Chewy Stock Surges 17% on Big EPS Beat, Results Better-than-feared Says Analyst

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Shares of Chewy (NYSE:CHWY) are up more than 17% in premarket trading Thursday after the pet products retail company reported better-than-expected Q1 adjusted EBITDA and net sales.

Net sales stood at $2.43 billion, up 13% YoY and above the analyst expectations of $2.41 billion. The company reported a Q1 adjusted EBITDA of $60.5 million, down 22% YoY and far above the estimated $2.8 million

The gross margin was 27.5% in the quarter, compared to 27.6% in the year-ago period and beating the consensus projection of 25.9%.

For Q2, Chewy expects net sales in the range of $2.43 billion to $2.46 billion, well below the analyst consensus of $2.54 billion. On a full-year basis, the retailer expects net sales in the range of $10.2 billion to $10.4 billion, while analysts were looking for $10.3 billion.

“Fiscal year 2022 is off to a good start as we drove solid 14 percent top-line growth and delivered sequential improvements in gross margin and profitability,” said Sumit Singh, CEO of Chewy.

Evercore ISI analyst Mark Mahaney raised the price target to $58.00 per share from $57.00 on CHWY shares.

“We came away unch’ed in our moderately Bullish view on CHWY. We view valuation here as highly attractive with CHWY at 1.0X EV/Sales… We still see Chewy facing current headwinds in the form of cost inflation, re-opening pressures, and some consumer demand softness, so we see the path to improved Macro conditions eventually serving as fundamental tailwinds (timing unknown). We are still waiting for Active Customer growth accelerators in the form of International Expansion and still significant Online penetration expansion potential in the U.S. Signs of these accelerators would make us Aggressively Bullish on CHWY,” Mahaney told clients in a note.

RBC analyst Steven Shemesh slashed the price target to $59.00 per share from $73.00 to reflect the lower multiple.

“CHWY’s 1Q results exceeded subdued investor expectations. While active customers declined Q/Q, NSPAC grew +15% resulting in a topline beat (+13.7% vs. cons. +13.1%). At the same time, pass through pricing drove significant gross margin over-delivery (27.5% vs. cons. 26.0%). We continue to expect a 2H sales acceleration, which should result in share upside even if modest cost pressure persists,” Shemesh wrote in a note.