The pet-products retailer Chewy saw its shares rise 5.5% after disclosing its third-quarter earnings after the close of trading on Monday.
The pet-products retailer saw its shares rise 5.5% after disclosing its third-quarter earnings after the close of trading on Monday.
The pet-products retailer Chewy saw its shares rise 5.5% on Tuesday after disclosing its third-quarter earnings after the close of trading on Monday.
The results were mixed, and investors have seemed unsure of how to interpret them. The stock plunged 4.4% early Tuesday morning, but later bounced back to register notable gains.
The back story. Chewy (ticker: CHWY) sold 46.5 million shares for $22 each through an initial public offering on June 14. The stock opened at $36 and soared as high as $41 on the first day. Prices have since pulled back, trading at $25.50 as of Tuesday’s close.
The company has been improving its e-commerce platform, offering more private-label merchandise, and enhancing its delivery capabilities. Chewy Pharmacy which fills pets’ prescriptions online, has enjoyed a positive response from consumers. Chewy’s growth trajectory looks solid and the company seems to be on a path to achieve profitability soon.
Still, after the initial post-IPO excitement, the stock has continued to decline as investors have become more level-headed about the company’s true valuation.
What’s new. For the three months ended on Nov. 3, the pet-food company posted total sales of $1.23 billion, about 40% up from the same period last year and better than the $1.2 billion Wall Street expected. Active customers on its e-commerce website grew by 33% to 12.7 million and most important, gross margin expanded by 4.1 percentage point to 23.7%.
Still, Chewy kept losing money during the third quarter, posting a loss of $30.2 million in adjusted earnings before interest, taxes, depreciation, and amortization, or Ebitda. Adjusted per-share losses came at 20 cents, worse than Wall Street’s estimate of a 16-cent loss.
“We believe we are transforming the industry with our truly unique and personalized, high-bar shopping experience that builds trust and brand loyalty by keeping the customer at the center of everything we do,” said CEO Sumit Singh in a written statement.
Singh and CFO Mario Marte also presented at the UBS Global TMT Conference in New York on Tuesday morning.
Looking ahead. For the fourth fiscal quarter, which ends on Feb. 2, Chewy management is looking for net sales of between $1.33 billion and $1.35 billion, That represents year-over-year growth of about 32% to 34%, adjusted for the fact that this fiscal year has one fewer week.
For all of fiscal 2019, net sales are expected to grow 40% to between $4.82 billion and $4.84 billion. The company also expects adjusted Ebitda margin to improve by 4.4 to 4.6 percentage points from the prior year.
Besides the earnings report, Chewy investors have another major event to watch this week. A post-IPO lockup, or ban on stock sales by insiders, will expire on Wednesday.
About 53 million Chewy shares are now publicly traded. In a research note on Tuesday, J.P. Morgan analyst Doug Anmuth estimated that 348 million additional shares will be unlocked, which will represent 87% of Chewy’s total float of 401 million shares. Anmuth expects major insider shareholders like PetSmart and BC Partners to reduce their stakes over time.
That increased supply is expected to drag on the stock, but even now, Chewy shares are selling for not much more than the IPO price, at a reasonable multiple of some 1.7 times expected sales for the next year. Investors seeking to buy Chewy at a fair value could pick up the stock from whatever lows are reached after the lockup expires.
On average, 13 analysts polled by FactSet expect the stock to rise 37.5% from current levels to $34.9 over the next 12 months.
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