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Chewy Shares Slump as Executives Say Consumers Remain Pressured · Bloomberg Intelligence

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  Speaker 7: Hi, it's Carlos Fulham, Paul Sweeney, live here in our
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  Speaker 7: Bloomberg Interactive Brokerage Studio, streaming live on YouTube as well here. Earnings,
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  Speaker 7: still earnings season. Chewy for our pet lovers out there. Shares,
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  Speaker 7: they fell as much as 10 percent, the most since
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  Speaker 7: 2025 after the pet supply company forecast a sequential decline
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  Speaker 7: in gross margin for the third quarter due to a
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  Speaker 7: timing shift.
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  Speaker 8: That's not good.
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  Speaker 7: Diana Rossetto-Pena joins us here. She's a consumer staples analyst
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  Speaker 7: for Bloomberg Intelligence. What's going on with Chewy? Because I
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  Speaker 7: see the Chewy boxes all over the place. They're getting deliveries.
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  Speaker 8: Yes.
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  Speaker 4: So for the quarter, it was, you know, the headlines
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  Speaker 4: were strong. But if you look under the hood, a
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  Speaker 4: lot of it was timing and, you know, acquisitions that
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  Speaker 4: fed into the growth. You know, shorter term, they expect
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  Speaker 4: some challenges. They think that the industry is not necessarily growing.
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  Speaker 4: They are growing at a higher pace than the overall industry,
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  Speaker 4: and they are taking share. But it seems that they
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  Speaker 4: were a little bit downbeat from the call, particularly with consumer,
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  Speaker 4: how restrained they are, which is, you know, something that
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  Speaker 4: we have seen.
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  Speaker 7: So what does a pet consumer do when a pet
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  Speaker 7: consumer is... constrained a little bit. Like for us, for humans,
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  Speaker 7: maybe we'll trade down from a brand to a store
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  Speaker 7: kind of thing.
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  Speaker 8: Owners do the same thing?
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  Speaker 1: Well, they do in a certain place.
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  Speaker 4: For the main course, if you want to say that,
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  Speaker 4: or the main meal, they tend to stick to the
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  Speaker 4: same brand, which is why packaged food companies invest heavily
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  Speaker 4: on becoming the main meal for the pets and get
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  Speaker 4: them early. But everything else is up for debate. So
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  Speaker 4: you're talking about snacks, you're talking about treats, well.
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  Speaker 1: treats.
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  Speaker 4: You're talking about discretionary items.
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  Speaker 1: All of those.
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  Speaker 8: Things are up for play.
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  Speaker 4: And that has been something that we have seen in
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  Speaker 4: the past year. And we think this is going to
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  Speaker 4: probably continue for the remainder of the year.
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  Speaker 8: Does Chewy do pet insurance?
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  Speaker 4: They do, but they have, you know, it's all in
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  Speaker 4: competency on like vet care. Right now they're focusing more
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  Speaker 4: on clinics and physical clinics. They're aiming for about 60
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  Speaker 4: by the end of the year. And it seems that
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  Speaker 4: that has been a little bit of a better alternative
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  Speaker 4: for them.
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  Speaker 8: It seems to be working. All right.
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  Speaker 7: Here's your note, which I'm not really sure, but I
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  Speaker 7: think you can explain it to me, I'm sure. Growth
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  Speaker 7: is increasingly a spend per pet story. Not a pet
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  Speaker 7: population story. Is that kind of a remnant of the
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  Speaker 7: pandemic or something, when it was just a play on
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  Speaker 7: the growth of more people owning dogs, I guess?
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  Speaker 8: Exactly.
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  Speaker 4: And going back to Chewy, they have mentioned that, for example,
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  Speaker 4: given how... difficulty economy has become, real estate obviously is
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  Speaker 4: being challenged. So cats are better pets for smaller dwellings
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  Speaker 4: compared to dogs. And that is, you see a trend
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  Speaker 4: that drives that. And also, we see greater spending on
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  Speaker 4: per pet rather than a growth in pet population. Per Chewy,
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  Speaker 4: the population has stabilized. Surrendering and adoption seems to be
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  Speaker 4: levels close to historical averages, I will say. But the
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  Speaker 4: play here is more on the spending per pet.
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  Speaker 8: I can't believe I'm asking this question.
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  Speaker 7: What's the different growth trajectories of cats versus dogs in
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  Speaker 7: terms of the revenue for Chewy?
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  Speaker 4: Yes. So basically, obviously, you know, the industry is mostly
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  Speaker 4: dog driven, but cats are, you know, anything related to
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  Speaker 4: cats are starting to show greater growth than dogs. You're
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  Speaker 4: talking about treats, you're talking about main food. And it's
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  Speaker 4: because we're seeing a slight better population growth in cats,
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  Speaker 4: at least in the United States, compared to dogs. And
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  Speaker 4: like I said, it's mainly because people tend to think
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  Speaker 4: that cats are less expensive to maintain.
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  Speaker 2: Are they?
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  Speaker 8: Yes, they are.
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  Speaker 4: Okay. you know, I would say like, you know, about
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  Speaker 4: two thirds of what, you know, you spend on a dog, but,
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  Speaker 4: and they also tend to do well in smaller, you know, Houses.
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  Speaker 8: Exactly. Is Chewy a global company or are they just U.S.? No,
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  Speaker 8: they're just U.S.
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  Speaker 4: They have started going into Canada. They're, you know, doing
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  Speaker 4: some groundwork there. They haven't updated in a couple of
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  Speaker 4: quarters in terms of like the status of that. But yeah,
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  Speaker 4: they seem to be focused more on the U.S.
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  Speaker 7: So for the industry, I know you guys do a
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  Speaker 7: lot of industry level work. The pet industry industry. Is
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  Speaker 7: it growing? Have we seen our great times during the
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  Speaker 7: pandemic and that's it?
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  Speaker 8: Have we reset? What's going on?
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  Speaker 4: No, we actually published our deep dive today along with Chewy.
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  Speaker 4: We try to time it very well. And we think
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  Speaker 4: over the next 10 years, we will probably see the
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  Speaker 4: global pet industry growing to $ 645 billion by 2035. Globally, yeah, 67%.
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  Speaker 4: compared to 2025 levels. And U.S. spending would probably reach
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  Speaker 4: $ 250 billion by then.
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  Speaker 3: Okay.
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  Speaker 8: Aside from Chewy Eats, who are the public plays for this?
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  Speaker 1: So we're talking.
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  Speaker 4: About the big food companies. You have General Mills, Smucker, Nestle,
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  Speaker 4: smaller pure play like Fresh Pet in the U.S., obviously
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  Speaker 4: on the retail side. Amazon is a big online player.
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  Speaker 4: You know, Chewy, obviously. You have Petco. You have PetSmart,
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  Speaker 4: which is, you know, a private company. Yeah, so it's
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  Speaker 4: everything that, you know, what you want to spend on.
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  Speaker 1: Stay with us. More from Bloomberg Intelligence coming up after this.
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  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 5: you get your podcasts or watch us live on YouTube.
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  Speaker 8: Let's get back to earnings. Jersey Mike's recently came public here.
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  Speaker 7: It has become a really, really big chain across the
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  Speaker 7: country and they want to get bigger.
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  Speaker 8: They want to go to the UK and all this
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  Speaker 8: kind of stuff.
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  Speaker 7: So had an IPO recently. They reported some numbers here.
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  Speaker 7: Let's check in with Michael Halen. He covers all the
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  Speaker 7: restaurants for Bloomberg Intelligence. Mike, talk to us about Jersey Mike's.
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  Speaker 7: What did we learn with the most recent report?
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  Speaker 6: It being their first earnings release, we learned a lot.
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  Speaker 8: The stock's trading up.
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  Speaker 6: I think it was up 6%, 7% the last time
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  Speaker 6: I checked. There's a few things going on there. First
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  Speaker 6: of all, they guided higher than consensus. They're looking there
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  Speaker 6: for three The 4% same-source sales in the second half
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  Speaker 6: driven mostly by transactions. That would be an acceleration of
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  Speaker 6: their second quarter growth. They're increasing the marketing spending. They're
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  Speaker 6: going to do some more in-game ads with the NFL.
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  Speaker 6: They're doing digital marketing, which they hadn't done before. This
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  Speaker 6: should attract Gen Z consumers into the brand. They're bringing
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  Speaker 6: back Mike's Hot Sub, which tends to help dinner business.
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  Speaker 7: Yeah.
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  Speaker 6: So they definitely have some initiatives in place. They also
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  Speaker 6: talked about some longer-term initiatives.
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  Speaker 8: One of them is catering.
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  Speaker 6: On average, they're doing about 3% of sales, but they
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  Speaker 6: have stores doing 10%, and they think 10% is achievable
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  Speaker 6: for the entire system. And then another interesting one they
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  Speaker 6: mentioned was late night. They didn't talk about doing more LTOs.
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  Speaker 6: They're going to continue with this pace of about three
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  Speaker 6: limited time offers a year.
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  Speaker 8: But they said they could expand into late night.
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  Speaker 6: Their stores are open until nine. But as they do
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  Speaker 6: more digital business, late night could be more attractive. And
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  Speaker 6: so I think that one was one that people may
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  Speaker 6: not have been expecting and could create same store sales
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  Speaker 6: growth in 2027 and beyond.
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  Speaker 3: Right. Okay, so there are a lot of initiatives that
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  Speaker 3: are working here at Jersey Mike's, but like every other
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  Speaker 3: food company or restaurant company, they still have to contend
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  Speaker 3: with rising costs.
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  Speaker 1: Did they say anything about that?
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  Speaker 6: Well, listen, in my opinion, Jersey Mike's is kind of
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  Speaker 6: a sector style that clients, if they want to be
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  Speaker 6: in restaurants, should be in. It's unique because it's fast casual,
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  Speaker 6: but they're 99% franchised, right? So They're seeing pretty solid growth,
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  Speaker 6: very strong net unit growth, more than 8%. Same-star sales
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  Speaker 6: are going to accelerate back to 3% to 4%, and
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  Speaker 6: we think management is sandbagging a little bit.
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  Speaker 8: So there's really strong, attractive growth here.
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  Speaker 6: They're 99% franchised, so they're not footing the bill for
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  Speaker 6: the higher.
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  Speaker 8: Food and labor costs. Yeah, the franchisees are.
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  Speaker 6: The franchisees are, and this makes Jersey Mike's pretty unique.
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  Speaker 6: All the other fast casual chains we cover... own their stores,
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  Speaker 6: operate their stores, and so they get hit with the
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  Speaker 6: higher food costs.
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  Speaker 1: Stay with us. More from Bloomberg Intelligence coming up after this.
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  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 5: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 10:14
  Speaker 5: Auto with the Bloomberg Business App. Listen on demand wherever
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  Speaker 5: you get your podcasts or watch us live on YouTube.
• 10:20
  Speaker 8: All right, let's switch gears. Let's get to the business
• 10:23
  Speaker 8: of sports.
• 10:24
  Speaker 7: Randall Williams comes strutting in here with his Tennessee Titans
• 10:27
  Speaker 7: jersey on.
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  Speaker 8: I don't know where that comes from.
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  Speaker 2: Oh, man.
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  Speaker 7: Really?
• 10:31
  Speaker 8: Steve McNair.
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  Speaker 1: Exactly.
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  Speaker 7: Aaron McNair.
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  Speaker 8: I want to talk to you, Randall. It's the beginning
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  Speaker 8: of the NFL season. It's kickoff day.
• 10:38
  Speaker 7: We just renewed Goodell for another four years, so he's
• 10:42
  Speaker 7: going to become even wealthier.
• 10:43
  Speaker 8: Good for him.
• 10:44
  Speaker 2: Probably a billionaire by the end of it.
• 10:46
  Speaker 4: Yep.
• 10:47
  Speaker 8: Here's the big thing. When are they going to add
• 10:49
  Speaker 8: an 18th game? I think it remains to be seen.
• 10:52
  Speaker 2: I mean, the NFL began talking about this, I would say,
• 10:56
  Speaker 2: probably around 18 months ago. And it was under the
• 11:00
  Speaker 2: assumption that this was going to happen, in large part
• 11:02
  Speaker 2: because former union executive director Lloyd Howell said, who doesn't
• 11:05
  Speaker 2: love more football? And so if you're the league office,
• 11:08
  Speaker 2: you're like, oh, they're ready to negotiate. Lloyd has since
• 11:11
  Speaker 2: been dismissed for a bunch of different things, including strip
• 11:13
  Speaker 2: club visits, as well as misuse of union funds. And
• 11:17
  Speaker 2: so since Lloyd's dismissal, they had an interim executive director.
• 11:21
  Speaker 2: Now the current executive director is J.C. Tretter.
• 11:24
  Speaker 4: J.C.
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  Speaker 2: Is currently going on a tour tour. around all 32
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  Speaker 2: clubs to gather information as to how players feel about it.
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  Speaker 2: But the union has been in no position to negotiate
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  Speaker 2: a CBA early, therefore being able to add an 18th
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  Speaker 2: game if the players want to at all.
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  Speaker 1: I mean, even a 17th game is really... difficult for
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  Speaker 1: a lot of the players.
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  Speaker 3: I mean, it's great for the NFL because of the
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  Speaker 3: media rights, but everyone's kind of grumbling about that because
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  Speaker 3: it's difficult to recover from the game before you have
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  Speaker 3: to get ready for the next one.
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  Speaker 5: Yeah.
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  Speaker 2: The NFL voted to add another game years ago. I
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  Speaker 2: want to say six years ago. And that was a
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  Speaker 2: very tight vote in large part because of the fact
• 12:03
  Speaker 2: that all of the things you mentioned, it's a grueling season.
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  Speaker 2: This is one of the highest contact sports that isn't
• 12:09
  Speaker 2: a combat sport. And the interesting thing about this is
• 12:13
  Speaker 2: that evidently the players chose money. They chose money in
• 12:16
  Speaker 2: years ago when they added this 17 game. And the
• 12:18
  Speaker 2: question is, will they do it again? And the owners
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  Speaker 2: are betting that they will.
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  Speaker 8: I bet they will as well because you have to
• 12:24
  Speaker 8: expand the rosters then. So that means more jobs for
• 12:27
  Speaker 8: football players, more money.
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  Speaker 2: It remains to be seen what the players are going
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  Speaker 2: to ask for. I had a couple sources tell me
• 12:34
  Speaker 2: that they could want additional roster spots, a higher increase
• 12:38
  Speaker 2: in revenue share, another bye week, and not having as
• 12:42
  Speaker 2: many mandatory off-season obligations that they have to show up for.
• 12:46
  Speaker 8: And where you want to get to is have the
• 12:48
  Speaker 8: Super Bowl on Friday What is it? Martin Luther King's?
• 12:52
  Speaker 8: It's President's Day. President's Day.
• 12:54
  Speaker 2: And so this year it's happening. So there's someone who's
• 12:56
  Speaker 2: going to look at a calendar and say, oh, well,
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  Speaker 2: it falls on President's Day this year. That is not typical.
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  Speaker 2: Next year in 2028, it'll go back to the regular schedule.
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  Speaker 8: Because a lot of people out there say. the day
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  Speaker 8: after the Super Bowl should be a national holiday.
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  Speaker 3: It pretty much is an unofficial national holiday with a
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  Speaker 3: lot of people not showing up to work. And a
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  Speaker 3: lot of school districts have kind of planned around that,
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  Speaker 3: giving kids the day off and calling it like a
• 13:18
  Speaker 3: planning day.
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  Speaker 2: It is a brilliant media strategy for Roger Goodell to
• 13:21
  Speaker 2: get out there and say all of this because... Of
• 13:24
  Speaker 2: all the things you mentioned, there are a bunch of
• 13:25
  Speaker 2: people who are like, matter of fact, I do like
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  Speaker 2: this idea. Not thinking about, of course, the toll that
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  Speaker 2: it takes on players.
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  Speaker 8: And so we'll see.
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  Speaker 2: But all of the things you mentioned are top of
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  Speaker 2: mind for the NFL. But if the union is not
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  Speaker 2: ready to go to the bargaining table, then there's nothing
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  Speaker 2: they can do except for wait until the current CBA expires.
• 13:43
  Speaker 1: Okay, so nothing's going to happen immediately.
• 13:46
  Speaker 3: What we do know that's happening immediately is Live Golf
• 13:49
  Speaker 3: has filed for bankruptcy protection, and we don't know what
• 13:52
  Speaker 3: the future looks like. Just get us up to date
• 13:54
  Speaker 3: here on this renegade golf league that spent a lot
• 13:57
  Speaker 3: of money, made a big splash.
• 13:58
  Speaker 1: And I don't know, does it quietly go away now?
• 14:01
  Speaker 8: I think live golf.
• 14:02
  Speaker 2: Will be remembered as one of the biggest disruptors in
• 14:05
  Speaker 2: sports history. And evidently, they had the plug pulled early
• 14:09
  Speaker 2: on what Piff was spending on them, which is in excess.
• 14:13
  Speaker 8: Of $ 5 billion.
• 14:14
  Speaker 2: And they weren't expecting them to stop fueling the rocket ship.
• 14:18
  Speaker 2: And now they've had to deal with trying to raise
• 14:21
  Speaker 2: some of that money. And as people look at sort
• 14:23
  Speaker 2: of how their business has grown, people just did not
• 14:27
  Speaker 2: see enough returns in terms of being able to invest
• 14:30
  Speaker 2: in this. Now, of course, live has a partner that
• 14:33
  Speaker 2: they say is going to help finance him and help
• 14:35
  Speaker 2: get them above water for Live 2.0. But it really
• 14:38
  Speaker 2: does remain to be seen if this league is going
• 14:41
  Speaker 2: to live beyond 2027 when they will make their return
• 14:44
  Speaker 2: in their new iterations.
• 14:46
  Speaker 6: Yeah.
• 14:46
  Speaker 7: It's, I don't know, as a lifelong golf fan and a,
• 14:49
  Speaker 7: an observer of the business of that sport, I don't
• 14:51
  Speaker 7: see it.
• 14:51
  Speaker 8: At all, but yeah, real quick. Have you enjoyed the
• 14:54
  Speaker 8: U S open? Love it. Love it.
• 14:56
  Speaker 2: My only thing is I'd like to watch Ben Shelton.
• 14:58
  Speaker 2: I'd like to watch Carlos Alcaraz, but I know when
• 15:01
  Speaker 2: the match is starting, right. As I'm getting ready to
• 15:03
  Speaker 2: go to bed and I'm waking up in the middle
• 15:05
  Speaker 2: of the night and it's still on, that's a problem.
• 15:06
  Speaker 8: Yeah, it is. It's a problem. And it's, Like all
• 15:09
  Speaker 8: the tournaments, the slams, they always do this. We've got
• 15:12
  Speaker 8: to find– it can't be good for media.
• 15:14
  Speaker 2: It can't be good for media rights.
• 15:16
  Speaker 8: No, and it can't be good for the players either. Oh, no,
• 15:18
  Speaker 8: there's no way.
• 15:19
  Speaker 1: It feels like it's gotten too big for itself.
• 15:21
  Speaker 2: They've accepted a lot of different people in there, and
• 15:24
  Speaker 2: I just don't– I can't imagine anybody wants to be
• 15:26
  Speaker 2: leaving Arthur Ashe at 3.30 in the morning.
• 15:29
  Speaker 8: I'm a day session person. I find that day session.
• 15:31
  Speaker 1: Is– What is tennis after all? You usually watch it
• 15:34
  Speaker 1: in the daytime.
• 15:35
  Speaker 2: There's no sport that I attend where I'm waking up
• 15:38
  Speaker 2: really super early in the morning.
• 15:40
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