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Pets and Profit, a Man’s Best Friend

0 | By Alex Kagin

As holiday shopping comes to a close, this year felt a bit different. There was no camping out overnight in front of stores to get that doorbuster TV. Instead, everyone was in front of their computer or cell phones to buy everything they needed this year.

Cyber Monday was projected to be the largest online shopping day in U.S. history and it not only delivered, it crushed last year’s spending, increasing 15.1%. That equates to $10.8 billion spent in a single day according to Adobe’s shopping data, which pulls its data from one trillion visits to U.S. retail sites.

It really is the year of e-commerce and as I was digging through all the numbers this weekend, one big number stood out to me. Online spending on pet products rose 254%. Now, this wasn’t the biggest number reported by any means. Online grocery shopping rose almost 400% and personal care products skyrocketed 556%. But to me, the first number is much more important.

Over the last year, there has been a pet adoption boom. All over the country, from New York to California, animal shelters are reporting massive upswings in the number of animals that have been adopted.

The reason why is no mystery. Shelter in place orders and social distancing to help slow down the spread of Covid-19 have led many people to see now as the perfect time to bring a pet into their home. According to Kitty Block, President and CEO of the Humane Society of the United States, the rates of adoption has increased by 90% in some cities.

In fact, my colleague recently brought home a border collie from his local shelter.

With all these animals finding new homes, this all means one thing. The growth in pet products is here to stay and that is why I’m bullish on one company headed into earnings next week.

While Chewy Inc. (NYSE: CHWY), an online retailer of pet food and other pet-related products, did see its stock rise after Adobe released its statistics, I believe this company is still in the early stages of growth.

Pet food alone in the United States is a $37B market according to the American Pet Products Association and in 2019 e-commerce only made up roughly 22% of sales. While everyone won’t be purchasing pet food and products online, there are only two major places to go and that is Chewy.com and Amazon.com Inc. (Nasdaq: AMZN).

With Packaged Facts predicting that online pet product sales will reach 27% of all pet product sales by the end of the year, this could translate to be big revenue boost for Chewy, which claims roughly half the revenue in the industry.

It’s an overwhelming market trend with a history of paying off, big time. Looking at another e-commerce player, Shopify Inc. (NYSE: SHOP), people who bought in at the IPO in 2015 have seen 3,700% gains. Anybody who had the exclusive privilege of buying in pre-IPO in 2010 is up by a mind-boggling 521,000%.

It’s a particularly outstanding example of how private, pre-IPO investment opportunities have the potential for profits that put anything in the stock market to absolute shame, and now private investments are more accessible to new investors than ever. You can see exactly how you can get in on some of them right here.

But the e-commerce trend is already paying off for Chewy. This is why they have seen tremendous sales growth, up almost 50% year over year in the last two quarters, along with roughly doubled sales since last 2018. There is a transformation going on in this industry and Chewy is at the forefront.

No longer do you need to haul a 40-pound bag of dog food from the store to your house. Now it will just arrive at your door. Like many pet owners, once they have found the right food for their pet, they stick with it. Last quarter autoship customer sales were 68.3% of net sales, an impressive number that also turns into a sticky business.

With the growth in sales, by the end of 2020, its fulfillment center network will consist of 11 centers with over 7 million square feet plus 3 pharmacy-focused fulfillment centers. This will help them serve their 16.6 million customers as of last quarter.

Not only is Chewy a pet food company, but they have started to branch out into other services for the pet industry. They have recently added health care services and even recently started a service called “Connect with a Vet,” a telehealth service connecting pets and veterinarians, a great service for the working parents especially during the pandemic.

Management Guidance, expects net sales to be between $1.70 billion and $1.72 billion, representing year over year growth of between 38% and 40%, but estimates are above the high end according to FactSet. While the stock is up 150%, we could see this stock continue to run if we see a strong earnings beat.

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