Press Release: Chewy Announces Fiscal Third Quarter 2024 Financial Results Conference Call

Chewy Inc. CHWY has experienced an extraordinary six months, with its stock surging 95.5%. Once viewed as a niche player, Chewy has now firmed its position as a dominant force in the pet-focused e-commerce space, benefiting from the growing demand for convenient, subscription-based pet products. While investors celebrate the company’s success, a pressing question remains: Does Chewy have more room to run, or is a correction on the horizon?

The stock has comfortably outpaced the industry’s modest rise of 14.5%. Chewy’s unmatched scale and operational capabilities have also helped it outperform the Retail-Wholesale sector and the S&P 500 index, which posted respective gains of 14.7% and 14.4%.

CHWY Stock Past Six-Month Performance

Chewy stock closed at $32.96 during yesterday’s trading session, sitting 15.7% below its 52-week high of $39.10, reached on June 27, 2024. CHWY also recently overtook the 50-day moving average. Let’s examine the factors behind this remarkable surge and brainstorm what potential investors’ next move should be in Chewy’s evolving story.

CHWY Trades Above 50 & 200-Day Moving Averages

Decoding Tailwinds Behind CHWY’s Impressive Run

Chewy’s impressive upward trajectory can be attributed to a combination of strong financial performance, strategic investments and favorable market trends. The company’s expanding customer base, recurring revenue model and diversified service offerings, including veterinary clinics and pharmacy services, provide a solid foundation for continued growth. Chewy’s ability to improve margins, invest in technology and generate robust free cash flow adds significant investor confidence in its long-term prospects.

The company is steadily adapting to changing market dynamics while prioritizing customer loyalty making it a strong contender in the burgeoning pet care market.

A prime example of Chewy's focus on enhancing the customer experience is its innovative Autoship program, which saw a 5.8% year-over-year increase in sales during the second quarter of fiscal 2024, contributing a significant 78.4% of total net sales. This feature not only simplifies the purchasing process but also helps the company maintain a steady revenue stream, enabling it to tailor offerings based on preferences and needs.

Chewy's strategic expansion into veterinary care has shown promising results. The company opened two additional Chewy Vet Care clinics, bringing the total to six locations at the end of the second quarter. These clinics not only enhance customer loyalty but also act as strategic entry points for new customers, embedding them into the Chewy ecosystem. This initiative has a positive impact on Net Sales Per Active Customer (“NSPAC”), which reached a new record of $565 in the second quarter, reflecting year-over-year growth of 6.2%.

Chewy's Sponsored Ads business is ramping up nicely and is on track to reach the low end of its long-term target of 1% to 3% of net sales by the end of 2024. The growth in this area is driven by an expanding inventory, increased advertiser demand and improved customer engagement metrics. This revenue stream not only diversifies Chewy's income but also capitalizes on its large customer base.

Chewy has invested in improving its mobile app experience, resulting in a 13% year-over-year increase in unique customers placing orders through the app and a 15% rise in overall mobile app orders. The app’s redesign has enhanced user experience, leading to higher order volumes and improved customer retention.

What Could Hinder Chewy Stock's Momentum?

While Chewy continues to lead the pet e-commerce space, several factors could exert downward pressure on the stock. Slowing growth, potential customer acquisition saturation and rising cost pressures are critical areas that investors should monitor.

Chewy’s active customer count showed a modest sequential increase during the second quarter. Management highlighted that they expect the number of active customers to remain flat for 2024.

Chewy also operates in a highly price-sensitive market, where competitors quickly adjust their pricing strategies to attract customers. In addition, persistent inflationary pressures, especially in logistics, labor, and raw materials, could squeeze margins. The company’s advertising and marketing expenses, consuming 6% to 7% of net sales, may further strain profitability if revenue growth does not pick up.

Moreover, Chewy’s forward 12-month price-to-earnings ratio stands at 27.18, higher than the industry’s average of 25.36 and the S&P 500's 22.7. This premium valuation suggests that investors may be overpaying relative to the company’s expected earnings growth, and with a Value Score of C, Chewy may be overvalued. As a result, there could be a price correction on the horizon.

CHWY Stock Looks Overvalued

Is CHWY Stock Still a Buy?

Chewy's impressive growth momentum reflects its strategic approach to capturing the expanding pet care market. Key initiatives such as the Autoship program, veterinary clinic expansion and an enhanced mobile app experience have strengthened customer loyalty, boosted recurring revenues and supported a rise in NSPAC.

However, as Chewy continues to innovate, challenges loom, including high operational costs and stiff competition from Petco Health and Wellness Company, Inc. WOOF, Central Garden & Pet Company CENT and BARK, Inc. BARK. Additionally, its premium valuation indicates that some growth expectations may already be factored in, potentially limiting near-term stock appreciation. Current stakeholders should consider whether the stock’s current price aligns with their investment timeline and risk tolerance, while new investors should wait for a more favorable entry point. CHWY currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research

AMC Entertainment Holdings, Inc. shares are trading higher Wednesday. The company disclosed a debt retirement move in a SEC filing late Tuesday. Here’s what you need to know.

What To Know: After the market close on Tuesday, AMC filed a Form 8-K with the SEC detailing recent moves to extinguish debt.

The company said it entered into a series of privately negotiated agreements to retire $24.22 million in unsecured debt through 5.75% subordinated notes due 2025 between Nov. 8 and Nov. 12.

AMC said it repurchased and exchanged the debt with 5.79 million shares of the company’s common stock and $1.04 million of cash. The transaction aligns with AMC’s goal to reduce debt load through strategic share exchanges.

AMC shares are up about 11% over the past month. Recent strength may also be tied to a meme-stock resurgence. AMC often trades in sympathy with GameStop Inc. , which has been on the rise in recent weeks following a disclosure that Keith Gill, known as "Roaring Kitty," sold his stake in Chewy Inc. last month.

Gill is a well-known figure from the 2021 meme-stock phenomenon. He showed interest in Chewy stock earlier this year before dumping his stake in September. GameStop shares have been trending higher since the filing.

Chewy was Gill’s only other publicly known investment outside of GameStop. Retail investors are now speculating about the meme-stock trader’s next move, which may be sparking some renewed interest in AMC as well.

"Roaring Kitty" hasn’t shared a position update on social platforms since June when he posted a screenshot on Reddit showing he was holding approximately nine million shares of GameStop.

AMC Price Action: AMC entertainment shares were up 3.4% at $4.71 at the time of writing, according to Benzinga Pro.

Chewy (CHWY) closed at $32.96 in the latest trading session, marking a -1.67% move from the prior day. The stock trailed the S&P 500, which registered a daily loss of 0.29%. Meanwhile, the Dow lost 0.86%, and the Nasdaq, a tech-heavy index, lost 0.09%.

Shares of the online pet store witnessed a gain of 17.82% over the previous month, beating the performance of the Retail-Wholesale sector with its gain of 3.95% and the S&P 500's gain of 3.3%.

Market participants will be closely following the financial results of Chewy in its upcoming release. The company's earnings per share (EPS) are projected to be $0.23, reflecting a 53.33% increase from the same quarter last year. Alongside, our most recent consensus estimate is anticipating revenue of $2.86 billion, indicating a 4.45% upward movement from the same quarter last year.

Looking at the full year, the Zacks Consensus Estimates suggest analysts are expecting earnings of $1.14 per share and revenue of $11.83 billion. These totals would mark changes of +65.22% and +6.35%, respectively, from last year.

Investors might also notice recent changes to analyst estimates for Chewy. These revisions help to show the ever-changing nature of near-term business trends. As a result, we can interpret positive estimate revisions as a good sign for the company's business outlook.

Our research suggests that these changes in estimates have a direct relationship with upcoming stock price performance. To exploit this, we've formed the Zacks Rank, a quantitative model that includes these estimate changes and presents a viable rating system.

Ranging from #1 (Strong Buy) to #5 (Strong Sell), the Zacks Rank system has a proven, outside-audited track record of outperformance, with #1 stocks returning an average of +25% annually since 1988. Over the last 30 days, the Zacks Consensus EPS estimate has witnessed an unchanged state. Chewy is currently a Zacks Rank #3 (Hold).

From a valuation perspective, Chewy is currently exchanging hands at a Forward P/E ratio of 29.4. For comparison, its industry has an average Forward P/E of 26.96, which means Chewy is trading at a premium to the group.

Also, we should mention that CHWY has a PEG ratio of 0.95. The PEG ratio is akin to the commonly utilized P/E ratio, but this measure also incorporates the company's anticipated earnings growth rate. As the market closed yesterday, the Internet - Commerce industry was having an average PEG ratio of 1.41.

The Internet - Commerce industry is part of the Retail-Wholesale sector. Currently, this industry holds a Zacks Industry Rank of 66, positioning it in the top 27% of all 250+ industries.

The Zacks Industry Rank is ordered from best to worst in terms of the average Zacks Rank of the individual companies within each of these sectors. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

Zacks Investment Research

RumbleON, Inc. (RMBL) came out with a quarterly loss of $0.32 per share versus the Zacks Consensus Estimate of a loss of $0.11. This compares to loss of $0.71 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of -190.91%. A quarter ago, it was expected that this company would post earnings of $0.02 per share when it actually produced break-even earnings, delivering a surprise of -100%.

Over the last four quarters, the company has not been able to surpass consensus EPS estimates.

RumbleON, which belongs to the Zacks Internet - Commerce industry, posted revenues of $295 million for the quarter ended September 2024, missing the Zacks Consensus Estimate by 2.56%. This compares to year-ago revenues of $338.11 million. The company has not been able to beat consensus revenue estimates over the last four quarters.

The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call.

RumbleON shares have lost about 30.2% since the beginning of the year versus the S&P 500's gain of 25.8%.

What's Next for RumbleON?

While RumbleON has underperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for RumbleON: mixed. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #3 (Hold) for the stock. So, the shares are expected to perform in line with the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is -$0.13 on $291.38 million in revenues for the coming quarter and -$0.55 on $1.24 billion in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Internet - Commerce is currently in the top 27% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

One other stock from the same industry, Chewy (CHWY), is yet to report results for the quarter ended October 2024.

This online pet store is expected to post quarterly earnings of $0.23 per share in its upcoming report, which represents a year-over-year change of +53.3%. The consensus EPS estimate for the quarter has remained unchanged over the last 30 days.

Chewy's revenues are expected to be $2.86 billion, up 4.5% from the year-ago quarter.

Zacks Investment Research

When deciding whether to buy, sell, or hold a stock, investors often rely on analyst recommendations. Media reports about rating changes by these brokerage-firm-employed (or sell-side) analysts often influence a stock's price, but are they really important?

Before we discuss the reliability of brokerage recommendations and how to use them to your advantage, let's see what these Wall Street heavyweights think about Chewy (CHWY).

Chewy currently has an average brokerage recommendation (ABR) of 2.00, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 26 brokerage firms. An ABR of 2.00 indicates Buy.

Of the 26 recommendations that derive the current ABR, 13 are Strong Buy and one is Buy. Strong Buy and Buy respectively account for 50% and 3.9% of all recommendations.

Brokerage Recommendation Trends for CHWY

The ABR suggests buying Chewy, but making an investment decision solely on the basis of this information might not be a good idea. According to several studies, brokerage recommendations have little to no success guiding investors to choose stocks with the most potential for price appreciation.

Do you wonder why? As a result of the vested interest of brokerage firms in a stock they cover, their analysts tend to rate it with a strong positive bias. According to our research, brokerage firms assign five "Strong Buy" recommendations for every "Strong Sell" recommendation.

This means that the interests of these institutions are not always aligned with those of retail investors, giving little insight into the direction of a stock's future price movement. It would therefore be best to use this information to validate your own analysis or a tool that has proven to be highly effective at predicting stock price movements.

Zacks Rank, our proprietary stock rating tool with an impressive externally audited track record, categorizes stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), and is an effective indicator of a stock's price performance in the near future. Therefore, using the ABR to validate the Zacks Rank could be an efficient way of making a profitable investment decision.

ABR Should Not Be Confused With Zacks Rank

In spite of the fact that Zacks Rank and ABR both appear on a scale from 1 to 5, they are two completely different measures.

The ABR is calculated solely based on brokerage recommendations and is typically displayed with decimals (example: 1.28). In contrast, the Zacks Rank is a quantitative model allowing investors to harness the power of earnings estimate revisions. It is displayed in whole numbers -- 1 to 5.

Analysts employed by brokerage firms have been and continue to be overly optimistic with their recommendations. Since the ratings issued by these analysts are more favorable than their research would support because of the vested interest of their employers, they mislead investors far more often than they guide.

In contrast, the Zacks Rank is driven by earnings estimate revisions. And near-term stock price movements are strongly correlated with trends in earnings estimate revisions, according to empirical research.

Furthermore, the different grades of the Zacks Rank are applied proportionately across all stocks for which brokerage analysts provide earnings estimates for the current year. In other words, at all times, this tool maintains a balance among the five ranks it assigns.

There is also a key difference between the ABR and Zacks Rank when it comes to freshness. When you look at the ABR, it may not be up-to-date. Nonetheless, since brokerage analysts constantly revise their earnings estimates to reflect changing business trends, and their actions get reflected in the Zacks Rank quickly enough, it is always timely in predicting future stock prices.

Is CHWY Worth Investing In?

Looking at the earnings estimate revisions for Chewy, the Zacks Consensus Estimate for the current year has remained unchanged over the past month at $1.14.

Analysts' steady views regarding the company's earnings prospects, as indicated by an unchanged consensus estimate, could be a legitimate reason for the stock to perform in line with the broader market in the near term.

The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #3 (Hold) for Chewy. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here

It may therefore be prudent to be a little cautious with the Buy-equivalent ABR for Chewy.

Zacks Investment Research