Chewy Stock is Not All Bark and No Bite

Online pet products and services platform Chewy, Inc. NASDAQ: CHWY stock has fallen (-50%) in the 2022 bear market. The pet category was bolstered during the pandemic lockdowns as more people became pet owners. This was a boon to Chewy’s online platform. This is evident by the fact that nearly 2/3^rd’s of it customers were acquired within the last three years. Active customers grew 4.2% in fiscal Q1 2022 to 20.6 million. The Company is pinned between robust customer demand and a challenging operating environment with inflationary pressures, supply chain disruption and rising logistics costs. The robust consumer demand was evident with the 14% top line growth and 72.2% of sales through its Autoship program. The net sales per active customer rose 15% to an all-time company high of $446. This is up 24% since the beginning of the pandemic. Even as the reopening and return to office trend accelerates, Chewy continues to grow it top and bottom lines as pet owners remain resilient consumers. Chewy will also be launching its CarePlus wellness and insurance offering in fiscal Q2 2022 which includes telehealth, preventative care and illness, accident, and surgery protection coverage. This should be an added boost to the second half story for this recession proof company. Prudent investors seeking exposure to the pet care and wellness segment can look for opportunistic pullbacks in shares of Chewy.

Q1 Fiscal 2022 Earnings Release

Chewy released its fiscal Q1 2022 earnings ending April 2022, on June 1, 2022. The Company reported earnings-per-share profit of $0.04 versus consensus analyst estimates for a loss of (-$0.13), a $0.17 beat.   Revenues grew 13.7% year-over-year (YoY) to $2.43 billion beating consensus estimates for $2.41 billion. Chewy CEO Sumit Singh commented, “Fiscal year 2022 is off to a good start as we drove solid 14 percent top-line growth and delivered sequential improvements in gross margin and profitability. Our first quarter results are a testament to the resiliency of the pet category and clearly demonstrate our ability to execute against our strategic priorities. Moving forward, Chewy’s value proposition is as compelling as ever and we continue to innovate robustly, attract customers with high lifetime values, drive engagement, and capture greater share of wallet.”

In-Line Guidance

Chewy issued flat in-line guidance for Q2 2022 revenues t come in between $2.43 billion to $2.46 billion versus $2.44 billion. Chewy expects full-year fiscal 2023 revenues of $10.2 billion to $10.4 billion versus $10.27 billion consensus analyst estimates.

Conference Call Takeaways

CEO Singh stated that 2022 was off to a strong start with solid top line growth and sequential improvements in profitability and gross margins. Consumables and healthcare were the two strongest categories due to their non-discretionary nature with higher Autoship penetration. Over 72% of net sales were through the Autoship program, which is a new record high for the Company. NSPAC grew 15% to an all-time high of $446, up $86 or 24% since the start of the pandemic. The Company gained most of its customers during the pandemic times. He noted some customer stats, “Overlaying this tenure data with a consistent lifetime spending curves our customers demonstrate over time, spending less than $200 their first year, over $400 by their second year, approximately $700 by their fifth year, with our oldest cohorts spending nearly $1,000 per year, you can truly appreciate how much future revenue growth is already embedded in our active customer base, revenue potential, which we can and will unlock over time.” The Company is focusing on engaging with the high-value customers that will provide them with long-term revenue streams. These customers have predictable patterns and are Autoship users. The Chewy Freight Services was launched in Phoenix and has expanded to cover seven fulfillment centers and continue to scale throughout 2022 and 2023 to improve its logistics and supply chain.

CHWY Trajectories and Pullbacks

Using the rifle charts on weekly and daily time frame provides a precision view of the landscape for CHWY stock. The weekly rifle chart downtrend is stalling as the 5-minute moving average (MA) goes flat at $27.56 with the 15-period MA coming down at $34.01. The weekly stochastic has bounced towards the 20-band and can trigger a market structure low (MSL) buy signal on a breakout through $29.79. The weekly 50-period MA sits at $56.48. The weekly inverse pup breakdown formed on the rejection off the $52.45 Fibonacci (fib) level. The weekly lower Bollinger Bands (BBs) sit at $15.07. The daily rifle chart uptrend is stalling with a flattening 5-period MA at $28.10 and rising 15-period MA at $27.85 as the daily stochastic stalls on its fall to 60-band for a make or break. The daily 50-period MA is falling at $30.64 and upper BBs sit at $32.47. The daily lower BBs sit at $21.54. Prudent investors can watch for opportunistic pullback entries at the $25.51, $24.07 fib, $22.22, $20.62 fib, $19.44, $17.59, $16.73 fib, and $15.58. Upside trajectories sit at the $35.07 fib level up towards the $47.45 fib level.

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