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Chewy (NYSE:CHWY) shares are down over 5% in premarket Thursday despite the company reporting better-than-expected Q4 results, with EPS of $0.16 coming in better than the consensus estimate of ($0.11).
Revenue grew 13.4% year-over-year to $2.71 billion, beating the consensus estimate of $2.64B. The company ended the quarter with 20.4 million active customers. Net sales per active customer increased 15.1% year-over-year to $495.
Additionally, its Autoship customer sales grew 17.5% year-over-year and generated 73.3% of the company’s Q4 net sales, representing a 260 basis point increase over the prior year period.
Q4 gross margin expanded 270 basis points to 28.1%, driven by favorable pricing comps relative to Q4/21, and to a lesser degree, by the company’s ongoing supply chain transformation.
“Our fourth quarter and full-year fiscal 2022 results cap an incredible year. Against the backdrop of a rapidly changing operating and economic environment, Chewy produced record-high revenue, profitability, and free cash flow,” said Sumit Singh, CEO of Chewy.
Deutsche Bank analysts moved to Hold from a Buy recommendation on CHWY shares with the price target slashed to $35 per share.
“A tepid user growth environment with an investment year on deck adds too much numbers risk for one of the most expensive names in our coverage. Thus, we are moving to the sidelines until such time as we can gain more clarity on the path toward sustainable HSD user growth for Chewy and downgrade to Hold,” they wrote in a note.
“We remain constructive on Chewy’s competitive positioning within the secularly growing Pet space, with a long-term path to HSD-10% EBITDA margins. However, we await signs of more sustainable user growth and a return toward margin expansion before growing more constructive on shares again.”
Morgan Stanley analysts said the report will be liked more by the bears than the bulls.
“Guidance for flat to -50 bps ’23 EBITDA margin was the biggest incremental negative, as improved flow through had been a key tenant of the bull case, and int’l expansion likely viewed negatively by most. While ’23 top-line slightly better, muted net adds continue to fuel the ‘saturation’ bear case,” the analysts said.
