Categories Analysis, Consumer

Three key takeaways from Chewy’s (CHWY) third quarter earnings report

For the fourth quarter of 2022, net sales are estimated to range between $2.63-2.65 billion

Shares of Chewy Inc. (NYSE: CHWY) were up 5% on Friday, a day after the company delivered better-than-expected earnings results for the third quarter of 2022 and provided an encouraging outlook. Both revenue and earnings exceeded expectations and the company raised its guidance for the full year. Here are three key takeaways from Chewy’s earnings report:

Better-than-expected results

Chewy beat market expectations for both revenue and earnings in the third quarter of 2022. Net sales increased 14.5% to $2.53 billion compared to the previous year, driven by growth in non-discretionary categories like consumables and healthcare, which made up 83% of total net sales during the quarter.

The company benefited from growth in active customers and a rise in customer engagement as well. Autoship customer sales increased 18.8% year-over-year to $1.86 billion in Q3, making up 73.3% of total net sales. In Q3, Chewy reported net income of $2.3 million, or $0.01 per share, compared to a net loss of $32.2 million, or $0.08 per share, last year.  

Customer growth and healthy demand

Chewy ended the third quarter with 20.5 million active customers, up 0.6% YoY. Gross customer additions were up 6% sequentially and up 9% compared to the third quarter of 2019. Net sales per active customer, which measures customer engagement, rose 13.8% to $477.

Chewy witnessed strong demand throughout the third quarter, particularly across its non-discretionary categories which made up the major part of its sales. In the discretionary category, hard goods saw a slight pickup during the third quarter and even though sales were down 5% YoY, it was better than the second quarter performance.

On its quarterly conference call, Chewy mentioned that typically hard goods tend to capture a larger part of sales in the fourth quarter due to the holiday season but this time despite the slight pickup mentioned earlier, demand still remains soft compared to non-discretionary. This is likely to impact net sales growth rates in Q4. The company believes that hard goods sales will return to their growth path once the economic environment improves.

Raised outlook

Chewy raised its guidance for the full year of 2022. The company now expects net sales to range between $10.02-10.04 billion, reflecting a YoY growth of 13%. This compares to the prior range of $9.9-10 billion, reflecting growth of 11-12%. Gross margin for the full year is expected to expand by approx. 90-100 basis points from the gross margin of 26.7% reported in FY2021.

For the fourth quarter of 2022, net sales are estimated to range between $2.63-2.65 billion, representing a YoY growth of around 10-11%. Chewy expects gross margin for Q4 to improve on a YoY basis but on a sequential basis, it anticipates a slight decline due to seasonal factors like higher promotions and fewer opportunities to achieve freight and shipping efficiencies amid higher holiday volumes and peak season surcharges.

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