Why Chewy Falls Again Today

What happened

Shares of Soft (NYSE:CHWY) continued to slide Thursday morning, dropping 3.1% at 10:36 a.m. ET, as the broader market adjusts itself to the likelihood of an official recession being declared in the coming months. The S&P500 was trading down 1%.

The retail sector saw very mixed results this week, with walmart reporting surprisingly good earnings as even the wealthiest shoppers bought groceries from its stores, while Target says his clients are hit by inflation.

Walmart shares jumped 6.5% on its report, but Target shares cratered more than 13%, and Chewy’s fell in sympathy with the latter.

Image source: Getty Images.

So what

The dichotomy shows how the sector is changing. Walmart is a stock of basic consumer goods whose products are considered essential to people’s daily lives. Target, on the other hand, is a consumer discretionary company whose merchandise is more nice-to-have than must-have.

Because Chewy falls more into the latter camp with Target, his stock is also dragged down. Shares of the online pet supply store are down 5% since Monday’s close, which is the highest price Chewy shares have hit since August.

Now what

Although pet supplies are in principle a discretionary purchase, Chewy’s merchandise, especially pet food, is not a “luxury” item. The humanization of pets has made pets part of the family, and many, if not most owners, would cut back on purchases other than those for their pets.

Inflation is certainly a hurdle he will have to overcome, and investors may find that consumers have skimped on toys and processed purchases when they report earnings next month, but food will likely be as strong a category as never.

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Rich Duprey has no position in the stocks mentioned. The Motley Fool holds positions and endorses Chewy, Inc., Target and Walmart Inc. The Motley Fool has a Disclosure Policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.