Chewy on Monday reported third quarter net sales grew 40% to $1.23 billion from $875.6 million in the year-ago period.
The company's net loss widened slightly to $79 million from $78.6 million last year, according to a company press release. Adjusted loss before interest, tax, depreciation and amortization was $30.2 million, an improvement of 56%, from $68.6 million a year ago.
Gross margin in the quarter grew 410 basis points to 23.7% in the third quarter from 19.6% in the year-ago quarter, driven primarily by improved product margins and supply chain efficiency.
The online pet retailer beat analysts' estimates both in adjusted earnings and on revenue, causing shares to rise some 3.3% in after-market trading Monday, according to MarketWatch.
Chewy, which was acquired by PetSmart in 2017, grew it's active customer base 33% in the most recent quarter to 12.7 million. Net sales per active customer increased 11% to $360 and sales from its Autoship subscription service customers represented 70.4% of total sales, CEO Sumit Singh told analysts on a call, according to a Seeking Alpha transcript.
Chewy has failed to become profitable and landed itself on Retail Dive's list of companies that could go bankrupt within 12 months. However, Singh directed attention to two verticals, its private brands and pharmacy services, as bright spots during the quarter.
"Recent investments in both private brands and Chewy Pharmacy, two pillars of our growth and margin strategy, contributed positively to both our year-over-year increase in net sales and gross margin expansion in the quarter," he said.
Gross margin in the pharmacy business improved more than 650 basis points from the prior year "driven by a mix of existing customers converting to pharmacy, minimized advertised pricing discipline, as well as improved logistics as we ramp our Phoenix, Arizona operations to service West Coast customers," the company said.
Chewy Pharmacy, which launched in 2018, has been a key differentiator from Amazon even as it ramps up its own pet product assortment through its Wag private label.
In August 2018, Wag brought in $345,000 in sales, while Chewy's American Journey label generated some $940,000, according to a 1010data report.
As the pet "humanization" trend gains traction, particularly among millennial owners, people are more willing to spend a premium on their four-legged family members. Pet owners are projected to spend more than $75 billion on their animals this year alone, according to the American Pet Products Association.
"We believe that there is significant market opportunity ahead of us," Singh said.