Testing old Wall Street wisdom that the supply of pets is recession proof, inflation is biting the hand of some of the industry’s top performers and shortages are not helping. It all depends on what pet lovers are looking for (and not looking for) this year, as the economy is hammered by inflationary conditions and threatens to balloon into a full-scale recession.
Publicly listed Chewy saw its stock downgraded by some analysts on Tuesday (July 26th), as reported by Seeking Alpha. He quoted Wedbush analyst Seth Basham noting that Chewy shares have appreciated more than 70% since the end of May, but added that “we see more downside risk for the shares after the last run” .
Soft stocks posted a 40% gain in the past month, but are still down 50% from a year ago.
Wedbush highlighted the uncertainty in the number of active customers, saying “this risk increases with continued high churn rates for recently acquired customers, [and] profitable customer acquisition continues to be challenging.
This will come as no surprise to many in the pet supply industry. The pet food industry reported in July that pet food was outpacing the broader economy, not only in terms of growth, but also in terms of rising prices. Pet food inflation rose 10.3% in June, while the consumer price index (CPI) rose 9.1%.
See also: Amazon is looking to take a bite out of Chewy with a revamped pet care strategy
Food rather than pleasure
While no one is cutting back on kibble, pandemic-era pitfalls like dog beds and other non-essentials are taking a hit. Pet Product News noted that a June study by consumer packaged goods (CPG) research firm Packaged Facts predicted modest growth in the category.
He added that “many, if not most, pet homes were and are already well equipped with products that could last for several years, avoiding the need to buy more in the face of a possible recession.”
Another troubling sign came from PetMeds, which announced Monday (July 25) that sales for its fiscal first quarter, which ended June 30, were $70.2 million, down 11.5 % compared to a year ago.
“While disappointed with the quarterly sales results, I remain encouraged by some of the underlying trends we are seeing,” said PetMeds CEO and President Matt Hulett.
Read also: Petco buys veterinary services for its stores
Amazon’s Jungle Scout marketplace noted some downward trends in the second quarter, noting that “pet parents may have stocked up on pet toys in previous quarters as revenue dog toys were down 33% from the fourth quarter of 2021, while cat toy revenues were down 31%.”
As the surge in pet adoptions and purchases throughout the pandemic has reached historic highs, pet parents have been spending big bucks on their furry, feathered and floaty friends.
The American Pet Products Association (APPA) reported in April that sales of $123.6 billion in 2021 were at “the highest level in history…after a banner year in 2020, when the industry surpassed $100 billion in sales for the first time.”
For some, the animal party continues. Retailer Petco’s earnings in the first quarter of 2022 were strong, with revenue growth of 4.3% and net profit growth of 227%, the company said.