Chewy, Inc. (CHWY) Earnings Preview: Pet retailer eyes recovery
AInvestWednesday, Mar 20, 2024 1:17 pm ET
1min read
CHWY --

Chewy, Inc. (CHWY), the leading online retailer for pet care in the U.S., is on the cusp of announcing its Q4 (Jan) results. With analysts forecasting a slight net loss of $(0.04) per share and a 3% year-over-year revenue increase to $2.80 billion, we're diving into CHWY's prospects, focusing on the pivotal factors and ongoing debates around the stock.

Discretionary Demand and Autoship Customers

After a quarter that fell short of expectations, CHWY is looking to bounce back. The dip was partly due to a drop in discretionary spending on pet products. Recognizing that its non-Autoship customers, who contribute to a quarter of its sales, have been the hardest hit, CHWY is doubling down on efforts to convert one-time shoppers into recurring Autoship subscribers, aiming to lift FY25 outlooks.

Non-Discretionary Demand Trends

Despite the headwinds in discretionary spending, there's a silver lining with non-discretionary demand, especially evident in positive trends from Freshpet (FRPT) and General Mills (GIS). It's critical for CHWY to keep an eye on engaging active customers and finding ways to boost profitability, including headcount reductions and more strategic promotional spending.

Margin Expansion and Guidance

Last quarter, CHWY hit a gross margin record of 28.5%, showcasing the fruits of its cost-saving initiatives. With optimism about further margin growth, CHWY is set to give a sneak peek into its FY25 expectations. A recommitment to its long-term financial goals, including net sales growth in the high single digits and an adjusted EBITDA margin of over 10%, would be a strong signal to investors.

Conclusion

With a Moderate Buy consensus from Wall Street, CHWY's future growth is closely tied to enhancing customer engagement and leveraging non-discretionary spending. By prioritizing profitability and margin expansion, CHWY is positioning itself for sustained growth and investor value in the challenging pet retail market.


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