Testing the old Wall Street wisdom that pet supply is recession-proof, inflation is biting the hand of some of the sector’s most solid performers, and shortages aren’t helping. Much depends on what pet lovers are (and aren’t) searching for this year as the economy is hammered by inflationary conditions and threatening to balloon into a full-blown recession.
Publicly traded Chewy saw its stock downgraded by some analysts Tuesday (July 26), as Seeking Alpha reported. It quoted Wedbush analyst Seth Basham as noting that Chewy shares have appreciated more than 70% since late May but added that “we see more downside risk to shares after the latest run.”
Chewy stock showed a 40% gain in the past month but is still down 50% versus one year ago.
Wedbush pointed to uncertainty in active customer counts, saying “this risk is growing with continued elevated churn rates for recently acquired customers, [and] cost-effective customer acquisition continues to prove challenging.”
It won’t come as a surprise to many in the pet supplies sector. Pet Food Industry reported in July that pet food is outpacing the broader economy — not just in terms of growth, but in rising prices. Pet food inflation rose 10.3% in June, while the Consumer Price Index (CPI) was up 9.1%.
See also: Amazon Looks to Take a Bite Out of Chewy With Revamped Pet Care Strategy
Food Over Fun
While no one is cutting back on kibble, pandemic-era trappings like dog beds and other nonessentials are taking a hit. Pet Product News noted that a June study from the consumer-packaged goods (CPG) research firm Packaged Facts predicted modest growth in the category.
It added that “many if not most pet households were and are already well equipped with products that could last multiple years, obviating the need to buy more in the face of a possible recession.”
“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 seller site Jungle Scout noted some down trends in the second quarter, reporting that “pet parents might have stocked up on pet toys in previous quarters, as revenues for dog toys were down by 33% from Q4 2021, while revenues for cat toys were down by 31%.”
As the surge in pet adoptions and purchases throughout the pandemic hit historic highs, pet parents dished out big dollars for their furry, feathered and floating friends.
The American Pet Products Association (APPA) reported in April that 2021 sales of $123.6 billion were the at “the highest level in history … following a banner year in 2020, when the industry exceeded $100 billion in sales for the first time.”