Chewy Inc (NYSE: $CHWY) is an online pet food retailer that sells pet food, supplies, treats, and healthcare products for cats, dogs, fish, birds, reptiles, and horses. It also sells a range of pet medication and clothing through its mobile app and website.
On Wednesday, March 20, 2024, Chewy released its Q4 fiscal 2023 results during the pre-market trading session, showing better-than-expected results.
Chewy’s Fourth Quarter Results
For the fourth quarter, Chewy reported a revenue of $2.83 billion, a 4.2% Y/Y increase, and better than the analysts’ estimate of $2.77 billion. Adjusted diluted EP came in at $0.18, a $0.02 Y/Y rise above the forecast of -$0.03.
Its gross margin expanded 10 basis points to 28.2% Y/Y, while its net margin improved 80 basis points Y/Y to 1.1%. In the quarter, adjusted EBITDA declined $6.2 million Y/Y to $86.5 million, while adjusted EBITDA margin fell 30 basis points to 3.1%.
Full Year 2023 Highlights
Full-year revenue came in at $11.15 billion, a 10.2% Y/Y increase, while the adjusted diluted EPS increased $.016 Y/Y to $0.69. The full-year net margin contracted 10 basis points to 0.4%, while the adjusted EBITDA grew $61.3 million Y/Y to $368.1 million, for an adjusted EBITDA margin of 3.3%, a 30 basis point increase Y/Y.
Disappointing Q1 and Fiscal 2024 Outlook
CHWY forecast revenue of $2.84-$2.86 billion in Q124, a 2% Y/Y increase but below estimates of $2.89 billion. In FY24, the company expects revenue of $11.6 billion to $11.8 billion, which is in line with estimates of $112.7 billion and a 4%-6% Y/Y increase. Like most other e-commerce companies, Chewy has shifted focus to improving its free cash flow generation and margins.
CHWY Stock Performance
Following the release of its Q4 and full year 2023 results, CHWY declined 5.50% to $16.76 per share as of 10:36 AM EDT, driven by disappointing outlook.
Over the past 12 months, the stock is down 49.21%, underperforming the S&P 500, which has gained 32.31% in the same period. It is below its 50-day moving average of $17.92 and its 200-day moving average of $23.89.
Analysts Express Optimism On CHWY
Alexander Steiger, an analyst at Goldman Sachs, maintained their Buy rating for CHWY following the release of its Q4 results. However, they lowered their price target from $36 to $32, an 80.4% upside. Steiger expects Chewy to benefit from international expansion, new ad revenue opportunities, and the growing momentum of its Health Unit.
Overall, CHWY has a moderate buy rating from analysts. They forecast a broad range for the stock in the next 12 months, with a high of $32 and a low of $17. The average price target of $25.63 represents a 48.58% upside for CHWY.
Should You Buy CHWY Shares?
CHWY has struggled to find its footing in recent months, falling around 23.04% year-to-date. In the past 12 months, it has lost 56.87% of its value. However, the company has a healthy balance sheet, with $602 million in cash and cash equivalents, while free cash flow is $342.93 million.
Chewy has said it will invest this free cash flow into advertising to grow its customer base. Additionally, the recent launch of its health unit, “Chewy Vet Care,” will help boost its revenue.
While its current share performance is disappointing, Chewy’s future looks promising, with new revenue sources being lined up. Consequently, Chewy is a great addition to your portfolio as part of a long-term strategy.
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