Food delivery services and subscription boxes aren’t the only subscription services seeing sales pike during the COVID-19 pandemic. Chewy, an online retailer for pet food and supplies, has also seen a huge increase in sales. Last week, the company reported net sales of $1.62 billion, representing growth of 46.2% year-over-year. Chewy offers immediate sales as well as autoshipments, where pet owners can schedule future deliveries of their favorite pet foods, treats, toys and other supplies via subscription.
“We had a strong start to 2020 with first quarter net sales increasing 46 percent year-over-year and gross margins expanding 50 basis points. We also achieved a significant milestone by delivering our first ever quarter of positive adjusted EBITDA,” said Sumit Singh, Chewy CEO, in a news release.
“We are proud to be the e-tailer of choice for millions of new and existing pet parents during this unprecedented time. Chewy is well-positioned to thrive in this expanded marketplace, and we remain focused, as always, on our mission of becoming the most trusted and convenient online destination for pet parents (and partners) everywhere,” Singh added.
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Other highlights for the quarter include the following:
- Gross margin was 23.4%, up 50 basis points year-over-year.
- Net margin was down by 3.0%.
- Net loss was $47.9 million, including share-based compensation of $42.3 million.
- Adjusted EBITDA was $3.4 million, a 122% increase year-over-year.
The company has 15.0 million active customers, a 32.6% year-over-year increase. The average net sales per active customer was $357, a 6.6% increase year-over-year.
“When we reported fourth quarter 2019 results on April 2, 2020, three-quarters of the U.S. population was under shelter-in-place orders. Two things became clear very quickly: first, the pandemic put Chewy in a unique position to provide essential services to pets and pet parents, and second, we needed to prepare for a significant change in operation conditions. Over the past two months, we have continued to adapt and respond rapidly to service millions of new and existing customers, while caring for the safety and well-being of our team members,” said Chewy in their first quarter letter to shareholders.
During the quarter, Chewy saw significant changes in customer shopping behavior. Net sales growth was the strongest in company’s history. The company also added a record 1.6 million net active customers in the quarter, exceeding $1 billion in quarterly autoship sales for the first time. Autoship sales were 48.0% higher year-over-year. During the quarter, Chewy launched gift cards, something that customers have been requesting for years. The company created campaigns that led to more than $7 million in charitable donations to shelters and rescue organizations. In addition, to keep their staff safe, Chewy moved its customer service operations to be off-site, so its customer service team worked from home.
“The pandemic has tested and proven our ability to move rapidly, plan, communicate, and innovate on behalf of our employees and customers,” Chewy said.
As a pet owner myself and a Chewy customer, I can attest to the fact that COVID-19 changed things. Where I used to buy half of my pet food and supplies locally and half online via Chewy, I moved to ordering about 80% through Chewy instead. Prior to the pandemic, Chewy would fulfill orders and ship within 24-48 hours. During the pandemic, orders were delayed but Chewy was good about communicating that, and I understood that more customers were in the same situation.
Despite the net loss, Chewy had an excellent quarter. Net sales, sales per customer and number of active customers were all up, which is impressive. Also, Chewy was able to make a number of operational changes to keep orders flowing, employees safe and initiate new initiatives like gift cards and donations. We anticipate Chewy will have a strong second quarter as well, and it seems likely that customer shopping behavior will continue, at least for a while.