Chewy
Inside the Numbers
In Q2, Chewy reported a loss of $0.04 per share which was slightly better than expectations of a loss of $0.02 per share. Revenue increased by 27% to $2.16 billion which fell short of expectations of $2.2 billion.
In addition to this miss, Chewy's Q3 guidance came in at between $2.20 billion and $2.22 billion, while analysts were looking for $2.23 billion in revenue. For the full year, it expects 28% revenue growth and EBITDA margins to increase by 80 to 120 basis points.
Chewy was a beneficiary of the boom in e-commerce sales and the increase in pet ownership that happened during the pandemic. However, both trends have somewhat reversed over the past year as the economy inches closer to normal.
The company acknowledged that the economic environment was less favorable and would likely result in a slower rate of growth. However, it remains bullish as the company's investments in logistics and fulfillment should lead to higher margins down the road. Further, the company said average order size continues to rise, and its forays into higher-margin products and services are also gaining traction.
In Q2, Chewy's net sales per active customer hit a new high at $404, a 13.5% increase from last year, while active customers reached 20.1 million, a 21.1% increase from last quarter. Equally important, the longer someone stays a Chewy customer, the more their spending tends to increase.
Chewy was adversely impacted by the supply chain issues that have impacted nearly every company as many items were out of stock. The company said this issue is improving and should sort itself out by next year.
Stock Price Outlook
Chewy was up 20% from mid-May prior to the earnings report, and it is off about 40% from its all-time high. It remains a high-multiple, growth stock, so it's not surprising that the stock took a nasty tumble on this earnings and guidance miss.
Although the stock is likely to underperform in the near term, it remains a compelling long-term buy especially given its margin expansion, successful entries into selling higher-margin products like medical care and insurance, and the long-term trends showing that pet ownership and spending on pets continues to increase.
