Motley Fool Money: Chewy Fetches Growth
Episode Release Date: March 26, 2025
Hosts: Dylan Lewis, Ricky Mulvey, and Mary Long
Guest: Tim Byers

Introduction

In the March 26, 2025 episode of Motley Fool Money, hosted by Mary Long alongside Dylan Lewis and Ricky Mulvey, the discussion centers around the strategic moves within discount retail giants and the impressive growth trajectory of Chewy, the renowned pet supply retailer. Special guest Tim Byers joins Mary Long in dissecting these developments, offering insightful analysis into market dynamics and company-specific strategies.

1. Dollar Tree's Strategic Divestment of Family Dollar

The episode opens with Mary Long highlighting a significant development in the discount retail sector. She recounts the 2015 acquisition of the Family Dollar chain by Dollar Tree for $9 billion and its subsequent sale a decade later for a mere $1 billion to a duo of private equity firms.

Mary Long:
"[...] the Dollar Tree is selling that Family Dollar chain for $1 billion."

Tim Byers delves into the reasons behind this divestiture, emphasizing the fundamental differences between the two businesses. He points out that the initial acquisition burdened Dollar Tree with substantial debt, prompting a strategic reevaluation.

Tim Byers:
"[...] they really piled up quite a lot of debt. And they have ever since been lowering their costs, figuring out how to optimize merchandising, figuring out pricing and so forth."

Byers suggests that shedding Family Dollar could unleash Dollar Tree's potential by reducing debt and allowing for more focused growth strategies. He remains optimistic about Dollar Tree's financial improvements, citing recent free cash flow figures.

Tim Byers:
"Remember over the last year, about a billion and a half dollars of free cash flow and they've paid down about $3 billion in debt over just the past year."

2. Macroeconomic Impacts on Discount Retailers

Mary Long transitions the conversation to the broader economic landscape, citing recent indicators such as the Consumer Confidence Index, which revealed the lowest economic outlook among Americans in 12 years. Additionally, February's US retail sales data fell short of expectations, with a modest 0.2% increase.

Mary Long:
"With that in mind, one could be forgiven for assuming that, okay, this is actually a time for discount retailers to be unleashed, to potentially fly."

Despite these seemingly favorable conditions for discount retailers, both Dollar Tree and Dollar General have not experienced the anticipated boom. Dollar Tree operated at a loss in 2023, while Dollar General continues to post profits but with shrinking margins.

Mary Long:
"So why aren't we seeing boom times for these dollar branded retailers quite yet?"

3. Walmart vs. Dollar Tree and Dollar General: A Stark Performance Divide

The discussion shifts to a comparative analysis of major discount retailers. Mary Long highlights a striking contrast in stock performance: Walmart's stock surged by nearly 41% over the past year, whereas Dollar Tree and Dollar General witnessed a substantial drop of over 43%.

Mary Long:
"Compare that to shares of Dollar Tree and Dollar General, both of which have lost over 43% of their value in the same time frame."

Tim Byers attributes Walmart's superior performance to its unparalleled scale and supply chain prowess. He underscores Walmart's ability to exert significant pricing power due to its massive purchasing capacity and advanced logistics infrastructure.

Tim Byers:
"Scale matters. Their ability to command pricing power in all of the supply chains where they buy because they buy in such bulk, such magnitude that Walmart is just different."

Byers also touches upon consumer behavior, suggesting that transitioning to Walmart from a local grocery store offers a seamless value proposition without the stigma that might be associated with shopping at Dollar Tree or Family Dollar.

Tim Byers:
"I don't think that has any stigma. If you're going from your grocery store to Dollar Tree and you're not used to doing, I don't know that you're willing to make that leap."

4. Chewy's Fourth Quarter Earnings and Growth Strategies

Shifting focus, Mary Long introduces Chewy's fourth-quarter earnings report, noting the addition of over 430,000 active net customers throughout the year. Despite a post-pandemic slowdown in customer growth, Chewy's net sales per active customer saw a significant uptick.

Mary Long:
"One closely watched metric for Chewy is its customer count. So they added over 430,000 active net customers over the course of the year."

Tim Byers attributes this resurgence to Chewy's enhanced customer-centric strategies, particularly the success of its auto-ship program. He highlights that auto-ship sales grew by more than 21%, contributing to a 15% overall sales increase.

Tim Byers:
"Auto ship sales were up more than 21% and overall sales were up about 15%. So the fact that auto ship is growing as a portion of overall sales is just so good for the business."

Byers reveals that auto-ship now accounts for 80.6% of Chewy's total sales, indicating deeper customer relationships and improved cash flow dynamics.

Tim Byers:
"Auto ship is now 80.6% of all sales. That's up from 76.4%. That is astoundingly good, Mary."

He remains cautiously optimistic, noting the importance of sustaining this growth amidst economic uncertainties.

5. Balancing Customer Loyalty with Financial Growth at Chewy

Mary Long raises a critical point about the sustainability of Chewy's customer loyalty amidst financial commitments. She emphasizes the challenge of nurturing loyalty without compromising on growth and profitability.

Mary Long:
"It costs money and time to create, to nurture, and to keep that customer loyalty."

Tim Byers responds by outlining Chewy's multifaceted approach to enhancing customer value. He draws a parallel to Warby Parker, illustrating how Chewy is expanding its service offerings to encompass a broader spectrum of pet care needs.

Tim Byers:
"They opened eight [vet care clinics] in the last fiscal year. [...] you could get some food, you can get some toys, but you could also get, you know, your furry friend in for boarding, you could take him in for getting medications and shots and all of these other things that are very important."

Byers believes that these initiatives are instrumental in increasing Chewy's wallet share, fostering deeper customer engagement, and driving sustained financial growth.

Tim Byers:
"If you handle more of the overall need for the customer, that seems to go very, very well. It's been a real boon for Warby Parker. It seems to be happening for Chewy."

6. Optimism for Chewy's Future Growth

Concluding the discussion, Tim Byers expresses confidence in Chewy's strategic direction, provided that initiatives like the vet care clinics continue to yield positive results. He underscores the potential for substantial returns, contingent on the sustained success of these growth drivers.

Tim Byers:
"If that's true and if it continues down this path, I think we're in for some very good returns for this stock. But it's still early."

Mary Long thanks Tim Byers for his insightful analysis, wrapping up the segment on Chewy's promising performance.

Conclusion

The episode concludes with Mary Long reiterating the importance of exercising independent judgment in investment decisions, emphasizing that the Motley Fool's content is for informational purposes and not tailored financial advice.

Mary Long:
"So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and are not approved by advertisers."

Key Takeaways:

• Dollar Tree's Sale of Family Dollar: Reflects strategic refocusing and debt reduction efforts, potentially positioning Dollar Tree for renewed growth.

• Discount Retail Landscape: Despite economic downturns, Walmart outperforms other discount retailers due to its scale and supply chain efficiencies, while Dollar Tree and Dollar General struggle with profitability.

• Chewy's Growth Strategies: Successful implementation of auto-ship programs and expansion into comprehensive pet care services are driving customer loyalty and financial growth.

• Future Outlook for Chewy: Continued success hinges on the effectiveness of new service offerings and maintaining strong customer relationships amidst economic uncertainties.

Notable Quotes:

• Tim Byers on Dollar Tree's Strategy:
  "[...] they have been lowering their costs, figuring out how to optimize merchandising, figuring out pricing and so forth." ([01:04])

• Tim Byers on Walmart's Competitive Edge:
  "Scale matters. Their ability to command pricing power in all of the supply chains where they buy because they buy in such bulk, such magnitude that Walmart is just different." ([06:19])

• Tim Byers on Chewy's Auto-Ship Success:
  "Auto ship is now 80.6% of all sales. That's up from 76.4%. That is astoundingly good, Mary." ([09:00])

• Tim Byers on Chewy's Comprehensive Services:
  "You could get some food, you can get some toys, but you could also get, you know, your furry friend in for boarding, you could take him in for getting medications and shots and all of these other things that are very important." ([12:07])

• Tim Byers on Chewy's Future Prospects:
  "If that's true and if it continues down this path, I think we're in for some very good returns for this stock. But it's still early." ([15:52])

This comprehensive summary encapsulates the key discussions and insights from the Motley Fool Money episode titled "Chewy Fetches Growth," providing valuable information for investors and enthusiasts alike.