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12/14/2020

Private brands spark growth at Chewy

Pet healthcare and private label offerings helped Chewy increase its revenue by 45% year over year in the third quarter to $1.78 billion.

The online pets product retailer posted a net loss of $32.8 million, down from $79 million for the same period last year.

“Over the past few quarters, our team has been hard at work to reformat our proprietary brands and overall assortment strategy by introducing compelling merchandise, improving discoverability and delivering a tremendous value proposition for our customers,” said Sumit Singh, CEO of Chewy. “This strategy is working to create positive, consistent and sustainable momentum.”

The retailer’s recent business has shown the strength of Chewy’s private label offerings, he told investors on the post-earnings conference call.

“Our seasonal businesses, such as, Halloween, were also strong in the quarter,” Singh said. “And here, we improved our private label merchandise mix by 20 points to over 70%, showcasing the quality and appeal of our newly launched proprietary assortment. This helped grow total Q3 hard goods sales, including third-party and private label, by more than 70% year-over-year.”

Healthcare for pets also is playing a major role for Chewy.

“As part of our goal to make pet healthcare more affordable and accessible, we recently launched Medication Compounding and Connect with the Vet, our proprietary telehealth platform,” he said. “These two innovative businesses are valuable additions to the growing healthcare business, and represent our first service-based offerings for pet parents.”

Singh told investors that Chewy’s total pharmacy operations are expected to generate over $500 million of gross revenue this year, “which we believe makes us the largest e-commerce pet pharmacy in the U.S. To achieve this milestone just over two years after our launch is a remarkable achievement for which we, as a team are proud.”

As well, according to Singh, Chewy Pharmacy on a reported basis is expected to generate over $350 million of net sales this year, which would equate to 5% of total net sales based on current guidance. Given the scale, Pharmacy is now contributing positively to the year-over-year expansion in Chewy's total gross margins.

“As we have noted on previous earnings calls, we believe that we are still in the early innings regarding our Pharmacy business and we remain focused on growing this vertical in a disciplined manner,” he said. “We are just as excited about our new telehealth service Connect With a Vet, which connects Chewy pet parents directly to a contracted licensed veterinarian using our proprietary tele-triage platform, where vets answer questions offer advice and discuss pet health concerns without diagnosing medical conditions or recommending treatments.”

Chewy launched the program in 35 states in October. Singh said the retailer is rolling it out to another 12 states, “which brings our total coverage up to 47 states. Program utilization rates to date are encouraging as is the customer feedback we are receiving.”