On Monday, Deutsche Bank maintained a Hold rating on Chewy Inc . (NYSE:CHWY) with a steady price target of $18.00 for the shares. The firm anticipates Chewy's active customer base to shrink, ahead of the company's first-quarter earnings report for fiscal year 2024, scheduled for May 29th.
According to Deutsche Bank, industry checks, third-party user data, and the latest Pet category Consumer Price Index (CPI) data suggest a year-over-year decline in active customers for the first quarter.
The analysis includes data from Second Measure, which tracks credit and debit card transactions, and app data from SensorTower. Both sources indicate a decrease in active customers, although the extent of the decline varies, with Second Measure suggesting a relatively stable year-over-year user decline since the first quarter guidance was issued, while SensorTower indicates more significant user losses.
The report also highlights challenges in the pet industry, noting a roughly 30% drop in pet household formation during the first quarter, as per pet adoption data sources.
This decline, coupled with an increased churn rate among Chewy's newest customer cohorts, leads Deutsche Bank to believe that an upturn in Chewy's user growth is unlikely in the near future. Consequently, the firm expects the stock to face continued pressure.
Deutsche Bank predicts Chewy's active customers will decrease by 180 basis points year-over-year, which is slightly better than the market consensus of a 190 basis point decline.
This represents a 20 basis point deceleration from the fourth quarter. The company's upcoming earnings report will likely provide further insights into Chewy's performance and the accuracy of these projections.
InvestingPro Insights
As Chewy Inc. (NYSE:CHWY) approaches its first-quarter earnings report, InvestingPro data shows a market capitalization of $6.99 billion, reflecting the company's size in the competitive e-commerce space. Despite the concerns raised by Deutsche Bank, Chewy holds more cash than debt, which is a positive sign of financial health. Moreover, analysts included in the InvestingPro platform predict that the company will be profitable this year, which could be a turning point for investor sentiment.
However, the data also indicates that Chewy is trading at high valuation multiples, with a Price/Earnings (P/E) ratio of 172.93 and a Price/Book (P/B) ratio of 13.7. These metrics suggest that the stock's current price is based on high expectations for future earnings growth, which may add pressure if the upcoming earnings report does not meet market expectations. Additionally, Chewy's revenue growth over the last twelve months was 10.17%, highlighting the company's ability to increase sales even in a challenging market environment.
For investors seeking a deeper analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/CHWY, including insights on earnings multiples and profitability. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking a wealth of financial data and expert analysis to inform your investment decisions.
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