Chewy (CHWY -1.73%), a one-time market darling, is falling out of favor with the market as of late. The stock rose to $120 per share earlier this year and has since almost halved, trading at $63 as of this writing. Show The fall from grace can be attributed to several reasons, including but not limited to: rising costs for labor and advertising, reopening economies, and supply shortages. Let's take a closer look at these factors individually to understand why the market is placing such importance on them. Image source: Getty Images. Inflation is circulating throughout the economyIn its second-quarter conference call, management highlighted an imbalance in the supply and demand for labor. As a result, the costs to get people to work for Chewy are rising. The company is making investments (increasing wages and bonuses) to generate applications and onboard enough people to fulfill existing demand for its products. In all, the company spent $30 million, roughly twice as much as it did in the previous quarter. Moreover, Chewy is an e-commerce retailer of pet products and services; it likely buys online advertising from companies like Alphabet and Facebook. Both of those behemoths reported substantial increases in the price per click and the cost per impression they charge businesses to market on their platforms. In talking about rising advertising rates, Chewy CEO Sumit Singh said, "While this was expected to some degree, the magnitude of the increase in Q2 was unprecedented." Economic reopening could slow sales growthChewy experienced a nice sales boost at the pandemic's onset. As folks were trying to avoid shopping in brick-and-mortar stores to prevent the risk of contracting the novel coronavirus, they spent more money online. In fiscal 2020, Chewy's revenue increased 47% from a year earlier. Yet in the past few months, millions more people have been vaccinated against COVID-19 and economic reopening has gained momentum. So investors are understandably concerned that the increase in consumer mobility could hurt sales for the online pet retailer. Even if customers don't spend money at another pet store when they go out, they allocate money elsewhere, leaving less income to splurge on their pets. Supply-chain bottlenecksIt seems like supply-chain bottlenecks abound in all parts of the current economy. Customer demand for products is higher than before the pandemic. Meanwhile, fewer people are willing to work at the prevailing wages with a deadly virus still circulating. That's led to shortages of everything from materials to truck drivers and port workers. Chewy is experiencing high levels of out-of-stock items its customers usually buy on the site. This is causing it to miss out on sales and potentially lose customers who could be going with another retailer that has procured a supply of the desired product. Overall, these are significant headwinds, and investors are justified to be concerned about their impacts on Chewy's business. That said, Chewy reiterated its top- and bottom-line outlook for the year when it reported second-quarter results. Further, the challenges, persistent as they may be, are temporary and should ease as world economies emerge from coronavirus-related disruptions. While a price drop in Chewy's stock was to be expected, a fall from $120 to $63 may be an overshoot. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Parkev Tatevosian owns shares of Alphabet (C shares) and Chewy, Inc. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Chewy, Inc., and Facebook. The Motley Fool has a disclosure policy. Last Updated Sept 21, 2021 These Customer Reviews and Q&A Terms and Conditions ("Terms and Conditions") and Chewy, Inc.'s ("Chewy") Terms of Use found here govern your conduct associated with the Customer Review and Q&A service offered by Chewy. You agree to not submit the following types of content or any content that violates these Terms and Conditions. Chewy reserves the right not to post any content, and the right to edit or delete any content, if it contains any of the following types of content or otherwise violates these Terms and Conditions:
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You agree to indemnify and hold Chewy (and its officers, directors, agents, subsidiaries, joint ventures, employees and third-party service providers, including but not limited to Bazaarvoice, Inc.), harmless from all claims, demands, liabilities, damages (actual and consequential), and expenses (including, without limitation, reasonable attorneys' fees) of every kind and nature, known and unknown, arising out of a breach or alleged breach of any of your representations and warranties set forth above, your violation of any law or the rights of a third party, or any use of any content submitted by you. For any content that you submit, you grant Chewy and its licensees, successors, and assigns a perpetual, irrevocable, royalty-free, transferable right and license to use, copy, modify, delete in its entirety, adapt, publish, translate, create derivative works from, sell, distribute, and exploit such content (including, without limitation, your name, user name, picture, likeness, voice, and biographical information), and any material based thereon or derived therefrom, together with any other material, edited or altered as Chewy sees fit, in any manner, in any and all media (whether now known or hereafter devised), throughout the world, for any purposes whatsoever (including, without limitation, for purposes of advertising or trade), without compensation to you. All content that you submit may be used at Chewy's sole discretion. Chewy reserves the right to change, condense or delete any content on Chewy's website. Chewy does not guarantee that you will have any recourse through Chewy to edit or delete any content you have submitted. Ratings and written comments are generally posted within two to four business days. However, Chewy reserves the right to remove and content or to refuse to post any content for any reason, including, without limitation, for the reasons stated herein. You acknowledge that you, and not Chewy, are responsible for the contents of your submission. None of the content that you submit shall be subject to any obligation of confidence on the part of Chewy, its agents, subsidiaries, affiliates, partners or third party service providers and their respective directors, officers and employees. By submitting your email address in connection with any content you submit, you agree that Chewy and its third party service providers may use your email address to contact you about the status of your review and for other administrative purposes. Why has chewy stock gone down?Chewy Inc. tumbled after the online seller of pet supplies cut its revenue outlook and said customer growth has slowed.
Why is chewy out of dog food?Three distributors of premium pet foods have pulled their products from Chewy.com since the Dania Beach startup became a subsidiary of PetSmart in the largest e-commerce buyout in history. Tuffy's Pet Foods, a subsidiary of the family-owned, Minnesota-based company KLN Family Brands, was the first to pull the plug.
Is chewy in financial trouble?Based on the latest financial disclosure, Chewy Inc has a Probability Of Bankruptcy of 1.0%. This is 97.58% lower than that of the Consumer Cyclical sector and significantly higher than that of the Internet Retail industry.
Is chewy having supply chain issues?The retailer also continues to face pressure from supply chain challenges. “Operationally, 2021 was a challenging year amidst an ever-evolving pandemic, which continued to impact supply chain and disrupt the natural flow of consumer behavior and business execution,” CEO Sumit Singh said on a call with analysts Tuesday.
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