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Chewy CEO: We ‘absolutely are’ seeing a more cautious consumer

Chewy CEO weighs in on consumer spending trends for pets as well as the company's international expansion plans.

Chewy (CHWY) CEO Sumit Singh is seeing a more measured U.S. consumer as the pet-focused retailer battles the twin headwinds of sticky inflation and concerning headlines out of the banking industry.

"We absolutely are [seeing a more cautious shopper] when it comes to categories that are discretionary in nature," Singh told Yahoo Finance Live (video above) at the Shoptalk retail conference in Las Vegas. "So consumables and health that make up over 80% of our sales remain pillars of strength. Consumers aren't trading down, and they aren't sacrificing their pet's needs."

"Where they are cautious is in discretionary spend," Singh said, adding that consumers have pulled back in areas such as pet toys.

A police dog carries a tennis ball in his mouth at The All England Tennis Club in Wimbledon, southwest London, on July 2, 2019, on the second day of the 2019 Wimbledon Championships tennis tournament. - RESTRICTED TO EDITORIAL USE (Photo by Daniel LEAL / AFP) / RESTRICTED TO EDITORIAL USE (Photo by DANIEL LEAL/AFP via Getty Images)
A police dog carries a tennis ball in his mouth at The All England Tennis Club in Wimbledon, southwest London, on July 2, 2019, on the second day of the 2019 Wimbledon Championships tennis tournament. (Photo by DANIEL LEAL/AFP via Getty Images) (DANIEL LEAL via Getty Images)

Amid a mixed economic backdrop, Singh is pushing Chewy into its first international market and automating more of its U.S. distribution centers.

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Singh declined to comment on what Chewy's first international market will be (it will be revealed in May) but said that the expansion stands to unlock more growth for the e-commerce player over the long term, even as it weighs on profit margins near-term.

"We believe the brand is resilient outside the United States," Singh said. "In terms of the investment curve, look, these are strategic investments, and we are long-term oriented."

Chewy CEO Sumit Singh eyes international expansion for the pet products player.
Chewy CEO Sumit Singh eyes international expansion for the pet products player. (Yahoo Finance)

Despite more cautious consumers, Chewy notched a solid fourth-quarter report last week.

Net sales increased 13.4% from a year ago to $2.71 billion. Gross profit margin expanded 270 basis points from a year earlier to 28.1%. And adjusted operating profits increased by $120.1 million from a year ago.

However, the Street took issue with a slight active customer decline sequentially and a potential near-term margin hit from international expansion. Chewy stock was down 12% last week in the wake of the company's earnings report.

Some analysts are taking a wait-and-see approach on the stock, pending a reacceleration in active customers — in line with Chewy's guidance.

"The intrinsic value of the business is much more sensitive to the terminal margin assumption than the size of the revenue base, and while 2022 gave us more confidence in a ~mid-single digit percentage EBITDA margin over the medium-term, the beginning of international expansion coupled with still weak net adds and less pricing upside from here leave us more cautious," Morgan Stanley analyst Lauren Schenk wrote.

Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on the banking crisis? Email brian.sozzi@yahoofinance.com

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