Chewy reported roughly in-line second-quarter earnings and slightly raised guidance early Wednesday. But shares of the online pet food company sold off.
Chewy earnings rose 36% to 33 cents a share on an adjusted basis in the Aug. 3-ended quarter. GAAP earnings came in at 14 cents vs. 68 cents a year earlier. Both met the analyst consensus according to FactSet.
Sales climbed $8% to $3.104 billion, edging past forecasts for $3.08 billion. Sales in the company's Autoship program rose 15%. Active customers rose 4.5% year over year, while net sales to those customers climbed 4.6% to $591 on average.
The online pet store raised its full-year revenue target range to $12.5 billion-$12.6 billion from $12.3 billion-$12.45 billion. Analysts had expected $12.495 billion.
CEO Sumit Singh told analysts the Chewy+ membership program is strengthening, and the company expects to end the year with mid-single-digit percentage of net sales from that program.
Plantation, Fla.-based Chewy offers 130,000 products and services, including prescription food and medications, that it sells online.
Chewy Stock
Chewy stock fell 16.6% to 35.11 on Wednesday. Volume was heavy.
Shares had been working on the right side of a cup-type base with a 48.62 buy point, trying to clear a resistance level around 42. The stock closed at 42.10 on Tuesday. The current base is a riskier late-stage pattern.
But shares gapped below the 50-day moving average and 200-day line on Wednesday. The break of support levels should be treated as a sell signal.
Investors were looking for sequential active customer growth closer to 175,000 vs. the reported increase of 146,000, William Blair analyst Dylan Carden said in a note to clients. Apart from that, growth seems to be accelerating, Carden added.
"Margins are also now a bright spot, something that the Street was more inclined to fuss about in the last three quarters, but that will likely take a back seat to active customer expectations this quarter," the analyst said. William Blair has an outperform rating on Chewy.
Diana Rosero-Pena, consumer staples equity analyst at Bloomberg Intelligence, said Chewy's long-term prospects remain solid as the company attracts pet owners with its assortment and automatic shipments.
"Investments in verticals, including health and sponsored ads, could add to sales," the analyst added. "A similar growth cadence in both active customers and net sales per active customer may push revenue to more than $13 billion by fiscal 2026, our analysis suggests."
On Monday, Mizuho analyst David Bellinger upgraded Chewy stock to outperform from neutral and raised the price target to 50 from 44.
"(Chewy) represents a compelling medium- to long-term opportunity with multiple initiatives at work — including advertising, automation, and building out vet clinics," the analyst said.
According to the IBD Stock Checkup, Chewy has a three-year EPS growth rate of 130% and a three-year sales growth rate of 9%.
Chewy Stock Technical Ratings
Chewy has an IBD Composite Rating of 93. While that's only seventh best in the internet retail industry group, it is the highest among other pet brands.
Freshpet, which sells premium pet food in stores, has a Composite Rating of 10, and shares are down more than 60% year to date.
On Aug. 28, Petco Health & Wellness beat earnings expectations. The stock shot up 23.5% on the news, though it remains below 4 a share. Its Composite Rating is 63.
