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Chewy CFO Says Broader Product Range Bearing Fruit in Higher Earnings

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Chewy Inc.’s

finance chief said recent efforts to expand the pet retailer’s product range are paying off in the form of higher revenue and profit margins.

Dania Beach, Fla.-based Chewy, which sends pet food, crates and about 75,000 other products to people’s homes, has seen strong growth in recent quarters as it continues to build out its product portfolio and win more customers. It is also investing in new technologies, such as fully automated fulfillment centers, to keep costs under control.

The company recorded 19.8 million active customers in the quarter ended May 2, up 31.6% from the prior year period. The average spend per new customer went up by 13% from the same period last year. Chewy declined to provide a dollar amount for how much new customers spent on average during the past quarter.

Chewy, which reported net income of $38.71 million in its latest quarter, compared with a loss of $47.87 million a year ago, said it expects to report net sales of $8.9 billion to $9.0 billion for its current fiscal year, and an increase in its margin on adjusted earnings before interest, depreciation and amortization by between 0.8 and 1.2 percentage points from a margin of 1.2% in fiscal 2020.

The company doesn’t disclose guidance for net income, but Chief Financial Officer

Mario Marte

said the company could report its first full-year profit in fiscal 2021. Chewy recorded a net loss of $92.5 million at the end of its 2020 financial year, which was an improvement from a net loss of $252.37 million a year earlier.

Chewy CFO Mario Marte.



Photo:

Chewy

The company had its first net-income-positive quarter at the end of 2020, when it reported a profit of $21 million.

A net profit for the current fiscal year would mean that the company achieves analysts’ targets about three years earlier than forecast, said Stephanie Wissink, an analyst at Jefferies Group, an investment bank. “You don’t see many companies, particularly in the consumer space, that have this acceleration in their business model,” Ms. Wissink said.

To break even on a net-income basis, Chewy needs not only to keep adding new customers, but also to entice existing customers to spend more on its platform while tightly managing expenses, according to Ms. Wissink. The company recently introduced fresh pet food to its product range and is providing more remote veterinarian services. Chewy also has added services like auto-refilling drug prescription orders for pets, which adds to the convenience for customers, Ms. Wissink said.

Mr. Marte said the strategy is working, with customers buying more things through Chewy than they did before. “The average basket size is growing,” he said.

That’s important for the company as it seeks to earn more money off each customer to get closer to profitability, Ms. Wissink said. “The future pathway of profitability for e-commerce companies is to add on higher margin streams of value that are convenient for the consumer,” she said.

Chewy in its latest quarter reported a 24.4% increase in cost of goods sold to $1.54 billion, compared with the prior-year period—less than an increase of 31.7% in net sales in the quarter. The company attributed the difference to efforts to improve efficiency in its supply chain and changes in its product mix.

Automation is one of the tools Chewy is using to bring down costs. The company in October opened its first automated center for fulfilling orders in Archbald, Pa., and has another coming online this summer, plus a third that will start operating next year.

“Automation lowers per-unit operating costs,” a spokeswoman said, adding that this would help with growing profit margins.

Write to Nina Trentmann at Nina.Trentmann@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the June 23, 2021, print edition as ‘Expanded Offerings Boost Earnings for Pet Retailer Chewy.’

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