Chewy, the online pet food and supplies retailer, saw its shares plummet 15.8% in morning trading after reporting second-quarter financial results that met analyst expectations but failed to impress investors.
Why it matters: The sharp negative reaction suggests that merely meeting, rather than substantially beating, forecasts was insufficient to satisfy investor expectations and drive the stock higher.
By the numbers:
- Adjusted earnings of $0.33 per share, in line with analyst estimates
- Net sales of $3.10 billion, a slight beat on expectations and an 8.6% increase year-over-year
- Chewy’s shares are up 3.2% year-to-date but still trading 27.5% below their 52-week high
The company’s GAAP earnings took a significant hit, declining nearly 80% year-over-year to $0.14 per share, primarily due to the reversal of a $253 million income tax credit received in the previous year’s second quarter.
The details:
- Chewy’s gross profit margin improved to 30.4%, up from the previous year
- Repeat customers using Autoship accounted for 83% of the company’s net sales
- Chewy paid $12 million in taxes this quarter, compared to receiving a substantial tax credit in the same period last year
The background: Chewy’s shares have experienced significant volatility over the past year, with 16 moves greater than 5%. However, today’s drop is rare, indicating that the news had a substantial impact on the market’s perception of the business.
What to watch: Despite the sell-off, Chewy’s strong customer base and potential for growing profits over time may present an opportunity for investors. However, the company’s current valuation of 32 times free cash flow may be seen as expensive, and investors should carefully consider the company’s growth potential and market conditions before making any decisions.
