Chewy Inc. (CHWY), an online retailer of pet products, reported its financial results for the third quarter of this year. The company's net sales increased by 8.2% year over year to reach $2.74 billion, slightly below analyst expectations. Chewy's CEO, Sumit Singh, highlighted the company's ability to gain market share in the pet product industry, with net sales growing by 8% despite industry growth in the low single digits.

Despite the top line miss, Chewy managed to improve its gross margin by 10 basis points to 28.5%. Adjusted EBITDA, a measure of operating performance, increased by $11.7 million to $82.1 million, representing a margin of 3.0%, which improved by 20 basis points year over year. The adjusted net income also increased by $14.6 million to $63.0 million, and the adjusted Earnings per share rose by $0.04 to $0.15. 

A decline in GAAP profitability can be attributed to higher expenses, including share-based compensation expense and related taxes amounting to $65.8 million. 

Singh emphasized the strong profitability achieved by the company, as evidenced by the consistently high gross margin and adjusted EBITDA margin. 

Looking ahead, the company provided downside guidance for the fourth quarter and fiscal year 2024. Chewy expects Q4 revenues of $2.78-2.80 billion, falling short of the analyst estimates of $2.93 billion. Additionally, the company's guidance for fiscal year 2024 indicates revenues of $11.08-11.10 billion, lower than the consensus estimate of $11.23 billion. 

This cautious outlook may have contributed to some investor concerns as shares fell 8% in after hours. It is worth noting that Chewy recently implemented actions to reduce headcount in November, which could be a cost-saving measure aimed at improving profitability in the future. 

CHWY opened the month of December at $17.52. The stock rallied through its 50-sma ($18.76) and was testing resistance at the 20-sma ($19.46) heading into the report. It has quickly given up those gains and is testing the December opening price for support. The December lows sit below at $17.11. Selling could intensify if these levels are broken. 

In conclusion, Chewy demonstrated solid growth in net sales and improved its gross margin in the third quarter. However, the company reported a net loss, primarily due to higher expenses related to share-based compensation. Despite this, Chewy's adjusted EBITDA and net income showed growth. The downside guidance for the fourth quarter and fiscal year 2024 might contribute to some uncertainty in investor sentiment.

As always, it is essential for investors to conduct further research and analysis before making any investment decisions.