Chewy Earnings: Market Share Gains Impress but Weak Industry Growth Suggests More Near-Term Pain

Narrow-moat Chewy's third-quarter results had investors looking elsewhere for treats, with the firm missing FactSet consensus sales estimates for the first time in a year and lowering its full-year guidance to 10% top-line growth (from 10%-12%). Profitability was decent, with $10 million in operating loss edging our $15 million operating loss forecast. We believe the firm remains well-positioned for the long term, standing to benefit from an ongoing category e-commerce mix shift, pet humanization, and premiumization trends. Nevertheless, a 16% decline in pet adoption suggests that industrywide pressure is likely to persist into 2024. We plan to trim our 2024 top-line expectations accordingly, to 4%-5% growth, down from over 9% previously, mostly driven by flat industrywide pricing and expectations for anemic growth in active customers (1%) in the year to come. The net effect is a high-single-digit cut to our $42 fair value estimate, consistent with the market's reaction.