On Thursday, BofA Securities adjusted its outlook on Chewy Inc . (NYSE:CHWY) shares, increasing the price target to $18.50, up from the previous $16.50, while maintaining an Underperform rating on the company's stock.
The firm's decision follows Chewy's first-quarter revenue and EBITDA surpassing expectations, with reported figures of $2.88 billion and $163 million respectively, against the anticipated $2.85 billion and $114 million.
Chewy's active customer base reached 20.0 million, a slight year-over-year decline of 2.1%, but still ahead of the company's internal projections.
The average net sales per active customer (NSPAC) grew by 9.6% year-over-year to $561, aligning closely with market expectations.
Notably, the company's Autoship program, which allows for automatic reordering of products, accounted for 77.6% of total sales, marking an increase of 290 basis points from the previous year and setting a new record for the company, buoyed by robust new customer sign-ups.
The pet retailer also reported a gross margin of 29.7%, benefiting from one-time factors such as vendor reimbursement timing, reduced fuel costs, and lower-than-anticipated promotional activity.
The adjusted gross margin stood at 29.0%, exceeding the market's prediction of 28.6%. This was supported by strong performance in Sponsored Ads, which make up less than 1% of revenue, and a greater shift towards the Health category.
Chewy highlighted positive developments in its Health segment, noting encouraging signs from its four operational clinics, with plans to expand to eight by the end of the year.
The company's EBITDA margin of 5.7% reflected gains from gross margin leverage and stringent cost control in sales, general, and administrative expenses, particularly in payroll and customer service operations.
InvestingPro Insights
Chewy Inc. (NYSE:CHWY) has shown resilience with its recent financial performance outpacing market expectations. An analysis through InvestingPro reveals that the company holds more cash than debt, providing it with a stable financial cushion. Additionally, Chewy is expected to see net income growth this year, which could be a signal for potential investors. However, caution may be warranted as the Relative Strength Index (RSI) suggests that the stock is currently in overbought territory, and two analysts have recently revised their earnings expectations downwards for the upcoming period.
From a valuation perspective, Chewy's market capitalization stands at approximately $9.37 billion USD, with a high Price/Earnings (P/E) ratio of 88.51, indicating that the stock might be trading at a premium relative to its earnings. The company's Price/Book ratio as of the last twelve months is also on the higher side at 14.58, which could suggest that the stock is overvalued when considering the company's book value. Despite these metrics, Chewy has demonstrated strong returns over the past week and month, with price total returns of 32.23% and 43.43%, respectively.
For those considering an investment in Chewy, it's worth noting that there are additional InvestingPro Tips available that delve deeper into the company's financial health and future prospects. By using the coupon code PRONEWS24, readers can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription to access these insights and make more informed investment decisions.
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