There are some members of American households who are not worried about the stock market, economic outlook, or the outcome of next week’s presidential election: the pets. And they are right not to worry: the pet industry has been booming, boosted by record pet ownership rates and work-from-home practices for some U.S. workers.
Pets are arguably the biggest winners from the pandemic, along with the companies catering to growing demand and moving quickly to innovate and expand their offerings. And companies catering to the growing pet care market have seen steady growth this year, despite all the uncertainty.
The ProShares Pet Care ETF (PAWZ) has returned 38.72% this year, outperforming the S&P 500, which grew 1.2%. Virtually every segment of the pet market has shown some growth, particularly telehealth, the healthier food market, pet insurance, and durable goods like toys, carriers, and other pet equipment.
Chewy’s Telehealth Play
Chewy, Inc. (CHWY) – the Amazon.com, Inc. (AMZN) of pet delivery – has been the favorite stock pick for many investors and Wall Street analysts since the start of the pandemic. Chewy still has a way to go to reach profitability, with the company reporting a net loss of $32.8 million in the last quarter.
Still, the pandemic expedited Chewy’s plans for telehealth offering. This week, the company announced its “Connect with a Vet” service, which is free for Autoship customers. Chewy is expanding the service to over 35 states after originally offering it in Florida and Massachusetts earlier this year. Eventually, the company plans to make “Connect with a Vet” available nationwide.
“Visiting a local vet continues to be a challenge for many pet parents during this time. Similarly, the vet community has also been impacted via clinic shutdowns or reduced clinic hours. So, we thought, why not come up with a solution that can help both communities, our customers and veterinarians, in this time of greatest need,” said Sumit Singh, CEO of Chewy.
Chewy’s expansion of its telehealth offering is consistent with its investment in relationships and customer engagement. The Autoship program, for example, generates 70% of the company’s net sales.
“In a world of uncertainty, qualities like trust, convenience and customer service really matter; especially when it comes to caring for family or loved ones, whether they’re people, pets or both,” CEO Sumit Singh said on the last earning call with analysts. “We have taken these millions of customer relationships and built a large base of repeat business that enables our rapid scaling and fuels our profitability on an accelerated timetable, as empowering as all of this is we are just getting started.”
Chewy’s stock is up 112% this year, according to Yahoo Finance data.
In the animal diagnostics space, companies like Zoetis Inc. (ZTS) and IDEXX Laboratories, Inc. (IDXX) have been strong performers in 2020. IDEXX Laboratories is up 63% this year, while Zoetis has returned 20% year to date.
“We are very encouraged by the sustained strong recovery in pet health care, which reinforces our optimism in the long-term growth potential for our companion animal diagnostics business and positions us well to deliver continued strong financial results,” said IDEXX CEO Jay Mazelsky in a statement this week.
IDEXX reported a revenue of $722 million for its third quarter in results released this week, an increase of 19% on a reported basis and 18% on an organic basis. This was driven by Companion Animal Group Diagnostics recurring revenue growth of 23% reported and 21% organic, the company said.
Freshpet, Inc.’s (FRPT) mission is to deliver “fresh meats, vegetables, and fruits farmed locally.” The stock is up 94% year to date. Freshpet reported a net income of $0.2 million in the most recent quarter of 2020, compared to the net loss of $5.7 million a year ago.
“We have been able to rebuild supply, replenish stores, and convert more families to Freshpet at a time when our pets mean so much to us,” said Freshpet CEO Billy Cyr.
He also noted new opportunities that the Covid-19 environment provided. “The COVID crisis presented some unique challenges, including new safety risks for employees, a badly disrupted retail environment, a surge in e-commerce, and drastic reductions in consumer mobility, but it also presented some new opportunities including lower media rates, higher media viewership and engagement, increased awareness of the role pets play in our lives, and the willingness to try new e-commerce options,” Cyr said on the earnings call in August.
The durable goods market is also projected to grow nearly 10% this year, with expected sales of $5.7 billion. As the work-from-home environment continues, it’s likely that pet owners will continue to invest in gates, crates, leashes, and collars in the near future.
Boosted by the growing telehealth and diagnostics segments, the pet market as a whole is poised for growth. “Incorporation of new technologies will only continue, from connected litter boxes and implantables to wearable devices and in-home diagnostics,” according to Mia Cary, Veterinary Innovation Council Executive Director. “We are moving from an era of once- or twice-a-year visits to an inexpensive and constant stream of 24/7 360° data that will provide deeper insights into our pets’ health.”
This Halloween, an estimated 18% of survey respondents plan to dress up their pets, an increase from 17% last year according to National Retail Federation survey.
Showered with attention and new toys, the pets may quickly get used to the new normal. By the time this pandemic is over, our furry friends will not want to go back to the way things were before.