Chewy Looks Beyond U.S. As Pet Retailers Bolster Healthcare Offer

Online pets retailer Chewy not only announced its first ever profit this week but also suggested it could leave American shores for international growth at its earnings update.

And what was evident from both Chewy and rival Petco, which coincidentally also announced earnings on the same day, is that pet health care will be crucial to their long term growth prospects.

Both began investing heavily into pet health after the pandemic prompted an unprecedented pet ownership boom in the U.S. and globally, which saw an incredible 23 million American households acquire a new animal.

Consequently, not only has the overall pet market boomed to over $120 billion annually but those puppies, kittens and other young animals are now three years old and increasingly in need of more healthcare.

Ecommerce disruptor Chewy, founded by activist meme share investor Ryan Cohen, has focused on scaling up its pharmacy, insurance and telehealth services to create what is now the biggest pet pharmacy in the U.S.

However, its virtual telehealth service has faced challenges as some state and federal regulations prevent veterinarians from caring for an animal if they have not met it.

“Non-discretionary categories, including consumables and health care, remain the pillars of strength,” stressed CEO Sumit Singh, a former Amazon
AMZN
executive, on yesterday’s earnings call.

Petcare Investment

Petco switched its name to Petco Health and Wellness Company three years back and has also bolstered its insurance and pharmacy services but has leveraged its store estate to host veterinary hospitals.

It now has nearly 250 hospitals, up from just 10 at the beginning of 2018, meaning 90% of its stores include a veterinary presence. That means Petco has not faced the same obstacles as Chewy because it does not offer a telehealth service and all of its veterinarians are based in physical locations.

“Petco’s hospitals and clinics saw nearly 1.9 million pets in 2022, positioning us as one of the leading providers of veterinary services in the United States,” chairman and CEO Ron Coughlin said at the earnings update.

Inevitably, these initiatives involve serious capex but are an investment in the long term, especially as cautious consumers have bought less high margin hard goods.

At Petco discretionary supplies and companion animals account for about 38% of sales but the category suffered a 9% decline for the full year, the company said.

Chewy also reported softness in the discretionary and hard goods categories and Singh conceded that he does not expect that to change this year, especially with growing competition from off-price and mainstream retailers.

For the full year, Chewy reported net sales up 13.6% year over year to $10.1 billion and the company reported its first profit, achieving a net income of $49.2 million for the year from a loss of $73.8 million a year prior.

Looking ahead, Chewy anticipates full-year net sales to be between $11.1 billion and $11.3 billion, up 10% to 12%, for 2023.

Chewy Looks Beyond U.S.

Chewy also suggested that it could venture outside of the U.S. for the first time.

“International expansion has long been a part of our strategy. It was a matter of when, not if, Chewy would take our superior value proposition into new geographies,” said Singh. “We are excited to introduce Chewy to a broader customer base with whom we believe our brand and mission will resonate strongly.”

Although only U.S.-based Chewy does ship internationally, and entry markets are likely to be culturally similar that “possess attractive characteristics for our initial international expansion plans,” which probably means Canada and possibly the U.K.

Amid a declining hard goods environment, international expansion and pet care certianly seem to offer more promising avenues for growth and longevity and for both Chewy and Petco, investment now could provide stronger lifetime sales as America’s pets age.