The pet industry is facing a challenging time as fewer people are opting to adopt pets and existing pet owners prioritize cost-saving measures. This trend has had a negative impact on companies like Chewy and Petco Health & Wellness, leading to substantial declines in their stock performance.
Chewy, in particular, recently adjusted its revenue forecast for fiscal 2023 due to the adverse economic conditions. Similarly, Petco made a downward revision to its guidance last month.
The surge in pet adoptions witnessed during the pandemic, coupled with increased discretionary spending facilitated by government stimulus measures, has started to wane. Petco’s CEO, Ron Coughlin, acknowledged this shift, stating that the current economic environment has made consumers more discerning in their spending habits. As a result, consumers are actively seeking out better value propositions.
Chewy is also experiencing similar challenges. CEO Sumit Singh highlighted the ongoing impact of consumer softness that originated during the summer months.
Consequently, both Chewy and Petco have witnessed a significant downturn in their stock performance, making this year their worst on record. Chewy’s stock has declined by 49%, while Petco has recorded a staggering 64% drop.
Despite these obstacles, it is crucial for pet retailers to adapt to the changing market landscape and find innovative ways to provide value to potential pet owners and existing customers alike. The future success of the industry will depend on these strategic adjustments.
Pet Adoptions Decline for Chewy and Petco
Pet adoption rates have taken a sharp decline for Chewy and Petco, marking a significant shift from the surge in adoptions seen during the pandemic. With people spending more time at home, they were able to welcome new animals into their lives. This influx of pets proved highly beneficial for Chewy, leading to a substantial rise in stock value. In fact, shares soared from $24 in 2019 to an impressive $90 in 2020. However, as of midday trading on Thursday, shares were trading at around $19.
Petco also experienced a boost in business due to the pet craze that accompanied the pandemic. The company reached its record high of $29.40 in February 2021, but shares are now valued at $3.41.
Despite expectations of weakening industry trends, the impacts have been more pronounced than initially expected. BofA Securities analyst Curtis Nagle remarked in a research note on Wednesday that Chewy is currently navigating what could potentially be the most challenging conditions for the pet market in years. This is a significant shift after experiencing over a decade of growth and a surge in pet ownership during the Covid-19 pandemic. The anticipated consequences of this situation are likely to place pressure on revenue growth and margin expansion, subsequently impacting valuation.
Nagle rates Chewy stock as “Underperform” with a target price of $15. It’s worth noting that Nagle doesn’t cover Petco shares. According to FactSet, the average analyst rating for both Petco and Chewy shares is “Buy.”