Pandemic Pets

  • Intro
  • Universe
  • Education
  • Chewy
    • Bulls
    • Bears
    • Key Metrics
  • Recommendation/Conclusion


It seems like everyone picked up a dog, cat, iguana, or parrot during the pandemic.

Granted, this was a tough time – being locked down, stuck in your house with nowhere to escape except your company-sponsored zoom happy hours. This would drive anyone insane.

And most people were locked down alone – so a natural longing for a companion (ideally one that would not get you sick) was heightened.

*Insert man’s best friend*

During the pandemic alone, 24 million people added pets to their households in the US.

That is a staggering 6x increase over a typical year – where on average, 2 million dogs and 2.1 million cats are adopted each year.

This significant pop also increased pet-related expenses to over $103 billion in 2020 alone.

Bankrate breaks down a lot of the data related to pet ownership and expenses for us, but this table does an excellent job highlighting the average annual costs expected for cat and dog owners:

In a year where no one was hiring pet sitters since no one was going anywhere, it would be safe to assume that average annual expenses were around $1,300/year.

That means we spent ~$29.9 billion on pets in 2020 alone.

This week we will dig into some pet companies to see how they have been doing after experiencing such a large inflow of new owners and pet-related expenses.


The pet industry is relatively fragmented when you think about all the expenses we pay annually to provide for our furry friends.

Looking at the abovementioned expenses, some companies operate in single verticals like Pet Food, Training, or Veterinary services, while others combine multiple offerings under one house.

And pet purchases are repeat purchases – you can’t get away with buying dog food one time for your dog.

It’s just like us – we have to buy groceries a few times every month.

If we want to keep our furry friends alive and healthy, we build their needs into our monthly budgets.

This gives pet food companies a reliable form of revenue and often loyal customers who will return to make duplicate purchases every month.

Pet expenses are also somewhat resilient– just like our basic non-discretionary needs (food, shelter, transportation), pet expenses will be there whether the economy is booming or tanking.

As younger generations pick up more pets, spending has continued to increase. Pets have become humanized as owners take more interest in what their furry friends are ingesting – spending a premium to ensure that food is natural, non-toxic, or made using only whole ingredients.

This only increases the expenses associated with pet ownership.

And focuses more on pet food vs. toys, treats, and other expenses.

Below is a table highlighting the top pet food stocks:

While these companies have fallen on more challenging times, along with the rest of the market, one stands above the rest.


While in e-commerce, we generally focus on net sales per customer or active customer growth, this week, we will look at something more broadly applicable: Inventory Turnover.


Inventory Turnover is a key ratio investors look at to determine how quickly a business turns over / replaces its inventory.

In layman’s: how quickly does the business need to replace its stock because it sold out of everything?

This ratio helps us to determine how efficient the business is. It can be measured over any period – monthly, quarterly, or annually.

COGS = Cost of Goods Sold

This ratio helps investors see how many days a business takes to sell its inventory.

If this number is big, the company may be less efficient or sell large, high-ticket items requiring more effort for customers to buy.

What matters is how we use this ratio to compare similar companies selling similar products.

Lower turnover ratios can mean weaker sales or excessive inventory on hand.

Higher turnover ratios can mean stronger sales or inadequate inventory stocking (i.e., stocking a very small amount of a product to generate higher turnover).

This ultimately leads us to understand how efficient the business is: are they able to turn inventory into sales faster than competitors? Or does its inventory sit on the shelves long before being sold?

It is also important to watch the trend with inventory turnover – if a company is trending lower over time, it may be an early sign that customers are choosing competitors more and more often, which could lead to future trouble for that company.

In the chart below, we compare our top pet companies inventory turnover, along with some major online retailers to see how they all stack up against each other.

Chewy again stands above other pet retailers, and even compared to larger online retailers stacks up incredibly well.

Let’s dig into Chewy!


Chewy is a pure-play eCommerce pet platform. While it was born out of the idea of shipping toys and pet food to consumers, it has continued to expand its offerings into the pet pharmaceutical segments and pet insurance offerings.

Imagine Chewy as the Amazon for your pet’s needs.

Chewy is a one-stop shop for all your pet-related expenses – you can buy food, treats, toys, pharmaceuticals, and even insurance products from Chewy.

And on top of that, its auto-ship program makes it easy to keep those monthly expenses at your door when needed.

This means when you forget to grab more dog food on your way home from work tonight, your furry friend isn’t going to give you the saddest look and guilt you into handing over the last quarter of your cheeseburger.

When founded, Chewy separated itself from Amazon by focusing more on customer service than anything else.

It focused first on hiring customer service representatives that would stand out compared to other companies because everyone hired shared a bond with every customer – they all love pets.

This allows interactions to be more natural and positive when both sides are concerned for the well-being of our furry friends.

And, of course, customer service is the key to happy customers and repeat sales.

Think of an experience where you were mistreated and made to feel silly regarding a sale.

Did you return to that business?

Probably not.

Pets are a pivotal part of our lives, and when a company shares that same love for our furry friends, we feel the same loyalty to that company that Spot feels toward us.

And that separates Chewy from all other pet food distributors.


  • Chewy has consistently been growing its business throughout COVID and after by increasing the average net sales from each active customer. 
    • When Chewy went public in 2019, customers spent an average of $360 per transaction. 
    • Today they spend $477 per transaction.
    • Chewy has continued to expand its product offering – providing pet owners with more solutions in one location than most other pet retailers. 
    • Chewy is also dipping its toe into the medication and veterinary business – further finding opportunities to generate greater customer sales.
    • 2022 saw Chewy hit profitability on a more consistent scale. Losses from 2021 are just now starting to be wiped away as customers spend more.
  • Chewy created a unique function that allows them to improve the consistency of sales each month: AutoShip.
    • Customers can set medication on AutoShip so that Chewy will automatically send them a new supply just in time for when they will need it next. 
    • Removing the barrier of requiring customers to log in and re-order the same thing at regular intervals has been a huge bonus for Chewy.
    • In its recent earnings call, Chewy noted that more than 75% of its net sales were from AutoShip customers.


  • Chewy’s push into pet pharmaceuticals has the potential to work against them. Right now, veterinarians are used to filling scripts for pet owners over the phone for reputable online retailers.
    • There is a potential that they will be unwilling to fill scripts on Chewy’s platform, given its new foray into this field and their prior relationships with other pet pharmaceutical suppliers.
    • This would be a significant setback to Chewy’s growth plan.
  • Chewy has some concentration risk, with 1/3 of sales coming from its top 3 suppliers. Any issues with those relationships could provide new problems for Chewy.
    • On top of that, customers have incredibly high brand loyalty regarding dog food. That may drive potential new customers away from Chewy if they don’t have the right brand in stock.
    • It may also cause current customers to leave the platform if Chewy cannot maintain its relationship with preferred vendors.

Key Metrics (as of 12/16/22)

  • Ticker: CHWY
  • Current Price: $42.41
  • Market Cap: $17.9 billion
  • Inventory Turnover: 12.2x
  • Active Customers: 20,520
  • Net Sales Per Active Customers: $477
  • Cash: $675.0 million
  • LT Debt: $485.8 million
  • LTM:
    • Revenue: $9.8 billion
    • Net Income: ($20.5)
    • EBITDA Margin: 0.9%
  • 2-year forward Revenue Growth: 21.6%
  • Valuation (NTM):
    • EV/Revenue: 1.6x
    • P/E: 424.9x
    • P/FCF: 53.0x


We love Chewy.

For a segment that is expected to continue growing and be relatively stable during recessions, there is no better player to choose than Chewy.

Not only has it been expanding its product offering, but it is continuing to find success in those areas.

Breaking into pet pharmaceuticals, improving the ease of veterinary approval for medication, and streamlining online shopping for pet owners puts Chewy strides ahead of its competitors.

If we look back at our work on Disney+, we know that subscription models often bring sticky customers and drive revenue stability and free cash flow generation for companies.

Sticky retail customers can be hard to come by, but Chewy appears to have unlocked that treasure chest and is benefitting immensely.

Chewy is down 28% YTD.

While this is worse than the broader market, Chewy is a buy and is in a prime position to continue growing its business and generating cash flows for investors.

Also, compare Chewy to our other pet retailers, and it is a clear winner:

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