Pet owners pinching pennies? Pandemic-era follies could be over | Pets


Worries about the economy suddenly put stocks of pet supply retailers in the Wall Street niche.

Shares of online retailer Chewy have fallen more than 35% this year, as investors wonder whether soaring inflation will squeeze sales and profits.

Chewy will release its second-quarter results after the closing bell on Tuesday. Analysts expect a loss of nearly $50 million and sales to rise 15%, a slowdown from revenue growth of 27% a year ago.

One of Chewy’s main competitors has previously warned that consumer spending on pets could slow.

Petco Health and Wellness, which has the ticker symbol WOOF, has fallen nearly 25% in 2022. The stock plunged last week after Petco issued weak earnings guidance.

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Petco CEO Ronald Coughlin said on a conference call with analysts that “we are adopting a cautious outlook at this time, given the economic uncertainty.” And Chief Financial Officer Brian LaRose added that “the current economic environment requires us to be pragmatic.”

The time of dreams

It looks like pet owners are feeling the pinch of an economic downturn and may be spending more cautiously in the coming months.

Demand does not fall off a cliff per se. But in the same way that big box retailers Walmart and Target are noticing that consumers are now spending mostly on essentials, dog and cat lovers could focus more on things like food and less on discretionary items like only toys.

Pet parents pinching pennies?

Pet owners, however, may be looking to cut costs and buy slightly cheaper food. Peanut butter and jelly kingpin Smucker, which also owns inexpensive pet food and snack brands Meow Mix and Milk-Bone, reported strong results from its pet category in its last earnings report in early August. Pet food sales were up 13% from a year ago.

CEO Mark Smucker said on a call with analysts that Milk-Bone is “quite frankly, a very affordable snack option for pets” and added that Meow Mix “also meets the value equation. for many consumers.

Frugal consumers might also look to buy more pet food from places like Walmart and Target, as well as Amazon, Costco or grocery giants such as Kroger, instead of shopping at Chewy or Petco.

Still, some Wall Street analysts don’t seem too worried about an economic downturn hitting the pet category too hard. Citi’s Steven Zaccone wrote in a recent report that “pet retail continues to be a bright spot in consumer spending as retailers have the power to set prices to pass on inflation.”

But Zaccone conceded that “the discretionary side of pets remains a drag as consumers prioritize consumables in their fixed pet budgets amid increased inflation.” It’s one of the reasons he lowered his outlook on Petco before the company reported earnings.

Zaccone thinks Chewy is in a better position but actually has another recommendation as “preferred way to play pets.” Zaccone is more bullish on agricultural products retailer Tractor Supply, which also owns a large pet business. Tractor Supply bought retailer Petsense in 2016 for $116 million. Petsense has 178 stores in 23 states.


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