On Thursday, JMP Securities adjusted its price target for Chewy Inc . (NYSE:CHWY), a leading online retailer of pet products, to $26.00, a decrease from the previous target of $28.00, while retaining a Market Outperform rating on the stock. The adjustment follows Chewy's fourth-quarter earnings report, which revealed revenues slightly above consensus and an adjusted EBITDA margin that also surpassed expectations. However, the company's shares experienced a decline of approximately 3% following the announcement.
Chewy's recent financial performance demonstrated solid fourth-quarter results, with the company's top-line revenue exceeding analyst predictions and an adjusted EBITDA margin that beat the anticipated figures. Despite this, the first-quarter revenue guidance for fiscal year 2024 was somewhat below expectations, and the company anticipates its active customer growth to remain relatively stable throughout the year.
The company's guidance for fiscal year 2024's top-line revenue aligns with market expectations, and the forecasted adjusted EBITDA margin of 3.8% is higher than the estimated 3.5%. The slight downturn in Chewy's stock price post-earnings release is thought to be a reaction to the market's anticipation of more positive active customer growth trends and the company's projection of growth for fiscal year 2024 falling short of long-term goals.
Chewy's resilience is partly attributed to the nature of its sales, with approximately 85% of its net sales for fiscal year 2023 being non-discretionary and health-related. The company has also seen its autoship sales growth outperform total net sales. Moreover, Chewy is expected to see an increase in sponsored ads, which should contribute to a sequential gross margin improvement throughout the year.
Expansion plans are on the horizon for Chewy, as it prepares to launch its first veterinary clinic and aims to open between four to eight clinics in fiscal year 2024, with initial sites already fully staffed.
Additionally, Chewy's foray into the Canadian market is progressing as planned, with management noting positive early results. Overall, JMP Securities views Chewy's fourth-quarter earnings positively and considers the company's current valuation an attractive opportunity for investors, despite the recent adjustment to the price target.
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