Chewy Says People Are Now More Choosy With Where They Shop

Hand holds a phone with the Chewy website displayed, while a black dog looks on from the background.

(Image credit: Gabby Jones/Bloomberg via Getty Images)

Chewy (CHWY) beat second-quarter sales and earnings expectations and said it believes high inflation is causing pet store customers to become more discerning on where they shop.

For the quarter ended July 30, Chewy reported earnings with net sales growth of $2.78 billion, up 14.3%, and adjusted net income of $63.3 million, up 1.9%, compared to the same year-ago period.

The pet supply retailer’s active customer count decreased 0.6% from the prior year to 20.4 million, according to its report, and its net sales per active customer increased 14.7% to $530 per customer. Autoship sales, which consists of orders shipped through its autoship subscription program, represented 75.5% of total sales, a 240 basis points increase from the prior year, Chewy said.

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“Coming out of the summer months, we are sensing a shift in consumer mindset towards being more discerning, and at the same time, with a higher willingness to consolidate their share of wallet to their trusted retailer of choice,” Chewy said in its Q2 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,” Chewy said, adding that its suppliers confirmed that these trends permeate the pet industry.

That is in line with a recent Kiplinger retail sales report saying that, while strong consumer spending is keeping the economy out of recession, a slowdown is expected soon along with a drop in goods buying later this year.

Current environment is challenging

Chewy said it believes it is insulated from certain pressures due to the high quality of its customer base, its mix of Consumables and Healthcare businesses, its “powerful” autoship subscription service, and its overall value proposition to pet parents.

The company acknowledged, however, that it is not exempt from pressures the pet industry is now facing. “Pet household formation remains relatively muted and the consumer mindset continues to be pressured. These factors, taken together, make the current environment a challenging period to forecast consumer behavior.”

The company added that its upcoming expansion into the Canadian market remains on track for the third quarter and that the expansion of its Sponsored Ads program remains on track to ramp through the second half of the year and into 2024.

Last week, rival pet supply retailer Petco announced earnings results and cut its outlook. The company cited a shift in consumer spending and pressures on its discretionary business, as Kiplinger reported.

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.