Chewy Shares Slump as Executives Say Consumers Remain Pressured

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1:44Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. All right, it's Carla Foo and Paul Sweeney live here in our Bloomberg Interactive Broker Studio, streaming live on YouTube as well here. Earnings, still earnings season. Chewy for our pet lovers out there. Shares, they fell as much as 10%, the most since 2025, after the pet supply company forecast a sequential decline in gross margin for the third quarter due to a timing shift.

2:29Ooh, that's not good. Diana Roseto-Pena joins us here. She's a consumer, Staples Analyst for Bloomberg Intelligence. What's going on with Chewy? Because I see the Chewy boxes all over the place. They're getting deliveries. Yes. So for the quarter, it was, you know, the headlines were strong. But if you look under the hood, a lot of it was timing and, you know, acquisitions that fed into the growth. You know, shorter term, they expect some challenges. They think that the industry is not necessarily growing. They are growing at a higher pace than the overall industry, and they are taking share. But it seems that they were a little bit downbeat from the call, particularly with consumer, how restrained they are, which is something that we have seen.

3:18So what does a pet consumer do when a pet consumer is constrained a little bit? Like for us, for humans, maybe we'll trade down from a brand to a store kind of thing. do pet owners do the same thing? Well, they do in a certain place for the main course, if you want to say that, or the main meal, they tend to stick to the same brand, which is why, you know, packaged food companies invest heavily on becoming the main meal for the pets and get them early. But everything else is up for debate. So you're talking about snacks, you're talking about treats, well, treats, you're talking about discretionary items, all of those things are up for play.

4:04And that has been something that we have seen in the past year. And we think this is going to probably continue for the remainder of the year. Does Chui do pet insurance? They do, but they have, you know, it's all in competency on like vet care. Right now, they're focusing more on clinics and physical clinics. They're aiming for about 60 by the end of the year. And it seems that that has been a little bit of a better alternative for them. It seems to be working. All right. Here's your note, which I'm not really sure, but I think you can explain it to me. I'm sure. Growth is increasingly a spend per pet story, not a pet population story.

4:44Is that kind of a remnant of the pandemic or something when it was just a play on the growth of more people owning dogs, I guess. Exactly. So, and that going back to Chewy, they have mentioned that, for example, given how difficult the economy has become, real estate obviously is being challenged. So cats are better pets for, you know, smaller dwellings compared to dogs. And that is, you see a trend that drives that. And also, So, you know, we see greater, you know, greater spending on per pet rather than a growth in pet population. Per Chewy, you know, the population has stabilized. Surrendering and adoption seems to be, you know, levels close to historical averages, I will say.

5:36But the play here is more unlike the spending per pet. Is, I can't believe I'm asking this question. What's the different growth trajectories of cats versus dogs in terms of the revenue for Chewy? Yes. So basically, obviously, the industry is mostly dog-driven. But anything related to cats are starting to show greater growth than dogs. You're talking about treats. You're talking about main food. And it's because we're seeing a slight better population growth in cats, at least in the United States, compared to dogs. And like I said, it's mainly because people, you know, tend to think that cats are less expensive to maintain.

6:25Yes, they are. You know, I would say like, you know, about two thirds of what, you know, you spend on a dog. And they also tend to do well in smaller houses. Exactly. Is Chui a global company or are they just U.S.? No, they're just U.S. They have started going into Canada. They're doing some groundwork there. They haven't updated in a couple of quarters in terms of the status of that. But, yeah, they seem to be focused more on the U.S. So for the industry, I know you guys do a lot of industry level work. The pet industry, is it growing? Is it is it have we seen our great times during the pandemic and that's it?

7:13Have we reset? What's going on? No, I actually we actually publish our deep dive today along with Chewy. We try to time it very well. And we think over the next 10 years, we will probably see the global pet industry growing to six hundred and forty five billion dollars. by 2035 globally. Yeah. 67 % compared to, to 2025 levels and U S spending would probably reach$250 billion by then. Okay. Aside from Chewy, who are the public plays for this? So we're talking about the big food companies. You have General Mills, Smucker, Nestle, you know, smaller pure play, like Fresh Pet in the U S obviously read on the retail side, Amazon is a big online player.

8:03You know, Chewy, obviously. You have Petco. You have PetSmart, which is, you know, a private company. Yeah, so it's everything that, you know, what you want to spend on. Stay with us. More from Bloomberg Intelligence coming up after this. Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version.

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10:43Let's get back to earnings. Jersey Mike's recently came public here. You know, it's becoming a, has become a really, really big chain across the country. And they want to get bigger. They want to go to the UK and all this kind of stuff. So had an IPO recently. They reported some numbers here. Let's check in with Michael Halen. He covers all the restaurants for Bloomberg Intelligence. Mike, talk to us about Jersey Mike's. What did we learn with the most recent report? well you know it being their first earnings release we we learned a lot you know um you know the stock's trading up i think it was up six seven percent the last time i checked you know there's a few things going on there first of all they guided higher uh than consensus they're looking there for three to four percent same source sales in the second half driven mostly by transactions that would be an acceleration of of their second quarter uh growth you know They're increasing the marketing spending.

11:35They're going to do some more in-game ads with the NFL. They're doing digital marketing, which they hadn't done before. This should attract Gen Z consumers into the brand. They're bringing back Mike's hot sub, which tends to help dinner business. So they definitely have some initiatives in place. They also talked about some longer-term initiatives. One of them is catering. On average, they're doing about 3 % of sales. But they have stores doing 10%, and they think 10 % is achievable for the entire system. And then another interesting one they mentioned was late night. They didn't talk about doing more LTOs.

12:21They're going to continue with this pace of about three limited time offers a year. But they said they could expand into late night. Their stores are open until 9. But as they do more digital business, late night could be more attractive. And so I think that one was one that people may not have been expecting and could, you know, create same store sales growth, you know, in 2027. Right. OK, so there are a lot of initiatives that are working here at Jersey Mike's, but like every other food company or restaurant company, they still have to contend with rising costs. Did they say anything about that?

12:58well listen i in my opinion jersey mikes is uh kind of a sector style that clients if they want to be in restaurants should be in it's unique because it's fast casual but they're 99 franchised right so you know they're seeing pretty solid growth very strong net unit growth more than eight percent you know same star sales are going to accelerate back to three to four percent and We think management is sandbagging a little bit. So there's really strong, attractive growth here. They're 99 % franchise. So they're not footing the bill for the higher food and labor costs. The franchisees are. And this makes Jersey Mike's pretty unique.

13:42All the other fast casual chains we cover, own their stores, operate their stores. And so they get hit with the higher food costs. Stay with us. More from Bloomberg Intelligence coming up after this. Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful.

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15:474certain. you're listening to the bloomberg intelligence podcast catch us live weekdays at 10 a.m eastern on apple car play and android auto with the bloomberg business app listen on demand wherever you get your podcasts or watch us live on youtube all right let's switch gears let's get to the business of sports randall williams comes strutting in here with his tennessee titans jersey on i don't know where that comes from oh man really steve mcnair exactly air mcnair want to talk to you uh randall it's beginning of the nfl season kickoff day we just uh renewed goodell for another four years so he's going to become even wealthier good for him probably a billionaire by the end of it yep here's a big thing when are they going to add an 18th game i think it remains to be seen i mean the nfl began talking about this i would say probably around 18 months ago and there's it was under the assumption that this was going to happen in large part because former union executive director Lloyd Howell said, who doesn't love more football?

16:48And so if you're the league office, you're like, oh, they're ready to negotiate. Lloyd has since been dismissed for a bunch of different things, including strip club visits, as well as misuse of union funds. And so since Lloyd's dismissal, they had an interim executive director. Now the current executive director is JC Tretter. JC is currently going on a tour around all 32 clubs to gather information as to how players feel about it. But the union has been in no position to negotiate a CBA early, therefore being able to add an 18th game if the players want to at all. I mean, even the 17th game is really difficult for a lot of the players.

17:27I mean, it's great for the NFL because of the media rights, but everyone's kind of grumbling about that because it's difficult to recover from the game before you have to get ready for the next one. Yeah, the NFL voted to add another game years ago. I want to say six years ago. And that was a very tight vote, in large part because of the fact that all of the things you mentioned, it's a grueling season. This is one of the highest contact sports that isn't a combat sport. And the interesting thing about this is that evidently the players chose money. They chose money years ago when they added this 17th game.

18:00And the question is, will they do it again? And the owners are betting that they will. I bet they will as well because you have to expand the rosters then. That means more jobs for football players, more money. It remains to be seen what the players are going to ask for. I had a couple sources tell me that they could want an additional roster spots, a higher increase in revenue share, another bye week, and not having as many mandatory offseason obligations that they have to show up for. And where you want to get to is have the Super Bowl on, what is it, Martin Luther King's? It's President's Day.

18:36President's Day. And so this year it's happening. So there's someone who's going to look at a calendar and say, oh, well, it falls on President's Day this year. That is not typical. Next year or in 2028, it'll go back to the regular schedule. Because a lot of people out there say the day after the Super Bowl should be a national holiday. It pretty much is an unofficial national holiday with a lot of people not showing up to work. And a lot of school districts have kind of planned around that, giving kids the day off and calling it like a planning day. It is a brilliant media strategy for Roger Goodell to get out there and say all of this because of all the things you mentioned, there are a bunch of people who are like, matter of fact, I do like this idea.

19:10Not thinking about, of course, the toll that it takes on players. And so we'll see. But all of the things you mentioned are top of mind for the NFL. But if the union is not ready to go to the bargaining table, then there's nothing they can do except for wait until the current CBA expires. OK, so nothing's going to happen immediately. What we do know that's happening immediately is Live Golf has filed for bankruptcy protection, and we don't know what the future looks like. Just get us up to date here on this renegade golf league that, you know, spent a lot of money, made a big splash. And I don't know, does it quietly go away now?

19:43I think Live Golf will be remembered as one of the biggest disruptors in sports history. And evidently they had the plug pulled early on what PIF was spending on them, which is in excess of five billion dollars. and they weren't expecting them to stop fueling the rocket ship. And now they've had to deal with trying to raise some of that money. And as it looks at as people look at sort of how their business has grown, people just did not see enough returns in terms of being able to invest in this. Now, of course, Live has a partner that they say is going to help finance them and help get them above water for Live 2.0.

20:19But it really does remain to be seen if this league is going to live beyond 2027 when they will make their return in their new iteration. Yeah, I don't know. As a lifelong golf fan and an observer of the business of that sport, I don't see it at all. Yeah, real quick, have you enjoyed the U.S. Open? Love it. My only thing is I'd like to watch Ben Shelton. I'd like to watch Carlos Alcaraz. But when the match is starting, right as I'm getting ready to go to bed and I'm waking up in the middle of the night and it's still on, that's a problem. Yeah, it is. It's a problem. And it's like all the tournaments, the slams, they always do this.

20:54We've got to find. It can't be good for media. It can't be good for media rights. No. And it can't be good for the players either. Oh, no. There's no way. It feels like it's gotten too big for itself. They've accepted a lot of different people in there, and I just don't. I can't imagine anybody wants to be leaving Arthur Ashe at 3.30 in the morning. I'm a day session person. I find the day session is a great experience. What is tennis, after all? You usually watch it in the daytime. There's no sport that I attend where I'm waking up really super early in the morning. This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts.

21:30Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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