Chewy
The company was a beneficiary of the pandemic but is now dealing with behaviors and the economy normalizing. It also was a beneficiary of the speculative fervor in e-commerce stocks as its stock price gained more than 500% between its low in March 2020 and peak in February 2021.
Now, shares are down 71% from these highs, although they are up 40% from their mid-May lows around $24. Looking ahead, investors want to see signs of margin expansion and earnings growth, however, the company has so far failed to deliver on these metrics.
Inside the Numbers
In Q2, Chewy's revenue increased by 13% to $2.4 billion and slightly beat consensus expectations. This was a drop from 27% growth in last year's Q2. A big factor in slowing revenue growth is that the number of active customers only grew by 2%, reaching 20.5 million.
A silver lining is that net sales per active customer increased by 14% to $462. However, some of this is due to inflation as the company has been raising prices. The company expects consumer spending to remain weak due to inflation and reduced its full-year guidance to $10 billion from its previous $10.2 billion.
Another positive is that gross profit margins increased due to higher prices and better logistics management. The company also managed to become free-cash flow profitable for the quarter despite spending $48 million on infrastructure.
The bull case for Chewy is that the company remains in growth mode despite most e-commerce companies seeing steep declines. This is primarily because of the resilience in pet spending due to its powerful trend. First-half revenue for Chewy came in at $4.9 billion, a healthy increase from last year's first-half revenue of $4.3 billion.
Further, it continues to see higher profit margins from its investments in logistics and increasing sales of higher-margin items.
