Nelson Capital: “Chewy (CHWY) is Expected to Become Profitable at the End of this Fiscal Year”

Nelson Capital Management, an investment management firm, published its fourth-quarter 2020 Investor Letter – a copy of which can be downloaded here. In the letter, the fund discussed their interpretation of the Dot-Com Bubble 2.0, their asset transactions, tax updates, featured equity, and a special topic about the vaccine rollout. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

In their Q4 2020 investor letter, Nelson Capital Management mentioned Chewy, Inc. (NYSE: CHWY) and shared their insights on the company. Chewy, Inc. is a Dania Beach, Florida-based online retailer of pet food and other pet-related products that currently has a $34.3 billion market capitalization. Since the beginning of the year, CHWY delivered a -7.99% return, while its 12-month gains are up by 135.91%. As of April 01, 2021, the stock closed at $82.71 per share.

Here is what Nelson Capital Management has to say about Chewy, Inc. in their Q4 2020 investor letter:

“One of our investment themes over the last several years has been the “humanization of pets,” which refers to the increasing amount of time and money that people are devoting to their animals. This theme has become even more evident during the pandemic, as many families and individuals have adopted pets while spending more time at home. Today, more than 85 million US households have pets. In 2015, roughly 7% of pet products in the U.S. were bought online. By 2019, that number had increased to 22%. Moreover, the pandemic has caused pet parents, new and experienced alike, to sign up for delivery of pet supplies in order to avoid trips to physical stores. 72% of pet owners made at least one online purchase for their pets in the past 12 months and 39% of those were subscription-based purchases.

Chewy (tkr: CHWY) is the largest pure-play pet “e-tailer” in the world, offering “the personalized service of a neighborhood pet store combined with the convenience and speed of e-commerce.” The company was founded in 2011 and was bought by PetSmart in 2017, for $3 billion. In June, 2019, Chewy went public. All of its sales are currently U.S.-based. The company has co-headquarters with one facility in Dania Beach, Florida and one in Boston, Massachusetts, and employs about 12,000 people. Chewy offers a selection of high-quality pet food, treats, supplies, and pet healthcare products.

In addition to one-time sales, Chewy is creating a recurring revenue model through its “autoship” program. This is essentially a
subscription service for products that are sent at intervals specified by customers and includes such items as food and medicine. Customers are more profitable the longer they stay with the company, as their “lifetime value” grows. The company is organized around providing an exceptional customer experience. Chewy has 10 fulfillment centers scattered across the US, which enable cost-efficient overnight shipments to about 80% of the U.S. population and cost-efficient two-day shipments to nearly 100%. This allows Chewy to provide excellent service to the company’s more than 12.7 million active users.

Chewy’s ability operate profitably in the future hinges on two key variables: growing its customer base and more efficiently managing its fulfillment costs through automation of its fulfillment centers, thereby decreasing labor costs. Chewy has a smart, experienced management team and the company is expected to become profitable at the end of this fiscal year.”

Photo by Karlo Tottoc on Unsplash

Our calculations show that Chewy, Inc. (NYSE: CHWY) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Chewy, Inc. was in 38 hedge fund portfolios, compared to 46 funds in the third quarter. CHWY delivered a -7.99% return in the past 3 months.

Disclosure: None. This article is originally published at Insider Monkey.