Chewy Inc. Reports Surprising Q2 Profit and Sales Beat Expectations

by Warren Seah

Shares of Chewy Inc. saw an increase in after-hours trading on Wednesday following the online pet-supplies retailer’s announcement of an unexpected second-quarter profit and sales that surpassed expectations. Despite a decrease in active customers and a cautious spending environment, Chewy executives maintain their full-year outlook.

Challenges in Pet Spending

Chewy CHWY, +0.18% reported these results against a backdrop of concerns regarding weakened spending on pets, pet food, and other supplies. Executives acknowledged an environment characterized by price reductions and slower demand.

Promotional Activity and Market Conditions

“As anticipated, promotional activity in the second quarter was higher than in the first quarter,” management stated in a letter to shareholders. However, they also emphasized that the overall promotional environment remains largely rational.

Financial Performance

During the second quarter, Chewy achieved a net income of $18.9 million, or 4 cents per share, compared to the $22.3 million, or 5 cents per share, reported during the same period last year. In addition, revenue rose by 14.3% to reach $2.78 billion, surpassing the $2.43 billion earned in the prior-year quarter. The number of active customers at the end of the quarter was 20.4 million, representing a 0.6% decrease compared to the previous year.

Analyst Expectations

FactSet analysts had predicted a loss of 5 cents per share on $2.76 billion in sales for the second quarter. Additionally, they expected Chewy to have 20.4 million active customers during this period.

Future Projections

For the third quarter, Chewy forecasts net sales ranging from $2.74 billion to $2.76 billion, slightly lower than FactSet’s projection of $2.79 billion. Furthermore, the company maintains its full-year sales expectations of $11.15 billion to $11.35 billion, with FactSet estimating $11.29 billion.

Customer Selectivity and Loyalty

Chewy highlighted that customers are becoming more discerning in their choices while also demonstrating increased loyalty. The company attributes its resilience to these shifts to its pet health-care business and Autoship subscription service.

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Consumer Mindset Shift in the Pet Industry


In a recent shareholder letter, Chewy, the leading online pet retailer, stated that they have observed a notable change in consumer behavior following the summer months. Consumers are becoming more discerning and are increasingly consolidating their spending with their trusted retailer of choice. This shift is attributed to various factors, including rising inflation levels and their impact on the industry as a whole.

Impact of Inflation and Fluid Macro Environment

Chewy acknowledges that high levels of inflation have been affecting the pet industry for the past 18 months. This trend has been confirmed through ongoing dialogue with suppliers, indicating that the effects are permeating throughout the market. As a result, consumers are more conscious of their spending and are placing a stronger emphasis on value and trust when choosing where to make their purchases.

Market Response and Challenges

Pet-store chain Petco Health & Wellness Co. also highlighted the pressure on discretionary spending due to increasing prices for various items, such as groceries. Additionally, they observed a divergence in customer shopping patterns. Some consumers have shifted towards purchasing cheaper pet food, while others are opting for premium offerings.

Strategic Moves and Leadership Changes

Chewy recently announced the retirement of their Chief Financial Officer, Mario Marte. In their pursuit of growth, the company plans to enter the Canadian market in the third quarter and expand their pet-insurance and wellness offerings. Despite these plans, analysts from JPMorgan predict that Chewy’s performance will remain subdued in the second half of the fiscal year.

Market Dynamics and Chewy’s Position

While competitors and industry data suggest that conditions may be challenging for the pet industry, Wedbush analysts believe that Chewy is relatively well-insulated. They attribute this to Chewy’s limited exposure to discretionary products and their competitive pricing strategy, which helps the company gain market share. This perspective suggests that Chewy’s downside risk is mitigated, despite prevailing industry difficulties.

Financial Performance

Chewy’s stock has experienced a decline of 22.3% this year. In comparison, the broader S&P 500 Index has seen an 18.1% increase in the same period, highlighting the market’s contrasting performances.

Shares rose 4.7% after hours on Wednesday.

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