Chewy Stock collapses after failed gains, macro scenario to blame

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On December 9, online pet supplier Chewy reported its third quarter results. Challenges were expected, and they did materialize. But the missing earnings and earnings suggest even cautious analysts and investors have reason to be disappointed.

As a result, Chewy (CHWY) – Get Chewy, Inc. Class A Report stock traded poorly before and after earnings. The stock fell 6% during the December 9 session and 9% on the morning of December 10.

Company management blamed the poor performance in large part on macroeconomic issues. Today we discuss headwinds, if they may be temporary, and what to expect from CHWY stock.

Figure 1: Chewy’s IPO on the NYSE.

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Summary of Q3 results

Chewy’s third quarter results did not beat earnings per share (EPS) and revenue estimates. Wall Street expected a net loss of about $ 0.01 and revenue to $ 2.2 billion. Instead, the company recorded a net loss of $ 0.04 and revenue of $ 2.16 billion.

Revenue was still 26% year-over-year higher and adjusted EBITDA of $ 6 million increased 9% compared to the same period last year. The main highlights, according to CEO Sumit Singh, were strong consumer demand and engagement.

On the flip side, the CEO acknowledged that supply chain disruptions, labor shortages and rising inflation were negatively impacting Chewy’s profitability.

Macro landscape: the main culprit

Not really surprising, the current macroeconomic environment has been difficult for many companies, especially those that depend on the proper functioning of the distribution channel. Chewy is one of them.

Chewy has struggled with out-of-stock issues since early 2021. The company suffered a loss of $ 40 million in second-quarter sales, according to CEO Sumit Singh.

In addition, the effects of labor shortages in the United States and rising costs have also shaken the company’s growth plans. Chewy provided a forecast for net sales growth for the fourth quarter of around 17% to 19% year-on-year, which is a deceleration from the third period.

What to expect next?

The good news for Chewy investors is that trends in the pet food market, as well as e-commerce in general, are still positive. Supported by higher spend per pet and the age-old shift to online shopping, customer engagement grew 15% year-over-year in the third quarter.

Chewy is also working on innovation by offering veterinary services and pet health insurance. The aim is to expand the company’s offerings into pet healthcare and find entirely new growth opportunities.

In the near term, unfavorable supply dynamics are likely to be a thorn in Chewy’s side until at least 2022. Once these issues are resolved, however, Chewy may be able to return to its pre-pandemic revenue and profit growth trajectory.

We believe that investing in CHWY stocks now is about moving beyond the immediate challenges and believing that the company still has a bright future ahead. Those who see the bullish case may consider buying stocks at a 57% discount from the peak in early 2021.

(Disclaimers: This is not investment advice. The author may go along with one or more actions mentioned in this report. Additionally, the article may contain affiliate links. These partnerships do not influence editorial content. Please support Wall Street Memes)

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