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Chewy stock falls on wider than expected Q2 loss

Yahoo Finance Live anchors discuss second-quarter earnings for Chewy.

Video Transcript

[AUDIO LOGO]

BRAD SMITH: So let's talk about-- since we're on the topic of dogs and pets, let's talk about shares of Chewy, ticker symbol CHWY. Do they have an alibi? Well, let's find out. They're trading lower right now, so I guess not. 8% lower here on the day this morning after missing on earnings estimates and posting a wider than expected loss for the second quarter. The company announced Q3 and full-year revenue expectations both coming in under. Wall--

BRIAN SOZZI: Does that's say ruff? That says ruff. [LAUGHS]

BRAD SMITH: Ruff Q2, indeed.

BRIAN SOZZI: [LAUGHS] I can't. You know who would give us puppies-- if they were down, you know, they were talking-- if the CEO Sumit Singh was down in New York, he would give us puppies.

BRAD SMITH: Yep.

BRIAN SOZZI: They get it. You know, I think they send pictures, still, to customers of--

BRAD SMITH: Really?

BRIAN SOZZI: Yeah, for their dogs if you order-- or if you're an auto-ship customer, whatever it is. The Street is not necessarily liking this quarter from Chewy, even though maybe they should give it another look. They did see margins go up. They were able to push the prices. Auto-ship customers, which are essentially a recurring revenue stream for Chewy, those held steady.

But you're seeing the stock under pressure here in large part because of that outlook. I think the Street always wants to see more from Chewy. It's valued at a high multiple relative to the broader market. Again, perhaps just didn't get what they wanted.

BRAD SMITH: Yeah, and the impacts here similar to what we were actually discussing with the CEO of Petco just last week, where we were talking about the business and the temporary cutbacks that the customers are making right now in some of their spending, even on their furry four-legged friends at home.

And it is on the supplies. It's on the toys. It's the leashes, the collars, those type of things. Petco seeing that. Chewy seeing that as well. And so, what do they do with that inventory? And how long can you sit on it? Good thing is, you can sit on that inventory pretty long and somebody is always gonna come back and say, well, you know, now it's time for me to buy a leash. And if it becomes necessity, then you'll go back to it. It's really on the toys that you buy your pets as many toys--

BRIAN SOZZI: On dog coats.

BRAD SMITH: -when you're cutting back on spending for yourself.

BRIAN SOZZI: Yeah, I read this Chewy result. Look, people are buying food. They're spending more on food. Perhaps taking care of their pet. That's good. You don't want to see a Chewy earnings where sales of food go down because that's just not good, because it suggests the pet may not be around for any-- you know, for some reason.

BRAD SMITH: Gosh.

BRIAN SOZZI: But look, I think you saw some high margin categories under weakness here at Chewy. Those are the dog coats. Those are the bones. All those discretionary items that your pup or cat may not need, but you just stuff it on them because you want an Instagram photo. So that was where the weakness was.

BRAD SMITH: And it's really also kind of how they annex themselves to what is a major opportunity that, even we were discussing with Petco as well, which is on the veterinary side of the business. And for a Chewy leaning further into some of the medications, some of the subscriptions that their pets need in order to have, not just a healthy diet but also have some of the medications that are prescribed for their pets, too, that is significant. That's a $30 billion market, from what we've heard.

And as long as that continues to expand in opportunity and making sure that they have the ability to service on those auto ship, as well as you were talking about a moment ago, I think that's where they could perhaps hang their hat, to some effect. But they're gonna have to do a little bit more work to please investors here.

BRIAN SOZZI: Yeah, my non-- my nonexistent puppy lives an organic lifestyle, thought I'd be very important to mention.