Chewy is anticipated to announce 'solid' third-quarter results next week, driven by accelerating sales growth and sustained margin strength, even as there has been a noted slowdown in website traffic in October, as per insights from Wedbush Securities. The brokerage predicts that the online pet supply retailer will achieve an annual sales increase exceeding 4% in its fiscal third quarter, an improvement from the 2.6% growth reported in the prior three-month period.
In August, Chewy projected sales to fall between $2.84 billion and $2.86 billion for Q3, reflecting year-on-year gains of 3% to 4%. Current consensus, as reported on FactSet, aligns with a target of $2.86 billion. Earnings are set to be reported on December 4. Data on personal consumption expenditures up to September indicated that industry demand continued to improve throughout Q3, even as deflationary pressures modestly increased.
The brokerage pointed out, however, that website traffic trends for Chewy, along with indicators of new pet household formation, showed signs of slowing in October. “October’s downturn may have resulted from a mix of factors such as the heightened promotional intensity noted in the month, the extended promotional period by competitors surrounding Prime Day, and a shift in consumer behaviors in light of the upcoming elections,” mentioned Wedbush analysts Seth Basham and Matthew McCartney.
Nonetheless, they noted that trends appeared to have improved in November thus far. Wedbush opines that Chewy continued to garner market share in the third quarter, bolstered by its wallet share strategies in the healthcare sector and supportive elements from its newly implemented customer relationship management software.
It is expected that the company will achieve modest growth, nearing 20 million active customers by the end of Q3. The margins for Chewy are expected to experience a positive impact from their enhanced fulfillment network, contributing around 20 basis points to selling, general and administrative leverage in Q2.
The brokerage anticipates that Chewy will enjoy further incremental advantages as these initiatives gain traction. Looking ahead, Wedbush estimates that Chewy will issue fourth-quarter revenue growth guidance positioned at the midpoint in line with consensus estimates of 12.1%. The brokerage maintains an 'outperform' rating on Chewy’s stock, setting a 12-month price target at $35..