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Pet Stocks Have Gone to the Dogs This Earnings Season

Fresh dog and cat food distributor Freshpet (NASDAQ: FRPT) opened sharply lower on Tuesday after posting disappointing financial results. Two weeks earlier it was pet wellness specialist PetMed Express (NASDAQ: PETS) tumbling after also failing to impress with fresh quarterly results. Online pet retailer Chewy (NYSE: CHWY) won't report until next month -- it operates on a different fiscal calendar -- but it also buckled when it announced earnings two months ago.

What's happening in this dog-stock-eat-dog-stock world? This should've been a great time to cater to canine and feline lovers. Pet adoptions were all the rage last year when the pandemic found us at home and craving furry companions. The humanization of pets trend finds us spoiling our new housemates, making them feel more like a member of the family. Reality hasn't lived up to the hype. Let's break this down.

Image source: Getty Images.

A tale of three pet stocks

Let's start with Freshpet as the freshest of the three doggone disappointments. The company known for the branded fridges across supermarkets and mass market retailers stocked exclusively with its chilled all-natural eats for dogs and cats reported after Monday's market close. It wasn't pretty.

Net sales rose 28% to hit $107.6 million, but analysts were holding out for 37% year-over-year growth. Wall Street was holding out for a small profit, but Freshpet posted a loss as rising input costs and supply chain constraints roughed up margins.

It's been a dramatic fall from grace for Freshpet. A year ago it was actually holding back on its marketing so it could keep up with increasing demand from its current customers. Now Freshpet finds itself delaying the ramp up in capacity as a result of a shortage in labor and materials. Adding insult to injury, a small product recall in June didn't help the brand.

PetMed Express also missed the litter box two weeks ago. The company behind 1-800-PetMeds and its website that sell pet medications and other wellness essentials saw its net sales clock in 11% lower than the same period a year earlier. There was a surge in orders a year ago as folks were bringing new pets home, but net sales were lower than the same fiscal second-quarter two years earlier, too.

The bottom line was even worse, as that 11% year-over-year decline in sales translated into a 25% slide in net income. This is the third consecutive quarter in which PetMed Express has fallen short of analyst profit targets.

Two months ago it was Chewy slipping after its quarterly earnings call. It also fell short of top- and bottom-line analyst expectations. Like Freshpet, the numbers seem decent at first glance. Chewy's sales rose 27% for the fiscal second quarter on a 21% increase in customers. It also posted a narrower loss than it did last time out. Wall Street pros were holding out for more.

Nine lives

This isn't the end for the three stocks. Freshpet and Chewy are posting double-digit growth. PetMed Express isn't faring as well fundamentally, but it's keeping income investors well fed with a generous 3.8% dividend yield. All three companies aren't going away anytime soon.

Freshpet continues to be the class act among pet food stocks. Chewy continues to be an e-commerce leader with strong customer satisfaction scores. PetMed Express is expanding its business into new categories to grow its total addressable market. Analysts and investors alike got too carried away with how well pet stocks would fare as we head out of the pandemic, but with expectations now clearly reset the bar will be lower when the next earnings season comes around.

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Rick Munarriz owns shares of Freshpet. The Motley Fool owns shares of and recommends Chewy, Inc. and Freshpet. The Motley Fool has a disclosure policy.


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