Dive Brief:

• Out-of-stock issues resulted in Chewy experiencing an estimated $40 million in missed sales in the most recent quarter, CEO Sumit Singh said on an earnings call last week.
• Chewy's inventories were down almost 5% from the beginning of 2021 to reach nearly $490.9 million, which is a 9% increase YoY, according to the company's financial filings. Net sales for the company were up nearly 32% YoY.
• Singh said the company doesn't have perfect visibility into the situation, but it has heard from suppliers that extra capacity should come online in the second half of the year to help mitigate the inventory issues.

Dive Insight:

Supply chain issues have been causing inventory headaches for retailers for months at this point. Heightened consumer demand is increasing the need for inventory while a frenzied freight market is extending lead times and making it harder for companies to restock.

The inventory-to-sales ratio dropped to 1.23 in March, the lowest ever recorded, according to the latest figures from the Census Bureau.

But Singh said the situation has actually improved for Chewy compared to last year.

"If you recall, the first quarter '20, we experienced a significant backlog, a surge in demand, an imbalance in inventory," he said. "And therefore, we had higher freight costs. So that did not repeat, because our inventory is more balanced today, more aligned with our customer demand."

The issue for Chewy is specifically related to canned pet food, he said.

PetSmart also acknowledged a shortage of some pet foods and told AARP it is working with transportation and manufacturing partners to increase supply to meet demand.

The pet food company Freshpet said it has started to benefit from the additional manufacturing capacity it brought online last year and says its producing over the demand figures it gets from Nielsen. It plans to bring on more manufacturing capacity later this year. But its production was hit by winter storms in February, executives said on an earnings call last month.

"Since the end of the second storm in mid-February, we've seen ... strong bounce back and shipments consumption, retail availability and our production levels," Freshpet CEO Billy Cyr said.

So as producers see signs of increased capacity, retailers could soon see improvements to their stock levels. And while Chewy has targeted Q4 for the expected uptick in supply, as of last week it has "not yet seen signs of this abating," Singh said.

Chewy​ CFO Mario Marte said the company expects to build up its inventory throughout the year. And Singh said the company is using "recommendation engines to help customers find attractive alternatives."