Chewy Earnings: Softer Profit Guidance Tough to Swallow, but Competitive Position Intact

Weakness in discretionary pet product spending and soft 2023 profit guidance sent narrow-moat Chewy’s shares tumbling, but the firm's long-term prospects remain intact. In comparison with competitor Petco's results earlier on March 22 (shares down 17.5% on the day), Chewy's fourth-quarter results looked sterling, despite guidance for a flat to slightly down adjusted EBITDA margin in 2023 on a more intense promotional environment and investments in an upcoming international push. On balance, we expect to lower our $44 fair value estimate by a mid-single-digit percentage.