Chewy (CHWY) Drops 10% After Missing Q2 Estimates, Firms Lower PTs
Shares of Chewy (NYSE: CHWY) are down nearly 10% after pre-open Thursday after the company’s Q2 results came in below expectations.
Chewy reported Q2 revenue of $2.16 billion versus the consensus estimate of $2.17 billion. Earnings per share came in at a negative $0.04 to miss on the expected loss of $0.04 per share.
“We have now crossed the halfway point of 2021, and our results once again demonstrate the strength of our business model and the incredible bond between pets and pet parents,” said Sumit Singh, Chief Executive Officer of Chewy.
“Our business remains healthy, with second quarter net sales up 27 percent year over year, driven by a 21 percent increase in active customers and a 13 percent increase in net sales per active customer. Customer engagement is growing, and we are confident in our ability to deliver strong results while navigating uncertain market conditions due to the ever-evolving COVID-19 pandemic.”
Morgan Stanley analyst Lauren Schenk lowered the price target to $81.00 per share from $83.00 on the Equal-weight rated stock.
“While we continue to like the multi-year CHWY story, we remain on the sidelines due to valuation and see a more balanced risk-reward near-term. At current levels, we think the stock is pricing in ~$17B ’25 revenue (vs. MS at $15B) and a 10% EBITDA margin (high end of mgmt.’s long-term target of 5%-10%), assuming a ~25x EBITDA multiple, discounted back at ~7%. Thus, to become more positive on the stock from here, we would need to gain further conviction in CHWY’s ability to achieve a 20%-25% 5-year revenue CAGR, which we see as possible given TAM expansion opportunities in pet pharmacy and telehealth, or a consistent LDD% EBITDA margin which we see as less achievable in light of CHWY’s incremental margins and likely upcoming investments,” Schenk said in a client note.
Credit Suisse analyst Katie Tryhane is more bullish on CHWY as he reiterated an Outperform rating and $121.00 per share price target.
“While CHWY’s shares are down 3% YTD (vs. +20% S&P), today’s print, which missed Street expectations and only maintained guidance, is likely not enough to move shares higher. Despite these dynamics, we note still healthy gross customer adds, which continue to run higher than pre-pandemic levels, as well as stable retention rates. Moreover, NSPAC meaningfully accelerated from a growth perspective (vs. F1Q) and should remain strong over the balance of the year as the 2020 cohort continues to mature and as CHWY expands its offerings. Importantly, CHWY’s Health initiatives are encouraging, with the company now offering a new platform, Practice Hub (launch at VMX earlier this year), including a marketplace for vets, where they can list items, set prices, create pre-approved Rx lists, and earn revenue from customers,” Tryhane commented in a client note.