Online pet products supplier Chewy (NYSE:CHWY) is an unusual company to invest in. Chewy stock holders have to accept that it’s a very niche market. Plus, market traders might still have unpleasant memories of the Pets.com stock fiasco from the early 2000’s.
Yet, Chewy CEO, Sumit Singh clearly believes that shareholders need not worry. Regarding pet product sales, Singh confidently declared, “The category is definitely recession resilient. And the data sort of suggests and proves that out.”
So now, we’re actually in a recession (classically defined as two consecutive quarters of negative gross domestic product (GDP) growth). Some folks would claim that the U.S. will remain in a recessionary state for a while.
Therefore, the current economic circumstances, brought on by the onset of the novel coronavirus, are truly putting Singh’s bold claim to the test. Is Chewy stock actually recession resilient? And, does the data bear this claim out, or is it just braggadocio?
A Closer Look at Chewy Stock
The price action of Chewy stock does seem to lend support to the CEO’s theory. Sure, the shares fell somewhat in March, which was the most intense part of the coronavirus crisis.
But compared to many other assets, Chewy stock didn’t stay down for very long. By March 18, the share price had completely recovered. For the stock holders, the market crash was little more than a speed bump.
Besides, that’s not the end of the story. After bottoming out and promptly recovering, Chewy stock then proceeded to climb far and fast. By early September, the share price had touched $70.
There was some retracement after that, but the bulls are clearly in charge of the price action. No matter how you slice it, Chewy stock proved in 2020 that it can indeed withstand the impact of a recession.
While some businesses faltered in March as the coronavirus ravaged the economy, others flourished. You might be thinking of certain tech companies when I say that, but there’s a surprise winner in the bunch.
Data provided by Nielsen indicates that during the peak pandemic panic in March, the in-store sales of pet food and supplies actually increase by 26%. Not only that, but the online sales of these items surged 77%.
Again, we’re seeing a recession-proof theme here. Even when people are panicking and fearful of losing their jobs, they’re still looking after their pets.
There’s also another factor that you might not have considered. Sean Simpson, Nielsen’s pet practice associate client director, observes, “One unexpected result of COVID-19 has been the rise of new pet owners, as many Americans opted to either foster or adopt.”
Some Data to Chew On
It’s interesting to consider that new pet ownership would increase during a pandemic. Call it unexpected if you’d like, but it certainly benefited Chewy.
But how did these factors impact Chewy’s bottom line in the second quarter? There’s plenty of data to chew on for prospective investors in Chewy stock:
- $1.7 billion in net sales, marking a 47% year-over-year increase and beating Wall Street’s estimate of $1.64 billion
- 16.6 million active customers, up 37.9% on a year-over-year basis and surpassing the estimate of 15.8 million active customers
- A gross profit margin of 25.5%, beating the estimate of 24.1%
- $15.5 million in adjusted EBITDA, signifying a vast improvement over the loss of $29.2 million posted last year and easily outperforming the estimate of a $12.4 million loss
That last bullet point with the adjusted EBITDA stats may be the most impressive one. Chewy absolutely smashed the experts’ quarterly projections and demonstrated that this is absolutely not a repeat of Pets.com.
The Bottom Line
Judging from the recently reported fiscal results, Chewy stock holders have every reason to remain confident in the company’s continued prosperity.
And while no company is 100% recession-proof, an argument could be made that Chewy’s about as recession-resistant as it gets.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.