Chewy Analysts Break Down Q2 Earnings: 'We Would Have Expected Higher Growth'

Chewy Inc CHWY shares traded lower by 9% after the company reported earnings and issued guidance that fell short of Wall Street’s expectations.

On Wednesday afternoon, the online retailer of pet food and other products reported a second-quarter adjusted EPS loss of 4 cents, slightly worse than analyst estimates of a 2-cent loss. The company reported second-quarter revenue of $2.16 billion, which also missed analyst expectations of $2.2 billion. Revenue was up 27% from a year ago.

Chewy said net sales per active customer was $404 in the second quarter, up 13.5%. The company reported 20.1 million active customers, up 21.1% year-over-year.

Looking ahead, Chewy guided for third-quarter revenue of between $2.2 billion and $2.22 billion, again falling short of analyst expectations of $2.23 billion. Chewy also guided for full-year revenue of between $8.9 billion and $9 billion compared to analyst projections of $9 billion.

Related Link: Anaplan Stock Jumps After Q2 Earnings: 4 Analysts React To Return Of Digital Transformation Spending

Net Add Deceleration: Raymond James analyst Nicholas Bacchus said Chewy’s second quarter was mixed, but its net addition headwinds should subside next year.

“While we remain positive on the story, we believe shares are fairly valued at ~14x FY21 EV/Gross Profit and believe that risk/reward is balanced at current levels,” Bacchus wrote in a note.

Morgan Stanley analyst Lauren Schenk said a deceleration of net customer additions coupled with rising supply chain and advertising costs will eat into Chewy’s earnings.

“Although CHWY’s 1H21 gross adds were ~20% above1H19 levels, we would have expected higher growth given advertising increased ~50% over the same timeframe,” Schenk wrote.

Stable Retention Rates: Credit Suisse analyst Katie Tryhane said Chewy’s second-quarter numbers weren’t quite good enough to move the stock higher, but there is reason for optimism.

“We note still healthy gross customer adds, which continue to run higher than pre-pandemic levels, as well as stable retention rates,” Tryhane wrote.

Needham analyst Anna Andreeva said the launch of the Practice Hub vet marketplace could help Chewy solve its decelerating growth problem, but it will likely take time to scale.

“In the absence of big top-line beats, we think the current 3.5x EV/Sales multiple (on our 2022 estimate) is fair,” Andreeva wrote.

Ratings And Price Targets:

• Raymond James has a Market Perform rating.
• Credit Suisse has an Outperform rating and $121 target.
• Morgan Stanley has an Equal-Weight rating and $81 target.
• Needham has a Hold rating.