Chewy, Inc Q4 Results Are Hard To Swallow
Chewy, Inc (NYSE: CHWY) is one of our favorite growth stories being an eCommerce giant focused exclusively on the pet category. While the pet category continues to grow and Chewy, Inc's revenue along with it so too are the inflationary headwinds and they are cutting into company profits. That fact has led the analysts to lower their expectations for the year as well as their targets for share prices. The key takeaway from the chatter is that profitability is eroding in an increasingly competitive environment.
At least 6 of the 22 analysts currently covering the stock issued commentaries following the earnings release and they all included a price target reduction. The catch is that most of the new targets are still above price action as is the Pricetargets.com consensus target of $73.43.While the consensus price target has been coming down in the 12 months, 3 months, and 1-month comparison there is another tailwind for share prices in the form of coverage. Chewy, Inc has seen a steady uptrend in coverage that has added 5 analysts to the fold since August 2021.
Chewy, Inc Misses, Guides Weak
Chewy, Inc had a good quarter from the internal perspective but that is not what drives market sentiment. From the analysts’ perspective, the $2.39 billion in revenue may be up 17.2% from last year and a company record but it missed by $30 million or about 130 basis points. The good news is that revenue per customer grew to $430 and a company record, the bad news is that new customer acquisition continues to decline and came in below company forecasts.
What’s worse, is that inflationary pressures and rising inbound freight costs cut into both the gross and operating margin to produce a larger than expected loss as well. The company reports a 170 basis point impairment to gross margin and 420 at the operating level which left both the GAAP and adjusted earnings in negative territory. Worst is that adjusted earnings of -$0.11 missed by $0.03 to outpace revenue in terms of weakness.
The real headwind for share prices, however, is the guidance that came in below the then-consensus estimates. The consensus has fallen a bit in the day since the report was released and even now compares unfavorably to the guidance. The company is expecting 12% to 15% revenue growth in the 1st quarter and 15% to 17% for the year but both are down significantly from the previous year's pace and a reacceleration is not expected by the market at this time.
Is Chewy, Inc A Short-Squeeze In The Making?
Chewy, Inc is carrying one of the highest short-interests in the equity market and is a candidate for a short-covering rally if not a short-squeeze. Sitting at 29% as of the last report there is ample fuel to drive prices up and off the current bottom and get a reversal in play. The question now is if the market will continue to support the stock at the $37.50 level or if the price action will move down to set a new low. If the market can hold the price above $37.50 the odds of a short-covering rally beginning are very high. If not, this stock could fall down to the $20 range where it would be a real steal.
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