Written by Bill Peters and Claudia Assis
Chewy posted a surprise profit, but after-hours profits evaporated as the retailer said pet ownership was below average.
Chewy Co. surprised Wall Street on Wednesday with its quarterly earnings, but the online pet supplies retailer's post-earnings stock price gains have evaporated as fewer people own pets and fewer people own pets. The outlook for the year ahead is bleak, with lower and higher benefits being received. Prices will fall.
Against this backdrop, Chief Executive Officer Sumit Singh said the pet adoption boom during the pandemic will lead to higher prices for groceries and other household essentials in 2022, which will curb consumer spending. He said he expected the pet industry to “get back to normal” next year.
Singh said the $144 billion U.S. pet business is “recession-proof,” and while Chewy has experienced steady growth for years, fueled by demand for premium pet food and other premium products, the trend remains strong. He said he was a “key promoter, leader and beneficiary” of the service.
Chuhey said he expects adjusted EBITDA margins to continue to expand this year, regardless of the industry or macroeconomic backdrop. However, the company remained concerned this year as pet ownership remains below historical trends.
“As it relates to pricing, we do not expect a deflationary environment, but we do not expect pricing to have a material benefit to industry growth in 2024,” Singh said. “With these inputs, the industry will likely see moderate growth, setting the stage for a return to normalcy in the industry in 2025.”
Chewy (CHWY) earned $32 million, or 7 cents per share, in the fourth quarter, compared with $6.8 million, or 2 cents per share, in the year-ago period.
The company said food, treats and other essentials and pet health products remained Chewy's “pillars of strength,” with sales increasing 4% to $2.83 billion.
The number of active customers, or individual customers who paid for something at Chewy in approximately the past 12 months, was 20.1 million, down about 2% year over year.
Analysts surveyed by FactSet expected Chewy to report a loss of 4 cents per share on revenue of $2.79 billion and 20.2 million active customers.
The stock immediately rose more than 9% in after-hours trading, but quickly gave up the gains and ended extended trading down 2.5%. The stock ended Wednesday's regular trading session up 6%.
Analysts at Jefferies said in December that Chewy is “targeting high-income customers” who are less susceptible to price increases. But JPMorgan analysts said in a more recent research note that investor sentiment is “mostly cautious” heading into Wednesday's results.
They said the alarm comes amid concerns about fewer active customers, increased competition and fewer pet adoptions as customers prioritize more expensive basics.
Chewy stock is down 53% over the past 12 months, compared with a roughly 32% rise in the S&P 500 index SPX.
Mizuho analysts said in a note this week that Chewy's focus on pet health and veterinary hospitals could protect it from the biggest threat to online retailer Amazon.com (AMZN). Stated. However, he expressed the view that stock prices are likely to remain within a range.
“Stock prices are likely to remain at current levels until there is clear evidence that sales growth has decisively bottomed out.” [Chewy] We have returned to adding new customers, but we are unable to take on either of them at this time,'' they said.
-Bill Peters -Claudia Assis
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March 20, 2007 24 Eastern Time
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