• 61°

Chewy gains as rosy sales view takes aim at valuation fears

By Catherine Larkin

Bloomberg

Chewy Inc.’s better-than-expected forecast drew positive commentary on Wall Street on Friday but wasn’t enough to shake concerns about valuation.

The online pet store’s first earnings report as a public company showed it is continuing to grow at a robust pace, with sales expectations that topped analyst estimates. At the same time, a 53% run-up since the initial public offering June 14 has raised questions about the durability of growth and increasing competition from larger retailers.

The shares rose as much as 3% in New York on Friday.

Here’s what Wall Street is saying:

• William Blair, Dylan Carden: “Given the proximity to the company’s recent IPO, it is unsurprising to see performance in line with to slightly better than expectations.”

Blair sees Chewy as “uniquely levered to accelerated channel migration in the pet industry” and expects improving margins to continue to drive the shares higher.

• RBC Capital Markets, Mark Mahaney: Fundamental trends were mixed in the quarter with slowing revenue growth and improving gross margins and Ebitda loss. RBC sees the 45% jump in active customers versus the prior-year period as “robust” and “a key indicator of the overall health of Chewy’s business.”

• Morgan Stanley, Brian Nowak: The forecast underscores “business momentum and ability to profitably scale.” Equal-weight rating largely reflects valuation and durability of the multiple. Price target raised to $34 from $33.

• Jefferies, Brent Thill: The second-quarter revenue forecast came in above estimates “but still appears relatively conservative” in terms of sequential growth. The full-year forecast was also above estimates but “still represents a sizable moderation in growth.” Jefferies wouldn’t be surprised if management “is taking a pragmatic approach to guidance” to allow for further earnings upside.

While Chewy could deliver more “beat and raises” that cause the shares to outperform in the near term, Jefferies said it’s relatively more excited by other internet stocks because of concerns about competition from larger-scale retailers like Amazon.com and Walmar, and the lack of owned intellectual property.

• Bloomberg Intelligence, Seema Shah, retail analyst: Chewy’s fiscal 2019 sales guidance assumes robust growth will persist, which we think is likely given the strength of first-quarter sales and commentary from Amazon.com about pet supply sales on Prime Day. Loyal customers and private label (5% of sales) fuel confidence in Chewy’s eventual profitability, as they drive incremental margin.

Comments

Business

‘It’s our big time’: Salisbury Farmers Market reopens Saturday

Education

Schools capital funding still frozen as RSS sends local budget to county

Business

Shields, Cheerwine Festival receive N.C. Main Street Awards

Kannapolis

Duke University launches kidney disease study in Kannapolis for people of African descent

Education

Horizons Unlimited will hold in-person summer camps

Education

Education briefs: Catawba planning for more in-person activities, free summer school tuition

Coronavirus

County’s full COVID-19 vaccinations top 22,600

High School

High school golf: With Merrell, Mustangs back on top

Local

Spencer investigating rat problem on South Iredell Street

News

Livingstone, Mission House Church to host national ‘Black Voters Matter’ listening session

Education

Shoutouts

Business

Groundbreaking on Pennant Square signals next phase in downtown Kannapolis revitalization

Nation/World

J&J vaccine to remain in limbo while officials seek evidence

Nation/World

Prosecutors: No charges for officer in Capitol riot shooting

Nation/World

Biden to pull US troops from Afghanistan, end ‘forever war’

Nation/World

Former Minnesota cop charged in shooting of Black motorist

Crime

Blotter: April 14

Elections

Former North Carolina Gov. McCrory enters US Senate race

Crime

Salisbury woman arrested in Myrtle Beach for abducting child

Health

County updates health director job description, will advertise for position

High School

High school tennis: East beats Carson, still hopes to share NPC title

Elections

Board of Elections to purchase upgraded voting equipment using federal grant

Kannapolis

Kyle Seager drives in winning run in first game as Mariners split doubleheader with Orioles

Local

City exhausts this year’s funds for Innes Street Improvements, Municipal Services District grant programs