Analysis: Chewy’s vet clinics exceed expectations, driving growth

A few days before the company’s 2024 fiscal year earnings release, Chewy CFO Dave Reeder describes the company’s plans for growth and says the brand is “a year ahead” of his expectations.

At the Morgan Stanley Technology, Media & Telecom Conference in San Francisco, Reeder stated that the firm had reached a customer growth inflection point, with improvements in new acquisitions, reduced customer churn and increased account reactivations.

“We had improvement in all 3 of those variables that ultimately create the outcome of active customer growth,” he says.

Growth and profitability

Chewy’s long-term model, released in December 2023, aimed for a 10% or greater earnings margin before interest, taxes, depreciation and amortization (EBITDA). Reeder says the company is making substantial progress toward that goal.

The company uses net sales per active customer (NSPAC) as a financial metric. In the third quarter of 2024, that metric reached $567 (€521.09) of spending per active customer in an annualized period. He says this figure has been supported by auto-ship growth. Reeder warns, however, that a “mathematical headwind” is coming for the metric.

The oldest customers, he says, spend more than $1,000 (€919) a year with Chewy, which Reeder attributes to increased brand loyalty. Adding customers can reduce NSPAC, as the newest shoppers tend to spend the least of any cohort.

Becoming a one-stop shop

Chewy opened its first vet clinic last year and now operates 8 clinics. The concept is meant to boost sales not only through direct clinic spending but also by keeping customers in the Chewy retail ecosystem.

The new market has sparked more growth than the company had modeled. Utilization is high, Reeder says, but importantly, the clinics are bringing in new customers who did not already use Chewy. Over half of these new customers visiting the clinic bought goods from Chewy.com within 30 days.

Reeder adds that more clinics are coming but cautioned there are “upper limits to how many vet clinics you can open in a 12-month period.” He suspects the company will add 20 or fewer new clinics to its portfolio due to those expansion headwinds.

Future outlook

The company aims to automate existing facilities as it works towards its long-term EBITDA margin goal. Reeder says it anticipates a 30% increase in sales from fully automated facilities over existing semi-automated facilities.

Chewy also released a first-party software in 2024, which aims to make it easier to service vendors and push targeted advertisements.