Chewy stock dips as earnings show shrinking customer count, forecast of no profit growth

By Jeremy C. Owens

Online retailer reports a surprise holiday profit, but Chewy executives guide for a flat to declining adjusted margin in the new fiscal year amid continuing declines in active customers

Chewy Inc. shares declined in extended trading Tuesday, after executives reported a surprise holiday profit but a shrinking active-customer count and guidance calling for flat to lesser profit in the year ahead.

Chewy (CHWY) reported a fourth-quarter profit of $6.1 million, or a penny a share, after losing 15 cents a share in the holiday quarter a year ago. Revenue grew to $2.71 billion from $2.39 billion a year ago, easily beating expectations. However, active customers -- an important metric for the online pet-supplies business -- declined to 20.41 million from 20.66 million a year ago, a sharper drop than expected.

"We believe the modest sequential decline in active customers reflects the continued softness in discretionary spending experienced across the broader economy, as well as the residual impact of attrition from our 2020 and 2021 cohorts," executives explained in a letter to shareholders.

Analysts on average were expecting a loss of 11 cents a share on sales of $2.64 billion and active customers of 20.52 million, according to FactSet. Chewy's stock dropped more than 2% in after-hours trading, following a 5.4% decline in the regular session to $37.76.

Chewy's stock declined in the regular session after soft guidance from brick-and-mortar pet-supplies retailer Petco Health and Wellness Co. Inc(WOOF) before the market opened Wednesday. Chewy's forecast was already a hot debate among Wall Street executives, after the company struggled to increase its customer count in the fiscal year that just ended amid macroeconomic concerns.

"On the guidance front, we believe Street FY23 estimates are realistic, but management forecasts likely incorporate conservatism, especially in the hardgoods category, amid macro uncertainty similar to guides we have seen thus far in our retail coverage," Oppenheimer analysts wrote ahead of the report, while maintaining an "outperform" rating and $50 price target.

Chewy executives said in a letter to investors Wednesday that they expect fiscal first-quarter sales of $2.72 billion to $2.74 billion, which would be an increase from $2.43 billion in the same quarter a year ago. Analysts on average were expecting $2.67 billion. For the full year, executives guided for $11.1 billion to $11.3 billion in net sales, while analysts on average were projecting sales to grow to $11.11 billion from $10.1 billion in the just-completed fiscal year.

The company's only profit guidance, however, called for a decline. Executives said they expect adjusted-Ebitda margin to stay flat or decline up to 50 basis points for the full year.

"As we look to 2023, we plan to undertake numerous investments to increase our value proposition and lay the foundations for future growth and margin expansion," executives wrote.

Chewy's stock has declined 16.9% in the past 12 months, as the S&P 500 index has dropped 11.3%.

-Jeremy C. Owens

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03-23-23 0807ET

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