Pet product sellers slumping as adoptions decline
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As American office workers go back to working in person, pet adoptions are declining — and that's taking a toll on pet product sellers.
Why it matters: The pandemic brought about a boom in pet adoptions, but the peak is past.
State of play: Online pet product seller Chewy this week lowered its revenue outlook and swung from net income of $2.3 million in the year-ago period to a net loss of $35.8 million in its most recent quarter.
- Pet adoptions — which spur purchases of new pet products — are down 16% year over year, Chewy CEO Sumit Singh told investors on Wednesday.
- The Shelter Animals Count database (SAC) shows dog adoptions trending down 1.2% from 2022, while animal intake at shelters — which includes strays — is expected to hit a 3-year high in 2023.
What they're saying: "Right now, pet household formation is muted, and it's muted because of the high kind of pressures that consumers are seeing from every direction," Singh said.
The impact: Shares of Chewy and Petco are down more than 46% and 63%, respectively, in 2023, bucking the overall stock market's strong showing.
- Chewy cut an unspecified number of jobs in November.
- Bank of America analyst Curtis Nagle said in a research note that investors should "not expect" Chewy to outline "new, material near-term revenue drivers" as the company grapples with declining rates of pet ownership.
- Petco CEO Ron Coughlin said in a Nov. 29 statement that the company's most recent quarterly performance was "below our expectations as we continue to navigate a challenging consumer environment."
Zoom out: Employers are increasingly demanding that employees relinquish remote-work arrangements, which make it easier to care for pets.
- In a recent KPMG survey of 400 U.S. CEOs, 62% said they envision their staff working permanently at the office within three years, up from 34% a year ago.
- Inflation has also taken a toll, prompting many pet owners to trade down for cheaper items.
Yes, but: Chewy's revenue was still up 8.2% in the third quarter, compared with a year earlier, and the company said it's hopeful that its "value proposition continues to resonate loudly."
The big picture: For pet retailers, it's a return to the old normal.
- Chewy's stock had skyrocketed by over 300% during the pandemic pet boom, from the start of 2020 to its peak in February 2021, and now trades below where it stood at the start.
- Petco, which IPOed in the beginning of 2021, is off more than 87% from its debut.
