On Thursday, BofA Securities adjusted its stance on Chewy Inc . (NYSE:CHWY), reducing the price target to $16.50 from the prior $17.00, while retaining an Underperform rating on the company's stock.
The adjustment follows Chewy's latest financial results, which included fourth-quarter revenue and EBITDA that surpassed Wall Street's expectations. Chewy reported a revenue of $2.83 billion and EBITDA of $86 million, compared to analysts' projections of $2.79 billion in revenue and $65 million in EBITDA.
Despite the revenue and EBITDA beat, Chewy experienced a decline in active customers, with a 1.5% year-over-year decrease, shedding approximately 170,000 customers quarter-over-quarter. Nevertheless, the company saw a notable 11.8% growth in Net Sales Per Active Customer (NSPAC) to $554, which exceeded the Street's estimate of $547. This increase is partly attributed to the expansion of Chewy's Health business.
Chewy's Autoship program, which allows for automatic reordering of products, accounted for 76.4% of total sales, marking an increase of 310 basis points from the previous year and maintaining stability compared to the third quarter. The company's gross margin stood at 28.2%, a slight year-over-year increase of 10 basis points and 20 basis points higher than BofA Securities' estimate. The growth in gross margin was supported by the continued ramp of Sponsored Ads revenue, which is expected to further increase in 2024.
Despite the favorable gross margin and revenue figures, Chewy's EBITDA margin contracted by 30 basis points year-over-year to 3.1%. This contraction was primarily due to increased investments in Selling, General, and Administrative (SG&A) expenses, which led to a decrease in leverage. Chewy's financial performance and the adjustments in price target reflect the company's current market position and the challenges it faces in a competitive industry.
InvestingPro Insights
As Chewy Inc. (NYSE:CHWY) navigates a competitive market landscape, its financial health and growth prospects continue to be a focal point for investors. With a market capitalization of approximately $7.65 billion, the company's valuation metrics present a mixed picture. Chewy's Price to Earnings (P/E) ratio stands at a towering 651.85, indicating a high earnings multiple that may suggest investor optimism regarding future growth or potentially an overvaluation relative to earnings.
InvestingPro data shows that Chewy's revenue has grown by 12.56% over the last twelve months as of Q3 2024, a healthy sign of top-line expansion. However, the company's EBITDA margin remains slim at 0.11%, reflecting the competitive pressures and significant investments in growth and operations. A noteworthy highlight is the company's gross profit margin, which has maintained a solid 28.33%, aligning with the recent uptick in gross margin reported in the latest results.
One of the InvestingPro Tips that stands out is Chewy's strong cash position, holding more cash than debt on its balance sheet, which could provide a cushion against market uncertainties and enable continued investment in strategic areas such as their Autoship program and health business expansion. Another tip to consider is the expectation from analysts that Chewy will be profitable this year, which, if realized, could positively influence the stock's performance and investor sentiment.
For investors seeking a deeper analysis, there are additional InvestingPro Tips available that could provide further insight into Chewy's valuation and performance. For instance, the platform notes that Chewy is trading at a high Price/Book multiple of 19.45 and a high EBIT valuation multiple, which could be important factors for valuation-sensitive investors. To access these insights and more, visit InvestingPro's dedicated page for Chewy at https://www.investing.com/pro/CHWY and consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 10 more InvestingPro Tips available that could help in making an informed investment decision.
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