Opinions
The Monthly Gems by Allan Tong
Chewy, Inc.
CHWY-N
TOP PICK
Jun 03, 2024
Stock price when the opinion was issued
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It's a comeback story after sliding post-Covid. Shares jumped 27% this week after reporting. They introduced pet care clinics that helps bring down pet care costs. They execute well. Gross margins have expanded. They announced a $500 million buyback and are succeeding in the face of Amazon.
They reported last week a nice revenue and adjusted EBITDA beat, and raised their full-year forecast. And yet, shares plunged 7%, because shares came into the report hot, up 23% in November. CHWY forecast Q4 margins at 3-3.8%, while the street expected 3.9% and was disappointed. Buy on this dip because of strong numbers: 20.2 million active members, more than expected, and $567.50 spending per active customer, a record high, and pet adoption in the industry growing around 10%, a positive sign. Also, their six vet clinics are bringing in new customers, and they plan to open two more. Also, the clinics are expanding to Canada (Toronto).
Once a dog, this American pet food maker is a comeback after reporting Q1 results. Shares jumped 30% after the company reported earnings per share (EPS) of US$0.15, which blew away street estimates by 291%. Meanwhile, revenues of US$2.9 billion (all USD)were in line. Net income more than tripled from a year ago to $67.3 million, or $0.15 per share while gross margins climbed 130 basis points to 29.7% and net margins increased 150 basis points to 2.3%. Growth has moderated, but profits are now consistent and growing. Analysts were impressed enough to raise Chewy's price target rose by 8.4% to US$25.12. So, how did the company beat the post-Covid slump? One step was recently opening Chewy Vet Care clinics, targeting younger, tech-savvy pet owners, who can see their pet's medical information displayed on interactive screens in the exam room but also access that data on their portable devices. This cohort of Millennials and GenZ'ers make up 46% of pet owners in the U.S., so penetrating this market through the clinics is a savvy move.