Chewy's stock is having its best day ever amid signs pet adoptions are up again

By Tomi Kilgore

Data from shelters and rescue partners show a 'positive balance' between pet adoption and relinquishment

Shares of Chewy Inc. soared Wednesday, toward their biggest one-day gain in their five-year history, after the online pet products seller reported another quarterly earnings beat, amid some early signs that pet household formation may have bottomed.

Chewy also announced a $500 million stock repurchase program. That represented 5.3% of Chewy's current market capitalization of about $9.43 billion.

The stock (CHWY) rocketed 28% in afternoon trading, putting it on track to surpass the current record one-day gain of 24.2% seen on June 2, 2022. The 'pet humanization' company's stock went public on June 14, 2019.

The record rally comes about a month after it closed at a record low of $14.99, on April 30.

The stock has been hurt amid a slowdown in pet adoptions and spending on pet products. After a spike in pet adoptions during COVID lockdowns, which helped send Chewy's stock to a record close of $118.69 in February 2021, the trend has been "normalizing" since then.

"[O]ur Q1 outperformance underscores our ability to successfully navigate this period of normalization for the pet industry," Chief Executive Sumit Singh said on the post-earnings call with analysts, according to an AlphaSense transcript. "Moreover, we are cautiously optimistic that pet household formation trends are progressing in the right direction."

Singh said based on data from shelter and rescue partners, pet adoption saw "healthy growth rates" in the first quarter. And for the first time since 2022, there was a "positive balance" between adoption and relinquishment.

In the fourth quarter, pet adoptions were down 30%.

"While it is premature to declare an industry turnaround, we maintain our perspective that the pet industry is on track towards normalization," Singh said.

For the quarter to April 28, Chewy reported net income that nearly tripled, to $67.3 million, or 15 cents a share, from $22.9 million, or 5 cents a share, from the same period a year ago.

Excluding nonrecurring items, adjusted earnings per share rose to 31 cents from 20 cents, well above the FactSet consensus of 20 cents, to mark the ninth straight quarter of adjusted bottom-line beats.

And adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) jumped 47% to a record $162.9 million, compared with the FactSet consensus of $113.9 million.

Net sales grew 3.1% to $2.88 billion, to top the FactSet consensus of $2.85 billion, which CEO Singh said were boosted by two factors.

For one, customer loyalty in consumables and health remained strong, and represented about 85% of net sales.

And second, Autoship sales, or sales of items repeated automatically at discounted prices, rose 6.4% to a record $2.23 billion. Autoship sales as a percentage of net sales grew 2.4 percentage points to 77.6%.

At the same time, net sales per active customer jumped 9.6% to $562, even as the number of active customers fell 2.1% to 19.99 million.

Cost of sales rose less than net sales, up 1.3% to $2.02 billion, to lift gross margin by 1.26 percentage points to 29.7%. Adjusted Ebitda margin improved 1.7 percentage points to 5.7%.

Looking ahead, the company said it expects second-quarter net sales of between $2.84 billion and $2.86 billion, which compares with the current FactSet consensus of $2.86 billion. The full-year sales outlook was kept at between $11.6 billion and $11.8 billion.

Meanwhile, the company raised its full-year adjusted Ebitda margin guidance range to 4.1% to 4.3% from "approximately 3.8%."

Despite Wednesday's surge, Chewy's stock has shed 8.4% year to date, while the S&P 500 index SPX has gained 10.7%.

-Tomi Kilgore

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05-29-24 1406ET

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