Chewy's Strong First Earnings Report Shows Potency Of Pet Care ETF

Shares of Chewy, Inc. CHWY, the once battered online retailer of pet-related items that went public last month, surged 3.76% in Thursday's after-hours session following the company's first-earnings report since its June initial public offering.

What Happened

While Chewy has been drubbed since its IPO, the company reported revenue of $1.1 billion, up 45% from the year-earlier period, while saying it lost 8 cents a share for the fiscal first quarter ending May 5, below the Wall Street forecast calling for a loss of 15 cents.

The news was enough to send the ProShares Pet Care ETF PAWZ, the first exchange traded fund to add shares of Chewy, up nearly 1% on above-average volume. PAWZ added Chewy to its lineup about a month ago, making the stock a top five holding in the first ETF dedicated to pet care investing.

Why It's Important

PAWZ, which debuted last November, follows the FactSet Pet Care Index. The fund is up 19% year to date, easily outpacing traditional health care and retail ETFs along the way.

"The pet care business has seen twice the percentage growth of GDP in the U.S. since 2007, and data like the earnings from Chewy are a strong signal that the accelerating trend will continue,” said Simeon Hyman, global investment strategist at ProShares. “It's fascinating to see these strong results fresh on the heels of Amazon Prime Day, since Chewy represents the 'Amazon-ification' of pet care retail, as consumers shift their purchases from in-store to online."

Chewy ranks as the fourth-largest holding in PAWZ, according to issuer data, and the largest that is not considered a pet health care name.

“We are pleased to report strong first quarter 2019 results as a newly public company with net sales growing 45 percent year-over-year, and gross margin increasing 330 basis points year-over-year,” said Chewy CEO Sumit Singh.

What's Next

Nothing moves up in a straight line, but betting against the positive long-term trajectory for PAWZ seems foolhardy. After all, the underlying industry has been growing for two decades, even during the global financial crisis.

“The pet care industry could reach $203 billion in global sales by 2025,” notes ProShares.

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