Chewy, Inc. is one major pet industry player capitalizing on the accelerating shift toward e-commerce. The company reported its second quarter earnings for fiscal 2020, posting a net loss of $32.8 million and $1.7 billion in net sales, up 47% from year-ago revenue.
“In recent months it has become clear that the retail industry in general and e-commerce in particular is going through a period of transformative change; growth curves that were supposed to play out over years have been compressed into quarters and even months,” said Sumit Singh, chief executive officer of Chewy in the company’s earnings conference call on Sept. 10.
“Over the past few years, we have invested in technology, new businesses, fulfillment capacity and in building an extraordinary team,” Singh continued. “This has prepared us to quickly adapt to the acceleration of our own growth curve and to provide top-notch service to the growing millions of pet-owning households in the United States who depend on Chewy.”
Over the second quarter, the company’s subscription-based sales, or “auto-ship customer sales,” totaled $1.16 billion or 68.3% of total net sales. The company served 16.6 million active customers, adding 4.6 million customers since the first quarter. Each active customer spent an average of $356 in the second quarter, Singh said.
The company is also growing its pet prescription business, announcing its “RX” sites in Kentucky and Phoenix are now fully licensed and able to fill orders across the United States.
Chewy expanded its private label product portfolio, which accounted for 15% net sales over the quarter.
Singh reported the company has gained and retained more customers due to the COVID-19 pandemic.
“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,” he said. “…Overall customer acquisition rates remained above pre-pandemic levels and other metrics such as basket size, reorder rates and auto-ship sign up remained healthy and stable.”
Singh added the new customers added so far in fiscal 2020 have already exceeded the number of total active customers Chewy recorded overall in 2019.
The company expects net sales per active customer to increase over time, depending on the customer’s tenure and loyalty to Chewy. Singh said sales per customer could reach $500 after two years of buying from Chewy, and $700 after five years of loyal purchasing.
Chewy continues to expand its network of fulfillment centers. The company plans to open its 10th US fulfillment center and first fully automated center in Archibald, Penn. in mid-October. The company has also added a center in North Carolina and opened a limited catalog center in Kansas City so far this year.
Singh said the limited catalog Kansas City facility is “a capital light, high velocity operation focused on fast fulfillment during peak demand periods.”
“This facility was not part of our original FC network plan for 2020 and demonstrates our ability to improvise and adapt quickly to changing conditions in order to maintain business continuity and to protect customer experience,” he added.
The company plans to open another fulfillment center, its second fully automated center, in Kansas City in mid-2021.
“By the end of 2020, our fulfillment center network will consist of 11 centers with over seven million square feet plus three pharmacy-focused fulfillment centers,” Singh said. “We believe this makes us one of the largest dedicated e-commerce fulfillment networks in the United States and is certainly unparalleled in the dedicated pet space.”
Chief Financial Officer Mario Marte expounded on the benefits of Chewy’s automated centers, saying they can improve safety and economics-related metrics by up to 60%, increase throughput capacity per square foot by 25%, labor productivity by 50%, and reduce fixed and variable fulfillment costs per unit by 30%.
“These investments will also allow Chewy to maintain our competitive edge as well as our coveted position as a top experienced provider,” Marte said. “This is especially critical since COVID-19 is rapidly influencing the way we live, shop and server our customers.”
Going forward, Singh reported its mid-year earnings indicate year-over-year revenue growth of $2 billion.
“…For the third quarter, we are expecting net sales to be between $1.7 billion and $1.72 billion, representing year-over-year growth of between 38% and 40%,” Marte said. “For the full year 2020, we are expecting net sales to be between $6.775 billion and $6.825 billion, representing year-over-year growth of between 40% and 41%.”.