Chewy (CHWY) Soars on Q4 Profit Beat, Analysts Bulled-Up

Chewy (NYSE: CHWY) announced better-than-expected quarterly earnings to send its shares almost 15% higher in pre-open Wednesday.

The online seller of pet food reported an adjusted profit of $0.05 on sales of $2.04, which is a positive surprise given that the surveyed market analysts were calling for an adjusted loss of $0.10 on revenue of $1.96 billion.

CHWY said it is now serving 19.2 million users, which represents an increase of 43% compared from a year-ago period. On a year-over-year basis, revenue soared 51%.

“2020 was an incredibly challenging and unpredictable year for all of us. During this time, Chewy performed exceptionally well and made significant strategic and operational progress. Specifically, we grew net sales by 47 percent year over year, increased our customer base by 43 percent year over year, delivered our first full year of positive adjusted EBITDA, and generated the company’s first quarter of positive net income in the fourth quarter of 2020,” said Sumit Singh, Chief Executive Officer of Chewy.

“Years of preparation and focus have positioned us as the Internet’s preeminent neighborhood pet store and a leading pure-play e-commerce company in the pet space. We look forward to a future marked by ongoing innovation and to winning customers’ hearts and minds as we grow to become the most trusted and convenient online destination for pet parents (and partners) everywhere.”

Morgan Stanley analyst Lauren Schenk said CHWY is “poised to deliver another solid year of top-line growth,” after the company topped market’s expectations for Q4. The MS analyst hiked the price target to $83.00 per share from $76.00.

“CHWY remains a top-line, market-share driven story and thus the +10% after hours move feels well deserved, especially given the underperformance YTD,” Schenk said in a note.

“CHWY not only attracted larger new cohorts in 2020, but is attracting consumers earlier in their pets lives, experiencing better retention, and capturing greater wallet share overtime through broader category assortments... meaningfully improving LTVs. For example, in 2020, CHWY captured 12% more initial share of wallet vs.2019. In addition, year 1 contribution profit per customer has increased at an average annual rate of 16% over the past two years driven by a wider product assortment and a growing set of customer offerings. As we enter '21 we continue to believe CHWY has the greatest opportunity compared to eCommerce peers.”

Jefferies analyst Stephanie Wissink was also impressed by Q4 results, prompting the analyst raises the price target to $105.00 from the prior $100.00 to reflect higher estimates.

“Q4 results handily beat estimates across key measures and FY21 outlook implies estimates are moving higher. Profitability is pacing 2 yrs ahead of the IPO model led by cost leverage and improved assortment, autoship uptake, new PL products, & service offerings, which are improving GM% and LTV:CAC. We see the defensibility of CHWY's moat widening faster with more customers signing on and spending more sooner,” Wissink says in a memo sent to clients.

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