Valued at $14.5 billion by market cap, Florida-based Chewy Inc. (CHWY) is an online seller of pet food and supplies, including dry and wet food, toys, supplements, vitamins, jerky treats, and more. The company's popularity peaked during the stay-at-home days of the pandemic, with CHWY stock reaching all-time highs north of $100 per share by early 2021.
However, the stock has tumbled more than 70% off that peak, as Chewy's user base - despite being fiercely loyal - has remained relatively stagnant since that COVID-related surge. That has raised concerns about CHWY's future growth trajectory, as well as the stock's valuation.
More recently, CHWY stock has recovered impressively from its 2024 lows. The shares are up 137% since April, and are sporting a 46.5% gain on a year-to-date basis.
Chewy Reports Q2 Results
Chewy reported its second-quarter results on Aug. 28, where its profit of $0.24 per share surpassed the consensus estimate of $0.21 per share, and improved considerably from the $0.05 per share reported in the same quarter last year. Revenue totaled $2.86 billion, up 2.6% year over year to arrive in line with estimates.
Net sales per active customer rose 6.2% to $565, marking a new record high for the metric. Chewy ended the quarter with a cash balance of $694.46 million, up from $457.10 million reported in the same quarter last year.
"Our subscription-like Autoship business continues to be a core pillar of strength for Chewy with Autoship customer sales of over $2.2 billion in the quarter growing 5.8% and representing 78.4% of our total net sales, up 230 basis points on a year-over-year basis," noted CFO David Reeder on the conference call.
The Q2 beat and strong spend per customer helped investors overlook relatively tepid guidance for Q3. Management expects sales to range between $2.84 billion and $2.86 billion, compared to the $2.86 billion consensus, with full-year sales projected at $11.6 billion to $11.8 billion against an $11.74 billion consensus.
Chewy did increase its guidance for adjusted EBITDA margin, which now stands at 4.5-4.7% versus earlier estimates of 4.1-4.3%. The retailer will release its full Q3 results before the market opens next Wednesday, Dec. 4.
Are Analysts Underestimating CHWY Stock?
Analysts are bullish on Chewy stock overall, with an average rating of “Moderate Buy” on Wall Street.
In fact, the one remaining CHWY stock bear just double-upgraded the stock, as Bank of America analyst Curtis Nagle upgraded his rating from “Underperform” to “Buy,” while raising his price target all the way to $40.
“Improving industry data should lead to accelerating topline trends and strong earnings leverage for Chewy, which we think the Street is likely underestimating,” wrote Nagle in a note accompanying the Nov. 20 upgrade.
Chewy now has 14 “Strong Buy” recommendations, compared to zero “Sells.” The stock has already outpaced its average price target of $31.90, while Nagle's new Street-high price target of $40 suggests expected upside potential of 15.5%.
