Chewy Stock Soared in the Pandemic. And Those Pets Aren’t Leaving to Go Back to Work.
Pet owners take to Chewy the way dogs take to their favorite bones: They don’t let go. People come to the pet-products retailer for food, but soon they’re buying leashes, toys, and clothing. The average spending rises from $400 in year two to $700 by year five, says Marc Regenbaum, a Neuberger Berman Long Short portfolio manager. Sales surged 47% in 2020, as home workers adopted pets. But since February, the stock has sagged 30%, to about $84.
Regenbaum sees Chewy as more than a pandemic play. Its most underappreciated aspect, he says, is its automatic-delivery program. Customers sign up for scheduled deliveries, and Chewy rewards them with discounts. Nearly 70% of Chewy’s 2020 revenue, some $4.9 billion, came from the program last year. Observes Regenbaum: “ This is almost akin to software-type models. You don’t get that very often in a consumer-facing business.”
Chewy started in 2011, came public in 2019, and has a $35 billion market cap. Its customer base has nearly doubled in the past 2 ½ years, to almost 20 million. It reported its second quarterly profit in this year’s first three months, and Regenbaum expects a full-year profit, too. Revenue should grow by 25% in 2021, to more than $9 billion, and will likely surpass $11 billion in 2022, he says. Chewy’s adjusted Ebitda, or earnings before interest, taxes, depreciation, and amortization, could top $200 million in 2021 and double in 2022, driven by “numerous margin expansion opportunities,” he adds.
Regenbaum himself has a pandemic puppy, a mini-labradoodle named Winnie, which gave him a key insight into the reopening: “Dogs don’t go back to work. For better or worse, we all have to take care of that dog.”
Next Week
Monday 7/19
IBM, J.B. Hunt Transport Services, PPG Industries, Prologis, Tractor Supply, and Zions Bancorp report quarterly results.
L Brands holds a conference call to discuss the spinoff of its Victoria’s Secret brand. The new company, to be called Victoria’s Secret, is expected to trade under the ticker VSCO on the New York Stock Exchange in early August. The remaining company will be renamed Bath & Body Works, and also have a new stock symbol, BBWI.
The National Association of Home Builders releases its NAHB/ Wells Fargo Housing Market Index for July. Consensus estimate is for an 82 reading, slightly higher than the June data. Home builders remain quite bullish on the housing market, but the June figure was the lowest since August 2020, amid rising materials prices and supply-chain shortages.
Tuesday 7/20
Chipotle Mexican Grill, Citizens Financial Group, Halliburton, HCA Healthcare, Intuitive Surgical, KeyCorp, Netflix, Philip Morris International, Synchrony Financial, Travelers, and United Airlines Holdings announce earnings.
The Census Bureau reports new residential construction data for June. Economists forecast a seasonally adjusted annual rate of 1.6 million housing starts, slightly more than the June figure.
Wednesday 7/21
Anthem, ASML Holding, Baker Hughes, Coca-Cola, Crown Castle International, CSX, Johnson & Johnson, Nasdaq, Northern Trust, Novartis, SAP, Seagate Technology Holdings, Texas Instruments, and Verizon Communications release quarterly results.
Thursday 7/22
The NAR reports existing-home sales for June. Economists forecast a seasonally adjusted annual rate of 5.8 million, matching the May figure. Existing-home sales have declined for four consecutive months.
Abbott Laboratories, American Airlines Group, AT&T, Biogen, Capital One Financial, D.R. Horton, Danaher, Intel, Marsh & McLennan, Newmont, Nucor, Snap, Southwest Airlines, Twitter, and Union Pacific hold conference calls to discuss earnings.
The Conference Board releases its Leading Economic Index for June. Consensus estimate is for a 1.1% month-over-month increase, after a 1.3% rise in May. The LEI has now surpassed its previous peak from January 2020.
The European Central Bank announces its monetary-policy decision. The central bank is widely expected to keep its key short-term interest rate unchanged at negative 0.5%. The ECB recently changed its inflation goal to 2% over the medium term instead of targeting inflation of close to, but below, 2%.
Friday 7/23
American Express, Honeywell International, Kimberly-Clark, NextEra Energy, and Schlumberger report quarterly results.
Write to Luisa Beltran at [email protected]
