Chewy (CHWY) Delivers a Beat-and-Raise Quarter, Shares Fall as Top-Line Growth Slows, Guidance Looks 'Conservative' Says Analyst

June 11, 2021 10:06 AM EDT
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Shares of Chewy (NYSE: CHWY) are down 2% in Friday’s trading session despite the company delivering a beat-and-raise quarter.

The pet products sector accumulated $103.6 billion in sales last year, according to data by the American Pet Products Association, marking the first time annual sales have broken above the $100 million mark. The group expects this figure to grow by about 6% this year, which would beat the historical average of approximately 3%.

Chewy reported earnings results for the fiscal first quarter that ended May 2, with the company nabbing $2.14 billion in revenue, representing a $31.7% growth from the year-ago period. Chewy’s profit results beat analysts’ estimates on both top and bottom lines.

“We kicked off 2021 by delivering robust net sales growth, expanded gross margin, and strong adjusted EBITDA. Accelerating gains in customer share of wallet helped drive results as net sales per active customer, or NSPAC, increased $31, or 8.7 percent, year over year to $388,” said Sumit Singh, CEO of the company.

Chewy rolled out a new pet adoption service last month, with the company currently collaborating with 6,000 shelters. Singh added that the adoption rates remained high as the economy reopened after the coronavirus pandemic.

“Overall adoptions, we believe, [are] up still year over year by double-digit percentages both across dog and cat. The pets coming back into the shelters actually matches the rate that we were seeing in 2019, which actually would say that, when you balance out new adoptions and pets coming back, there’s still a whole lot more pets getting adopted right now, which is great for the industry,” he told CNBC.

For the current quarter, CHWY guided for net sales between $2.15 billion - $2.17 billion representing 26% to 28% year-over-year growth. On a full-year basis, the company is calling for net sales in a range of $8.9 billion to $9.0 billion, or 25% to 26% year-over-year growth.

BofA analyst Nat Schindler reiterated a “Buy” rating and a $133.00 per share price target on CHWY as he finds the guidance as “conservative.”

“We continue to see Chewy’s subscription-driven model and recession-resistant segment as appealing and sustainable heading into a post-pandemic world. We raise our ’21 revenue to $9.01bn from $8.96bn, above the high end of CHWY guidance, as we see the revenue guidance as conservative and that growth in the underlying basket sizes will likely hold. However we lowering our 2Q revenue to $2.19bn from $2.21bn due to short term supply constraints,” the analyst said in a note.

Piper Sandler analyst Peter Keith maintained its “Overweight” rating but lowered the price target to $110.00 per share from $125.00 per share on moderating sales growth through 2021.

“Investors are rightly focused on net new customer growth stepping down in Q1, but we suspect Q1/Q2 may be trough net adds. As a more positive revenue driver, net sales per active customer increased sequentially at a record pace in Q1 as the 2020 cohort increases its spend w/ CHWY. Margin expansion remains very solid, led by structural gross margin drivers from product mix. CHWY should continue to see y/y margin expansion for the balance of 2021, thus making raised full year EBITDA margin guidance look conservative. For our PT, we lower our multiple assumption from 4.5x 2022E EV/S to 4.0x reflecting moderating revenue growth but remain bullish on overall fundamentals & structural long-term drivers,” Keith wrote in a report to clients.



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