Chewy Slips 10% After-Hours on Q2 Miss

Shares of the online pet food retailer Chewy, Inc. (CHWY) slipped 9.9% after the company’s second-quarter results failed to meet expectations. Though supply chain constraints are improving, out-of-stock levels remained elevated during the quarter, especially in the wet dog food segment, leading to a slight drag in sales.

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The company reported a loss of $0.04 per share, wider than the Street’s estimated loss of $0.02 per share. In the year-ago period, Chewy posted a loss of $0.08 per share. (See Chewy stock charts on TipRanks)

To add to that, net sales came in at $2.16 billion, up 26.8% year-over-year but marginally missed analysts’ estimates of $2.17 billion. The year-over-year growth in net sales was driven by a 21% increase in active customers to 20.1 million and a 13.5% increase in net sales per active customer to $404.

In response to the results, Sumit Singh, CEO of the company, said, “Our business remains healthy, customer engagement continues to grow, and we are confident in our ability to build upon the strong results we delivered last year while navigating the uncertain market conditions due to the ever-evolving COVID-19 pandemic.”

The company stated that its fundamental growth drivers, including expanding the customer base, increasing wallet share, and building out its highly profitable verticals remain intact.

Furthermore, Chewy remains confident in its second-half outlook and guided for third-quarter sales to be in the range of $2.20 – $2.22 billion compared to the consensus estimate of $2.25 billion.

Additionally, Chewy expects Fiscal 2021 sales to fall in the range of $8.9 – $9.0 billion compared to the consensus of $9.19 billion.

Prior to the results, Wells Fargo analyst Brian Fitzgerald reiterated a Buy rating on the stock with a price target of $120, implying 37.3% upside potential to current levels.

In anticipation of solid Q2 results, Fitzgerald said, “Despite a note of caution from management on the 1Q earnings call regarding supply chain challenges, we expect another strong revenue quarter, driven by continued robust customer growth and engagement – we note that audience and visitation data from SimilarWeb indicate a June growth reacceleration and a solid July following a more muted May.”

The analyst added, “We believe execution remains strong across key initiatives (Pharmacy/Health, Fresh, hardgoods/PL, automation) and that CHWY remains in the early stages of category (and customer wallet) penetration.”

Overall, the stock commands a Strong Buy consensus rating based on 9 Buys and 3 Holds. The average Chewy price target of $107.89 implies 23.4% upside potential to current levels. Shares have gained 24.7% over the past year.