Chewy on Thursday reported that second quarter net sales grew 47% to $1.69 billion, with auto-ship sales delivering $1.16 billion or 68.3% of that, according to a 10-Q filing with the Securities and Exchange Commission.
The pet e-retailer ended the quarter with 16.6 million active customers, an increase of 4.6 million or 37.9% year over year. That breaks the previous quarter's customer acquisition record, CEO Sumit Singh told analysts, according to a Seeking Alpha transcript of a Thursday call.
Net loss narrowed in the quarter to $32.8 million from $82.9 million a year ago, the company said.
The pandemic is proving to be helpful to Chewy, as many consumers continue to shy away from brick-and-mortar stores like pet shops and vet offices.
More people with pets have turned to the site for supplies, including prescriptions. Customer acquisition rates were above pre-pandemic levels throughout the quarter, and basket size, reorder rates and Autoship sign-ups "remained healthy and stable," according to Singh.
Moreover, new customers are encountering improvements to the company's offering, like pet medications, more hard goods, including private label options, and gift cards.
"We are encouraged by these trends," Singh said. "[T]he new active customers we added in Q1 and Q2 of this year surpassed the total active customers we added across the entirety of 2019."
The pets e-retailer beefed up margins in the second quarter, thanks in part to the expanded offering of private label goods. Gross margin expanded by 190 basis points year over year to 25.5% and net margin improved 530 basis points to -1.9%, the company said in its release.
The company has expanded its fulfillment network, which added to its selling, general and administrative expenses in the quarter. Its tenth fulfillment center, in Archibald, Pennsylvania, is its first automated facility and begins shipments next month. Further capacity was added last month in Kansas City.
Those operations are poised to enable Chewy to continue to grab share as e-commerce expands in the pet category, "an attractive and economically resilient market that remains solidly in growth mode as pet owners increasingly treat pets as members of their families," according to Wells Fargo analysts, who peg the current online penetration at just 15%.
"[Chewy] has leveraged the unique features of the pet product market, strong execution and exceptional customer service to achieve a strong leadership position in the online pet product retail market, a position we expect the company to maintain and extend in the years to come," Wells Fargo analyst Brian Fitzgerald said in a Friday client note.
Also compelling is the predictability of the business, including "consistent consumption patterns" and "minimal seasonality," Wells Fargo said, noting that with Chewy's "AutoShip offering and strong customer retention dynamics to date, we believe [the company] pairs strong growth prospects with strong business visibility/predictability."