Pandemic-driven love for dogs, cats under test as pet care firms report results

FILE PHOTO: A screen displays Petco Health and Wellness Company Inc.'s trading symbol and company logo during the IPO at the Nasdaq Market Site in Times Square in New York City, U.S., January 14, 2021. REUTERS/Brendan McDermid

By Dania Nadeem and Manojna Maddipatla

(Reuters) - Results from Petco Health and Chewy Inc are likely to show slowing revenue growth compared with last year, when stressed out families turned to their pets for companionship during pandemic-led lockdowns.

While sales will be down from the height of the pandemic, it is unlikely to fall to levels seen before the pandemic, Evercore ISI analyst Oliver Wintermantel said.

With restrictions easing and increased vaccinations, investors are worried pet owners may start returning pets to shelters as they go back to full-time work.

"I think it could be an incremental negative, but I think that there's still more demand than there is supply for pets. So, I think those pets will get readopted," Wedbush analyst Seth Basham said.

Graphic: Breakdown of U.S. pet industry sales, https://graphics.reuters.com/PETCOHEALTH-RESULTS/PREVIEW/gjnvwnrnopw/chart_eikon.jpg

THE CONTEXT

Adoption rates at animal shelters in the United States jumped as much as 40% in 2020 over the previous year as people coped with isolation at the height of the pandemic.

The boom in demand for pet products resulted in the U.S. pet health industry generating sales of over $100 billion in 2020, according to trade organization American Pet Products Association, and is projected to grow nearly 6% this year.

Petco Health, which operates more than 1,500 stores across the United States, Mexico and Puerto Rico, debuted on the Nasdaq in January to cash in on the pandemic-driven surge in pet adoptions and related spending.

The company is among the largest pet retailers in the U.S. and also has more than 100 in-store veterinary hospitals. Petco's online sales grew over 90% and added 1 million new customers in the quarter ended Jan. 30.

Rival Chewy, which saw a 47% jump in its customer base year-over-year in 2020, is due to report its earnings in June.

Graphic: Chewy active customer break up by year, https://graphics.reuters.com/PETCOHEALTH-RESULTS/PREVIEW/dgkvlokojpb/chart_eikon.jpg

THE FUNDAMENTALS

** Petco is expected to report revenue of $1.27 billion when it reports first-quarter earnings on May 20, according to the mean estimate from 9 analysts, based on Refinitiv data​

** The mean analyst estimate for earnings is 9 cents per share

** Petco reported fourth-quarter sales of $1.3 billion

WALL STREET SENTIMENT

** The current average analyst rating on Petco shares is "buy", with three analysts rating it "strong buy", three "buy" and four "hold"

** Wall Street's median 12-month price target is $29

** The company's shares have fallen about 14.5% since its IPO on Jan. 14

(Reporting by Dania Nadeem in Bengaluru; Editing by Shounak Dasgupta)

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