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HomeMarketChewy Stock Is Rallying. Pet Products Hold Up in Downturns.

Chewy Stock Is Rallying. Pet Products Hold Up in Downturns.

Pet foods and accessories retailer Chewy posted better-than-expected results for the October quarter, as recent supply-chain challenges faded away.

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Dreamstime

Chewy
stock rallied Friday after the online pet-products purveyor posted better-than-expected results for the company’s fiscal third quarter ended Oct. 31. Even in an economic downturn, apparently people will continue to take care of their dogs and cats.

“The operating environment remains dynamic and evolving,” Chewy (ticker: CHWY) said in a letter to shareholders. “What doesn’t change is how much pet parents value the enduring companionship of their pets, and it is this emotional bond that sustains the pet category through all phases of the economic cycle.”

For the quarter, Chewy reported sales of $2.53 billion, up 14.5% from a year ago, and ahead of both its guidance range from $2.44 billion to $2.46 billion, and Street consensus at $2.46 billion. Sales growth accelerated from 12.8% growth in the July quarter.

Adjusted Ebitda, or earnings before interest, taxed, depreciation, and amortization, was $70.4 million, generating an adjusted Ebitda margin of 2.8%, up from 0.3% in the year-ago quarter. Net income was $2.3 million, compared with a loss of $32.2 million a year earlier. Gross margin expanded two percentage points from a year earlier, to 28.4%, an improvement the company said reflects the easy of global supply-chain issues, as well as strong pricing trends.

For the fiscal fourth quarter ending in January, Chewy sees sales of $2.63 billion to $2.65 billion, up 10% to 11%, and in line with the Street consensus estimate for $2.64 billion. Chewy now sees full-year revenue of $10.02 billion to $10.04 billion, a 13% increase, and above its previous guidance of $9.9 billion to $10 billion.

Evercore ISI analyst Mark Mahaney writes in a research note reviewing the quarter that he came away “incrementally more pawsitive”—really, he went there—although he adds that the fourth-quarter-revenue guidance implies some deceleration despite easier comparisons, “as we are once again reminded that nothing is really recession-proof, not even treats for Fluffy.” But he adds that accelerating gross customer additions shows that “the underlying business remains largely intact.”

Adds Mahaney: “The big unknowns here are the path to an improved macro environment (which should eventually serve as a fundamental tailwind) and more consistent evidence that Net Adds have indeed turned the corner,” he writes. “Signs of these accelerators would make us aggressively bullish on CHWY.” Mahaney keeps his Outperform rating, inching up his target to $55, from $54.

Needham analyst Anna Andreeva was similarly enthusiastic in her review of the quarter. She said the quarter had “everything we could have hoped for, including improved customer net adds and a big beat on gross margins, among other things. She also took notice of the modest increase in full-year guidance, including deceleration in fourth-quarter growth, but adds that “it doesn’t make sense to us for any retail business to be a hero in Q4 in this environment.” Andreeva keeps her Buy rating and $55 target price.

Chewy stock on Friday have rallied 4.4%, to $43.82.

Write to Eric J. Savitz at eric.savitz@barrons.com

Credit: marketwatch.com

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