Chewy Posts Strong Beat & Raise Quarter As Growth Accelerates

Shares in pet e-tailer Chewy Inc (CHWY) pulled back 2% in Tuesday’s after market trading, despite the company posting a strong beat and raise fiscal first quarter. The stock is already up 78% on a year-to-date basis.

Specifically, Q1 GAAP EPS of -$0.12 beat Street expectations by $0.05. Revenue of $1.62B also easily beat estimates by $90M and delivered strong 45.9% year-over-year growth thanks to record Customer Net Adds and healthy “COVID cohort” purchases. Adj. EBITDA of $3.4M smashed the -$14.9M consensus, and active customers net additions came in at 1.6MM, 2x the average in FY19.

“We had a strong start to 2020 with first quarter net sales increasing 46 percent year-over-year and gross margins expanding 50 basis points. We also achieved a significant milestone by delivering our first ever quarter of positive adjusted EBITDA,” stated Sumit Singh, CEO of Chewy.

“We are proud to be the e-tailer of choice for millions of new and existing pet parents during this unprecedented time.”

Post-print RBC Capital analyst Mark Mahaney reiterated his Chewy buy rating, while substantially ramping up his price target from $40 to a Street-high $62 (20% upside potential).

“With the ~28% rally into print over the last two weeks, expectations were super-high…and we believe they were largely met” he told investors, adding “More importantly, CHWY’s results and outlook suggest to us that the company is at an inflection point and that it is a structural winner from the COVID crisis.”

Pet product purchases have meaningfully accelerated their online adoption, and Mahaney does not expect a reversion now. Plus, as the RBC analyst points out, CHWY’s addressable market remains very large, its penetration small, its value proposition very robust, its business model strengthening, and its execution to date very strong.

Overall the Street has a more cautiously optimistic outlook on the stock with a Moderate Buy consensus. Thanks to the recent rally the $45 average analyst price target now indicates downside potential of 12%. (See Chewy stock analysis on TipRanks)

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