Pet food retailer Chewy (CHWY) is set to release its Q2 earnings report next week. This has some investors wondering whether it’s a good idea to buy shares of CHWY beforehand.
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What Wall Street Expects
Wall Street is expecting CHWY to report earnings of $0.33 a share, which would be 37.5% higher than the same period last year. Forecasts for quarterly revenues come in at $3.1 billion, which would be a 7.8% increase.
Will CHWY be able to beat these estimates? As can be seen below, it has a mixed record in recent quarters.
Key Issues Ahead of Earnings
In the first quarter Chewy reported net sales of $3.12 billion, an 8.3% increase over the prior year, surpassing the high end of their guidance range. The company also reported a gross margin of 29.6% and an adjusted EBITDA of $192.7 million, representing a 6.2% margin and a year-over-year increase of 50 basis points. Chewy ended the quarter with 20.8 million active customers, reflecting a 3.8% year-over-year growth.
The company is expected to have further benefits in the second quarter from its digital capabilities, product assortments and expansion efforts. Management has been making technology upgrades for its website and online platforms to drive sales.
Continued expansion of Autoship subscriptions, the broader adoption of healthcare services like pharmacy and vet clinics and the full-scale launch of the Chewy+ paid membership program have been positive.
The pet market also tends to be more resilient in times of wavering consumer confidence as people see spending on food and treats for their four-legged friends as being essential. Chewy is also benefiting from the long-term trend of pet personalization, where owners see them as being vital members of their families.
However, inflationary pressures and tariffs are expected to have been headwinds in the quarter.
Evercore ISI analyst Mark Mahaney recently reiterated an Outperform rating on the stock with a $52 price target. The 5-star analyst pointed out that industry checks, consumer surveys, and company results all show the U.S. pet industry is stabilizing. He sees both cyclical recovery and ongoing online adoption as supportive of Chewy’s growth outlook.
One of Chewy’s key strengths, he said, is its Autoship model, with 80% of sales tied to recurring subscriptions.
Is CHWY a Good Stock to Buy Now?
On TipRanks, CHWY has a Strong Buy consensus based on 17 Buy and 5 Hold ratings. Its highest price target is $53. CHWY stock’s consensus price target is $47.68, implying a 15.84% upside.
