Chewy's Analyst Day Insights: Needham Highlights Potential Growth Amid Amazon Competition

On Thursday, Chewy Inc CHWY held its Investor Day. The company sees FY24 sales growth to be below the long-term target of a high single-digit percentage. 

The company sees a long-term adjusted EBITDA margin of 10% and expects to deliver margin accretion in FY24, irrespective of the macro environment.

Needham Analyst Anna Andreeva notes that Chewy has focused on only half of the Health TAM ($4 billion insurance and $18 billion products). 

She writes that over 20% of active customers purchased from Chewy pharmacy, and as pharmacy TAM shifts online, Chewy should benefit across the P&L.

From a potential pool of 50 million new customers, 18% (12 million) represent high-value prospects, while 62% (41 million) fall into the mid-value category.

Also Read: Federal Violations - Chewy Among Companies Selling Unapproved Animal Drugs.

Needham reiterates the Buy rating with a price target of $25, up from $20.

As the pet industry increasingly transitions to online platforms away from mass market and food, focusing more on pet specialty and independent outlets, Chewy is poised for growth, although Amazon.com Inc AMZN remains an active competitor.

Chewy's Autoship feature, constituting 75% of its sales, cultivates a highly loyal customer base that spends over $1,000 annually. 

With the inclusion of clinics, Chewy can now tap into an NSPAC opportunity worth up to $1,700, addressing a larger portion of the $500-$600 pet health spend; previously, the company only captured half of this potential market.

Price Action: CHWY shares are up 4.63% at $21.13 on the last check Friday.