Petco, Chewy and Freshpet have seen mixed results in Q4 earnings, with Freshpet the strongest performer following an earnings beat, and Petco’s shares sliding on a miss. Chewy’s results beat expectations, but its share price fell in after-hours trading on falling customer numbers and flat EBITDA guidance.
- Petco and Chewy’s shares slump on Q4 earnings.
- FnF Research estimates the global animal healthcare market will be worth $84.98bn by 2030.
- ProShares Pet Care ETF gains 2.7% year-to-date.
Pet food and product retailers Petco [WOOF] and Chewy [CHWY] both reported fourth quarter (Q4) and full-year (FY) 2022 earnings Wednesday, with mixed results and share price movements.
Petco was the first to report before markets opened Wednesday. Its share price opened 6.8% down and continued to fall throughout the day in response to Q4 earnings, which missed analyst expectations. Petco shares closed down 17.5% for the day, taking their value down 11.5% year-to-date.
After markets closed, Chewy released its Q4 earnings, revealing it turned a surprise profit. After closing up 1.8% year-to-date, however, the stock fell 2.5% in after-hours trading.
Elsewhere, Freshpet’s [FRPT] share price closed up 17.6% year-to-date, having remained flat since 27 February, when it reported a narrowing of losses which beat analysts’ expectations.
All three companies have suffered on markets over the past 12 months, with declines of 18.2%, 36.8% and 56.9% respectively for Chewy, Freshpet and Petco.
Investors treated to surprise profits
Petco reported Q4 results before markets opened on 22 March. Revenue rose 4.2% year-over-year to $1.6bn, just missing Refinitiv analyst expectations by 0.6%. EPS for the quarter fell 17.9% year-over-year to $0.23, 4.2% below analyst expectations.
FY revenue rose 3.9% to $6bn, as expected by analysts. FY EPS fell 17.6% to $0.75, 1.3% below analyst expectations.
Chewy’s Q4 EPS of $0.01 was a pleasant surprise after analysts polled by Refinitiv had yielded a consensus estimate of $0.11 losses per share. Revenue increased 13.4% year-over-year to $2.7bn, beating analyst expectations by 2.7%.
Chewy’s FY revenue increased 13.6% year-over-year to $10.1bn, beating the $10.03bn analysts had expected, while FY EPS of $0.53 was another surprise upside on the $0.02 loss per share analysts had forecast.
However, Chewy’s shareholder letter predicted EBITDA margin will be flat to down 50 basis points for 2023. Combined with a 1.2% drop in active customer numbers, this pushed investors to shed Chewy stock on the results.
Freshpet’s Q4 results, announced on 27 February, showed a 43.1% year-over-year increase in net sales to $165.8m. This represented its “strongest topline growth since the company went public”, according to its press release. Net losses of $0.06 per share marked a 71.4% year-over-year improvement, and exceeded analyst expectations by 33.3%.
For the full year, Freshpet reported losses of $1.29 per share on revenue of $595.3m. Annual revenue grew 39.9% year-over-year and exceeded analyst estimates by 2.4%. Losses nearly doubled, but they were 0.8% narrower than analysts had expected.
A healthy market?
Inflation has hit the pet care industry as hard as any other. Data from NielsenIQ shows that pet food prices rose by an average of $0.30 in 2022, the largest price jump in the past five years. This has led to increased spend but a reduced basket size for pet product customers, limiting the number of items that retailers are able to shift. Notwithstanding this, pet ownership rose 10.7% during 2022 to 110 million households.
While Chewy expects flattening margins, the latest research forecasts growth for the sector. A report released Tuesday from FnF Research estimated the global animal healthcare market was worth $40.2bn in 2022, and it is expected to grow at a CAGR of 9.8% between 2023 and 2030, bringing the industry to a value of $84.98bn by the end of that period.
According to its recent shareholder letter, Chewy estimates the pet category’s total addressable market in the US alone is $130bn, and says it has grown consistently despite economic volatility.
Funds in focus: ProShares Pet Care ETF
Investors looking to tap into the potential of the pet care industry’s growth can select the ProShares Pet Care ETF [PAWZ]. As of Wednesday, Chewy is PAWZ’s fourth-largest holding with a 7.57% weighting, Freshpet its sixth with a 4.88% weighting, and Petco accounts for 2.82% of assets under management. Its top holding with a 10.36% weighting is Idexx Laboratories [IDXX], a US manufacturer and distributor of pet and livestock healthcare products and services.
PAWZ is up 2.7% year-to-date, but down 5.3% over the past month.
Analysts polled by Refinitiv yielded a median 12-month price forecast of $11.00 for Petco, implying 31.1% upside on the most recent closing price of $8.39. For Chewy, a consensus target of $50.00 implies 32.4% upside on $37.76, while a $75.00 consensus target for Freshpet implies 20.9% potential gains over $62.05.