Chewy CEO Sees Online Shopping Rush ‘Here to Stay’ as Sales Boom

(Bloomberg) -- Chewy Inc. saw sales surge as new and old pet owners stocked up on supplies during the coronavirus, and the company’s chief executive officer doesn’t see the boom in demand slowing down anytime soon.

“The increased demand levels that we are experiencing are here to stay,” Chief Executive Officer Sumit Singh said in an interview. “We do not view our first-quarter results as a one-off event” and believe the company can continue growing its sales with 2020 set up to be a pivotal year for Chewy.

Chewy’s expectations for second-quarter net sales of between $1.62 and $1.64 billion topped the highest analyst estimate and implies at least 40% growth compared to last year. That level of quarterly sales show the company’s overall proposition is working and that the company can sustain the eye-popping level of growth, Singh said.

Shares fluctuated in late trading Tuesday in response to the results, which came after the stock rallied to another record high before the earnings came out as investors piled on bets for the Dania Beach, Florida-based company. Chewy shares were up 78% year-to-date through Tuesday’s close, versus a slight decline for the S&P 500.

The online pet-products retailer reported first-quarter sales of $1.62 billion, a 46% increase compared to the year prior, meeting the highest analyst estimate. The company added a record 1.6 million net active customers, more than double the average quarterly pace for 2019. The company also said a high percentage of new customers returned to make a second purchase and, on average, spent more on the follow-up orders.

“The behavior of new customers is very consistent to our mature or existing customer cohorts and that’s encouraging,” Singh said. “Yes these customers have been with us for a short period of time, but when we analyze data that are available to us” it shows promising results on measures such as basket size, repeat behavior, and Autoship rates.

The company was also able to deliver positive adjusted quarterly earnings before interest, taxes, depreciation and amortization for the first time in its history. “We’re really proud of that and, in a difficult time like this one, our margins actually expanded,” Singh said.

Chewy said the demand shock caused by the coronavirus pandemic led to elevated out-of-stock levels for some products and led to a higher rate of split customer orders as the company had to ship multiple boxes to the same user and ship more orders over longer distances. The impact led to increased freight and packaging costs for the quarter and negatively impacted gross margins.

“Two-thirds of the supply shortage has actually already recovered and we’re in talks with suppliers to see the rest of the recovery as soon as possible,” Singh said. When asked about a potential second wave of the coronavirus, Singh said the company is “more prepared for a second wave, if it happens, than we were for the first wave.”

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