulties.
“Competitor read-throughs and industry data points lean negative,” they said, “but CHWY’s relative lack of exposure to discretionary products and price-competitive offering that is helping it gain market share limits downside risk, in our view.”
Shares of Chewy are down 22.3% so far this year. By comparison, the S&P 500 Index
SPX
is up 18.1% in 2023.
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