Chewy (CHWY) earnings preview: Q3 might set the stage for turnaround

Chewy Inc. (NYSE: CHWY) has lost significant market value ever since the online pet food company made its stock market debut earlier this year, raising about $1 billion. There is apprehension about the stock’s future, while the company prepares for its third-quarter earnings release, which is scheduled for December 9 after the closing bell.

Chewy is expected to report a loss of $0.16 per share for the October-quarter, on revenues of $1.2 billion. The forecast is broadly in line with the management’s prediction for the period.

The market will be closely following the event, looking for updates on the prospects of the company turning profitable in the near term. Encouragingly, the management’s branding initiatives and efforts to ramp up the online platform seem to have positively influenced performance in the second half, and the trend is expected to continue in the coming months.  

Growth Drivers

The roll-out of fulfillment centers and augmentation of delivery services should add to sales growth in the third quarter. Also, the market’s response to the recently launched Chewy Pharmacy has been positive. There is no doubt it is a promising venture, considering the growing awareness about pet-wellbeing.

Like in the case of all emerging start-ups, Chewy’s margins remain under pressure from high selling and administrative expenses, though its impact on the bottom line is expected to be lighter this time compared to the previous quarters.   

Loss Widens

In the second quarter, sales surged 43% annually to $1.15 billion and exceeded the consensus forecast, reflecting a sharp increase in the number of active customers to 12 million. However, the company posted a wider loss of $0.21 per share that missed the estimates.

Upgrade

Chewy got a major boost Thursday after Morgan Stanley (MS) upgraded its rating on the stock to Overweight, citing favorable market conditions for the business that might help the company double its sales in the next five years.

Since the mixed Wall Street debut around six months ago, the stock declined steadily and hit an all-time low last month. The value dropped 34% so far and traded below the $25-mark this week.

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