Chewy's Millennial Muzzle: How Rising Pet Spending Could Fetch Higher Sales

Needham analyst Anna Andreeva reiterated a Buy rating on the shares of Chewy Inc CHWY with a price target of $55.
The company is slated to report 1Q earnings on May 31.
The analyst expects sales growth of +12%, but after Petco Health and Wellness Company WOOF earnings, the analyst has lowered the assumptions for net ads and for Hardgoods.
CHWY has been relatively quiet on the promotional front, except for incremental customer acquisition promotions, which the analyst expects to drive gross ads, although higher churn from Hardgoods is still a headwind in 1H23.
According to the analyst, the biggest takeaways from WOOF’s earnings include deceleration in March/April continuing into May, Hardgoods remaining sluggish, and a disappointing net ads scenario.
The pet space is defensive, and demand is inelastic, plus the headwinds from last year across the supply chain and wage/labor pressures are dissipating, with sell-side estimates poised for an upside in the analyst’s view.
While net ads are likely under pressure still in 1H23, the analyst believes the bulk of the contraction is coming from the more discretionary Hardgoods and ads in Consumables/Healthcare remain strong.
Also, the analyst concluded that spending per pet still has room to go higher, given the higher spending nature of the newer millennial cohorts.
Price Action: CHWY shares are trading higher by 2.59% at $30.93 on the last check Friday.

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