Chewy (CHWY) Tops Revenue Expectations, Firms Raise PTs and Estimates

Chewy (NASDAQ: CHWY) reported stronger-than-expected revenue figures for its third quarter that ended November 1. Revenue rose 45% to $1.78 billion to top market estimates and represents strong growth as CHWY posted revenue of $1.23 billion a year ago.

An online retailer of pet food and other pet-related products posted a quarterly loss of $0.08 per share to beat the Street consensus of a loss of $0.15. Last year, the company lost $0.20 per share.

“Chewy’s relentless focus on execution and inventiveness resulted in record net sales and another quarter of positive adjusted EBITDA,” said Sumit Singh, Chief Executive Officer of Chewy, in a statement.

“We are also proud to take a leading role in making pet healthcare more affordable and accessible with the recent expansion of our healthcare offerings to include medicinal compounding and telehealth,” he added.

Needham & Company analyst Rick Patel is evidently impressed with the latest figures from CHWY. He maintains a “Buy” rating and raised the price target to $90.00 from the prior $75.00.

“Simply put, we believe the company is hitting on all cylinders and should remain a compelling growth story on the other side of Covid. Its positive momentum continued into 4Q, resulting in bullish guidance that we view as achievable,” Patel said in today’s note sent to clients.

“In ’21, we foresee CHWY benefitting from positive secular trends towards digital, TAM expansion (health care), and higher margins despite seemingly tough y/y comparisons.”

Similarly, Lauren Schenk from Morgan Stanley lifted the price objective to $77.00 per share (up from $49.00), but left its “Equal-weight” rating unchanged.

“CHWY has not only attracted larger new cohorts in 2020, but is better retaining them, and capturing greater wallet share early on...meaningfully improving LTVs. The 2Q20 cohort was 50% larger than 2Q19, retention has improved more than 600 bps YTD, plus the net sales per active customer of the 2020 cohort is 10% higher than the 2Q19. This is in part driven by COVID, but also given a larger addressable TAM, specifically pharmacy (~$7B of spend), telehealth offerings, and more,” Schenk said in a note.

Looking forward, Schenk said CHWY has the “greatest opportunity” to continue hitting important milestones. In particular, CHWY has the opportunity to:

1) retain the 4.3M net new buyers it has acquired YTD given the habitual, staples-like nature of the business and superior value proposition to brick & mortar shopping, and

2) CHWY's historically strong (35-60% revenue growth net of churn) year 2 cohort spending.

“Additionally, while many other eCommerce businesses will likely experience significant deceleration in '21 growth, or even declines, CHWY does not face exceptionally hard "one-time" compares,” adds Schenk.

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