Chewy Stock Surges After Q3 Profits Crush Wall Street Estimates
The online pet retailer delivered adjusted earnings per share more than double the consensus forecast, signaling strong operational efficiency.
Chewy (NYSE: CHWY) shares surged in after-hours trading Wednesday after the online pet supplies retailer posted third-quarter financial results that significantly outpaced analyst expectations, driven by a powerful beat on profitability.
The company announced adjusted earnings per share of $0.32, more than doubling the Wall Street consensus estimate of $0.13. Chewy also topped revenue forecasts, reporting net sales of $3.12 billion, an 8.3% increase from the same period last year and just ahead of the anticipated $3.1 billion.
The robust performance offers a sharp contrast to the investor sentiment that followed the company’s second-quarter report. Despite strong results at the time, the stock slid over 15% as the market fixated on a slowdown in active customer growth and a lofty valuation. This quarter's substantial earnings beat suggests Chewy is successfully managing costs and improving operational efficiency, a key factor for investors in the current economic climate.
Prior to the announcement, Chewy's stock was trading in the lower half of its 52-week range, between a low of $29.82 and a high of $48.62. The positive results could provide the catalyst needed to reverse recent sluggishness in its share price. The company has been navigating a complex environment where pet spending remains resilient, but investors have become increasingly critical of growth stocks that don't deliver on profitability.
Chewy has been working to expand its ecosystem beyond retail to solidify its market-leading position against competitors like Amazon and Petco. Strategic initiatives include a push into pet healthcare with the rollout of Chewy Vet Care clinics and its CarePlus insurance offerings. The company also recently launched a membership program, Chewy+, to bolster customer loyalty and create a more predictable revenue stream.
While the company holds a dominant 51% share of the online pet supplies market, concerns over its high valuation have persisted. Chewy's price-to-earnings ratio stood above 96 ahead of the report, a multiple that demands near-perfect execution. This quarter's significant profit beat provides a strong justification for that premium.
According to StreetInsider, the magnitude of the earnings surprise was a standout feature of the report. Analysts maintain a generally bullish outlook on the stock, with a consensus price target of approximately $44.81, suggesting significant upside from its recent trading levels.
Investors will now be closely watching for details from the company's earnings call for management's outlook for the crucial holiday quarter and their commentary on consumer spending trends. The ability to drive such strong profitability in the face of inflationary pressures will be a key focus for analysts updating their models.