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Chewy Stock: Is This Former Ryan Cohen Company A Buy Ahead Of Earnings?

Online pet supplier company Chewy, founded by GameStop’s Chair Ryan Cohen, will report Q3 earnings on December 9. Should investors jump in ahead of earnings?

Chewy  (CHWY) - Get Chewy, Inc. Class A Report will release its third-quarter results on Thursday, December 9. This earnings release has been highly anticipated by investors. The online pet supplier has some big challenges to overcome ahead, from economies reopening post-pandemic to continued supply chain disruptions.

The company has taken a beating recently – Chewy shares have sunk nearly 19% over the past month alone.

Figure 1: CHWY stock performance 1-month period.

Figure 1: CHWY stock performance 1-month period.

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Post-pandemic effects

Chewy’s online business was a big beneficiary of “stay-at-home” trends during the COVID-19 pandemic. For fiscal Q4 2020 and fiscal Q1 2021, Chewy reported positive earnings-per-share for the first time since it went public in June of 2019.

However, pandemic tailwinds are slowly fading as economies reopen. In its most recent quarter (FQ2 2021), Chewy’s earnings and revenue both missed analysts’ expectations.

Figure 2: CHWY earnings, revenues data & history.

Figure 2: CHWY earnings, revenues data & history.

The slowdown in Chewy’s business is part of a larger overall trend. Third-party data forecasts a worldwide e-commerce growth downshift to 14.3% in 2021. This is partially due to the rebound of brick-and-mortar stores and partially just a tempering of the unsustainable, red-hot growth rates e-commerce saw last year.

Fiscal Q3 2022 expectations

Consensus estimates for Chewy’s fiscal Q3 2022 are a negative $0.04 earnings-per-share and revenue of $2.2 billion. Here are a few things to keep in mind on earnings day:

  • Despite the e-commerce industry’s recent cooling, last quarter, Chewy reported an active customers growth of 21% and net sales rising 26% year-over-year.
  • For fiscal Q3, Chewy expects its net sales to be between $2.20 billion to $2.22 billion, which represents 23% to 25% year-over-year growth.
  • But supply disruptions are a major risk factor that may prompt a negative surprise in Chewy’s fiscal Q3 results.
  • So, the demand seems to be there. The question is, will supply be able to meet it?

Recently, Wolf Research analyst Deepak Mathivanan weighed in on Chewy ahead of its earnings. He believes that fiscal Q3 results will be in-line with expectations since CHWY has topped revenues’ mid-point guide by an average of 2% over the past four quarters.

The analyst mentioned that supply chain impacts are an important unknown during the holiday season, but he nevertheless predicts firm fiscal Q4 revenue guidance near 20% year-over-year. Mathivanan has a buy recommendation on CHWY and has set a $90 price target.

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Our take

Post-pandemic conditions have challenged online businesses that saw red-hot growth during pandemic lockdowns. Recently, companies that benefited from the pandemic, such as Zoom  (ZM) - Get Zoom Video Communications, Inc. Class A Report and DocuSign  (DOCU) - Get DocuSign, Inc. Report, saw their share price plummet after earnings. Both companies disappointed investors with poor guidance, pointing to slowing growth as the economy reopens and consumer habits shift back to normal.

Chewy will probably report results that are either in-line or maybe slightly below expectations due to supply chain headwinds. Investors should not expect much growth in the short term, but guidance for the next quarter and beyond may be crucial to determining Chewy’s long-term performance.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)