Chewy Plans Share Repurchase Worth $500M From BC Partners

Chewy, Inc. CHWY has made a strategic move to repurchase $500 million worth of its Class A common stock from Buddy Chester Sub LLC, an entity associated with BC Partners Advisors LP (BC Partners). This transaction, priced at $28.49 per share, is expected to retire 17,550,000 shares upon completion.
Priced at a 5% discount to the Jun 26, 2024 closing price, this buyback underscores Chewy's confidence in its profitability and cash flow generation. Chewy considers this repurchase as an accretive use of capital, effectively reducing the ownership stake of its largest shareholder.
This repurchase follows Chewy's recent announcement of a $500 million share repurchase program, highlighting the company's confidence in its compelling growth trajectory and margin expansion strategy. By leveraging its strong financial position, Chewy continues to explore avenues to efficiently return cash to shareholders while bolstering its market position in the pet care industry.
In the first quarter of fiscal 2024, Chewy generated a free cash flow of $52.6 million, supported by $81.9 million in net cash provided by operating activities. Ending the quarter with more than $1.1 billion in cash, cash equivalents and marketable securities, Chewy maintains a debt-free status, bolstering its financial flexibility to execute shareholder-friendly initiatives like the share buyback.

More on CHWY

Chewy has established itself as a formidable player in the online pet retail market, and recent performance metrics suggest that the company is well-positioned for long-term growth, making it an attractive bet for investors.
Starting the year on a strong note, Chewy reported impressive financial results for the first quarter of 2024, surpassing the high end of its guidance range with net sales of $2.88 billion, a 3% increase year over year. This robust performance is largely attributable to the company's effective strategies in enhancing customer loyalty in nondiscretionary categories like consumables and health products, which made up approximately 85% of first-quarter net sales. Moreover, the Autoship program continues to thrive, achieving record sales of $2.2 billion, representing 77.6% of total net sales.
An important aspect of Chewy's growth strategy is the introduction of the Chewy Plus membership program. The program offers benefits like free shipping, cash accrual rewards and exclusive member perks. Currently in its beta phase, Chewy Plus aims to enhance customer engagement and drive incremental sales through personalized experiences and increased wallet share.
Chewy's expansion into the veterinary services market is another promising avenue for growth. With the opening of three additional vet care clinics, the company now operates four clinics and plans to open more throughout the year. This initiative is off to a strong start, with high staffing levels and positive customer feedback, indicating that Chewy's unique value proposition is resonating well with pet owners.
Chewy's international expansion efforts, particularly in Canada, are progressing as planned. The company has introduced customer-facing features like a mobile app and additional payment options and has expanded its product assortment, especially in premium consumables. High customer satisfaction and growing brand awareness suggest that Chewy is poised to capture a significant share of the Canadian pet retail market.
Chewy maintains its fiscal 2024 net sales outlook of $11.6 billion to $11.8 billion, projecting 4% to 6% year-over-year growth. Additionally, the company has raised its adjusted EBITDA margin guidance to a range of 4.1%-4.3%, demonstrating robust profitability expectations.

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Stock Performance

Despite a challenging broader market environment, Chewy's stock has shown resilience. Currently trading near its 52-week high, the stock reflects the market's confidence in Chewy's strategic direction and growth potential. Shares of this Zacks Rank #1 (Strong Buy) company have surged 83.2% in the past three months against the industry's decline of 0.3%.
The company's ability to drive growth, enhance profitability and expand into new markets, coupled with disciplined execution, promises compelling returns and sustained shareholder value. For investors looking for a resilient and growth-oriented stock, Chewy presents a highly attractive proposition.

3 More Stocks Looking Red Hot

Here, we have highlighted three other top-ranked stocks, namely Vital Farms VITL, Sprouts Farmers Market SFM and Tractor Supply Company TSCO.
Vital Farms offers a range of produced pasture-raised foods. It currently sports a Zacks Rank #1. VITL has a trailing four-quarter average earnings surprise of 102.1%.
The Zacks Consensus Estimate for Vital Farms' current financial-year sales and earnings suggests growth of 22.6% and 59.3%, respectively, from the year-ago reported numbers.
Sprouts Farmers, the renowned grocery retailer, currently sports a Zacks Rank #1. SFM has a trailing four-quarter earnings surprise of 9.2%, on average.
The Zacks Consensus Estimate for Sprouts Farmers' current financial-year sales and earnings implies growth of around 8% and 9.9%, respectively, from the year-ago reported numbers.
Tractor Supply Company, which operates as a rural lifestyle retailer, currently carries a Zacks Rank #2 (Buy). TSCO has a trailing four-quarter earnings surprise of 2.7%, on average.
The Zacks Consensus Estimate for Tractor Supply Company's current financial-year sales and earnings calls for growth of around 3% and 2.5%, respectively, from the year-ago reported numbers.

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