Chewy is not immune to the effects of inflation on consumer behavior, which is already having an impact.
Despite this, Chewy increased its profitability in the second quarter, which is an auspicious development.
On Wednesday, following the announcement of the business’s financial results for the second quarter of 2022, e-commerce company Chewy (NYSE:CHWY) saw a dramatic drop in the price of its shares. Surprisingly, people who keep pets are becoming more frugal. The chewy stock traded 9% lower at 1:20 p.m. Eastern Time.
Chewy (NYSE:CHWY) net sales for the second quarter climbed by only 13% year over year, coming in at $2.4 billion. This represented a significant slowdown from the previous year’s comparable quarter when they increased by over 27%. The company’s declining customer base was one of the primary contributors to its overall downturn. Chewy (NYSE:CHWY) reported having 20.5 million active consumers as of the end of the quarter, which is only a 2% increase from the same period the previous year.
It is heartening to see that net sales of Chewy (NYSE:CHWY) per active customer increased by 14% year over year to a total of $462. On the other hand, this number might have been substantially higher if inflation weren’t a factor. Chewy and other firms providing pet products are raising their prices in response to rising costs. And the management at Chewy’s observed that, as a result, pet owners are decreasing their spending on luxuries for their animals.
Chewy’s management has decreased its revenue projection for the full year due to customers pulling back on certain purchases. It projected that its net sales would be at least $10.2 billion in the past. At this point, they are estimating a maximum of $10 billion. And investors’ disappointment is understandable today, given the lack of progress in growth and the reduced projection.
The performance of Chewy (NYSE:CHWY) stock today could have been even worse if not for the nice profitability surprise that the company experienced in the second quarter. It seems almost magical, yet they were able to boost their gross profit margin by raising prices and improving their logistical management. Despite having invested $48 million on infrastructure, the company was nonetheless able to maintain a positive free-cash-flow position of $1 million.
As Chewy (NYSE:CHWY) continues to expand, its infrastructure will become an increasingly valuable source of competitive advantage; it will be difficult for any company to build something comparable to what it has already established. And if the company is already making progress toward profitability, investors may have reason to be optimistic about the stock’s prospects in the coming years.
Featured Image – Megapixl © Timonschneider