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Chewy is the leading online retailer of pet products and is showing strong momentum in three key areas that will drive significant long-term earnings results.
The first is the company’s Autoship program. Autoship, as the name implies, is Chewy’s subscription service that automatically ships fresh food and supplies to customers’ doors each month (or as often as the customer chooses). Not only does it attract customers, but it also makes it much easier to manage inventory and combine shipments of multiple products. As a result, it keeps one of Chewy’s biggest expenses down. Eighty-four percent of Chewy’s sales came from Autoship orders in the fourth quarter, up from 80.6% a year ago.
The second area is its retail media advertising business. Chewy Ads is seeing strong momentum driven by its first-party data and highly engaged audience. A large portion of purchases attributed to advertising are autoship orders, CEO Sumit Singh said on the company’s fourth-quarter earnings conference call. That means advertisers can receive a very high return on their investment that translates into months or years of customer orders. The rise of the high-margin advertising business has helped increase overall operating margin in recent years.
Chewy’s latest area of ​​growth is its healthcare business. Chewy had 18 Vet Care clinics nationwide as of early April and recently added 29 more with the acquisition of Modern Animal. The clinical business operates at a higher margin than the current retail business (although Chewy shows strong operating leverage). More importantly, it provides another way for Chewy to attract customers and keep them in its ecosystem. It tightly integrates clinics with your online pharmacy, allowing for quick prescription fills and automatic renewals combined with over-the-counter medications and retail orders in automatic shipments every month.