To The Moon

$Chewy, Inc.(CHWY)$ is expected to release its quarterly earnings result for Q4 2024 on 26 March 2025 before the market open.

Chewy is predicted to post an EPS of $0.03, Chewy is anticipated to report a strong fiscal Q4 performance, although it may offer cautious 2025 guidance. Oppenheimer suggests Chewy had a strong holiday season, potentially exceeding expectations, and forecasts Q4 adjusted EBITDA of at least $120 million, above the $117 million estimate.

They cite strong discretionary category performance and momentum, predicting a 13.3% sales increase. Margin improvements from management initiatives and product mix are expected to boost results. However, Oppenheimer's 2025 sales forecast of $12.21 billion is slightly below the $12.38 billion consensus, with adjusted EBITDA projected at $673 million versus $682 million.

Chewy (CHWY) Last Neutral Earnings Call Gave A Modest 1.19% Increase In Share Price

Chewy had a neutral earnings call on 04 Dec 2024 which saw its share price increase modestly by 1.19% only.

The earnings call presented a balanced view with strong revenue growth, record-setting metrics in customer engagement, and successful international expansion. However, challenges in customer acquisition, a challenging macroeconomic environment, and a downward revision in sales guidance indicate areas of concern.

Chewy (CHWY) Guidance On Free Cash Flow Show Strong Liquidity

The guidance provided during Chewy's third-quarter 2023 earnings call was multifaceted, highlighting both achievements and expectations. Chewy reported $2.74 billion in net sales, an 8% increase compared to the prior year, with net sales per active customer reaching $543, a rise of nearly 14%. Autoship customer sales, which now constitute 76.4% of total net sales, grew by 12.8%. Gross margin hit a record 28.5%, and adjusted EBITDA margin remained steady at 3%. Looking forward, Chewy adjusted its fourth-quarter net sales guidance to between $2.78 billion and $2.8 billion, indicating a 3% year-over-year growth, and revised full-year 2023 net sales expectations to between $11.08 billion and $11.1 billion, representing a 10% increase from 2022.

The company reiterated its full-year adjusted EBITDA margin outlook of 3% and expects its 2023 free cash flow to exceed 2.5 times that of 2022. Additionally, Chewy reported a strong liquidity position with $957.2 million in cash and marketable securities.

Key Factors Influencing Q4 2024 Earnings

Revenue Growth

Autoship Program: Recurring revenue from subscriptions (over 70% of sales historically) will remain critical. Growth here indicates customer retention and predictability. Chewy reported $2.74 billion in net sales for Q3, up 8% year-over-year, outpacing the industry's low single-digit growth. Autoship customer sales reached $2.09 billion in Q3, up 12.8% year-over-year, representing 76.4% of total net sales.

Holiday Season: Q4 typically benefits from holiday spending. Chewy may see a seasonal boost in sales of gifts, premium products, and seasonal items. NSPAC exceeded $540, up nearly 14% year-over-year, demonstrating strong customer engagement.

Traffic and sales exceeded expectations, with new customer acquisition 40% higher than the Q3 weekly average.

Profitability Metrics

Margins: Expansion of private-label brands (higher margins) and operational efficiency (e.g., automated fulfillment centers) could improve gross margins. Gross margin reached a new record of 28.5%, reflecting strong logistics performance and promotional management.

Q3 free cash flow was $48.5 million, with trailing 12-month free cash flow exceeding $300 million.

Cost Pressures: Shipping costs, inflation, and supply chain stability will impact net income. Fuel prices and labor costs are variables to watch.

Strategic Initiatives

Pet Healthcare: Telehealth and pharmacy services may contribute to revenue diversification and higher margins if adoption accelerates.

Chewy's pharmacy business exceeded $1 billion in trailing 12-month net sales, making it the #1 pet pharmacy in America.

International Expansion: Success in Canada and potential new markets could drive growth, though scaling risks exist. Initial customer demand in Canada has been strong with high customer satisfaction and promising early indicators.

Market Trends

Industry Resilience: The pet sector is relatively recession-resistant, but macroeconomic factors (e.g., consumer spending cuts) could soften demand for non-essentials. Chewy implemented headcount reductions in November as part of its 2024 strategic planning process.

Competition: Pressure from Amazon, Walmart, and specialty retailers necessitates differentiation via customer service, exclusive products, and fast delivery.

Active customers declined marginally on a sequential basis, with the company ending Q3 with 20.3 million active customers. Softness in discretionary spending and the macro environment persists, affecting non-Autoship sales.

Operational Risks

Supply Chain: Dependence on key suppliers and logistics partners could affect inventory levels and costs.

Customer Acquisition: Rising marketing costs to attract new customers might strain profitability if not offset by lifetime value.

Chewy (CHWY) Price Target

Based on 16 Wall Street analysts offering 12 month price targets for Chewy in the last 3 months. The average price target is $41.06 with a high forecast of $47.00 and a low forecast of $31.00. The average price target represents a 20.69% change from the last price of $34.02.

I think the price target would likely depend on the consensus estimates and guidance for Chewy, though we are seeing that Chewy had a strong free cash flow but we need to see how they are going to perform the capital allocation.

Consensus Estimates: Analysts will likely focus on revenue growth (mid-single-digit YoY), EPS improvements, and free cash flow. Beats/misses relative to expectations could drive stock volatility.

Guidance: Management’s commentary on 2025 outlook, margin targets, and capital allocation (e.g., share buybacks, M&A) will influence investor sentiment.

Technical Analysis - Exponential Moving Average (EMA)

From the technicals we are seeing Chewy managed to build a daily uptrend ahead of its earnings result tomorrow (26 Mar), and it is just near the 26-EMA, and we need it to move above the 50-day period.

RSI is showing signs of increasing momentum so we will need to see if investors sentiment is high enough to push Chewy stock price higher today (25 March) before its earnings result.

Here are the bull and bear case which I think factors could affect how it will turn out.

Bull Case: Strong Q4 revenue, margin expansion, and upbeat guidance could boost CHWY, especially if profitability trends solidify.

Bear Case: Missed estimates, slowing autoship growth, or elevated costs might lead to downward pressure, given high valuation multiples in the past.

Summary

Chewy’s Q4 2024 performance will hinge on execution in a competitive landscape, cost management, and leveraging its niche in pet care.

I think we as investors need to monitor customer metrics (active users, spend per customer), margin trends, and management’s strategic updates. While the long-term pet industry tailwinds are favorable, near-term stock movement will depend on aligning results with market expectations.

Appreciate if you could share your thoughts in the comment section whether you think Chewy would be able to align its results and also how they will allocate their free cash flow capital.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.