Chewy (CHWY) reported their earnings for 2022 (as well as the 4th quarter of 2022) on March 22, 2023 at the end of the day. Their share price rose up to slightly above $40 per share by the end of the day on the 21st, and bounced between roughly $38-$39 on the 22nd leading into the earnings report. By the end of the day on the 23rd, it was trading around $35 per share, and by the end of the week (the 24th), it ended a little above $33. So the earnings call must’ve been bad right?
Not at all! Their earnings release showed the following, for year over year (1):
- Net sales of $10.1 billion improved 13.6 percent year over year
- Gross margin of 28.0 percent expanded 130 basis points year over year
- Net income of $49.2 million, including share-based compensation expense of $163.2 million
- Net margin of 0.5 percent expanded 130 basis points year over year
- Basic and diluted earnings per share of $0.12, an increase of $0.30 year over year
- Adjusted EBITDA(1) of $305.9 million, an increase of $227.4 million year over year
- Adjusted EBITDA margin(1) of 3.0 percent expanded 210 basis points year over year
- Adjusted net income(1) of $225.8 million, an increase of $214.3 million year over year
- Adjusted basic and diluted earnings per share(1) of $0.53, an increase of $0.50 year over year
So everything increased right? And they even beat expectations for the quarter as well! According to Robinhood, the expected earnings per share (EPS) was -$0.11. However, they ended up having a $0.01 EPS! Sure, one cent per share isn’t anything to call home about. But beating expectations by 12 cents per share?! That’s enough for massive stock gains on occasion! Certainly enough for me to keep investing!
But why did it drop? Well, the big worry for many investors is that Chewy lost customers from Q3 to Q4 of 2022, down 0.3 million. Sure, that’s concerning. And yes, maybe the trend of people buying pets for something to do while stuck will slow down. But at the same time, people are treating their pets more and more like family. Heck, I swear my parents treat our dogs better than they treated us kids! And I think this shows best in the margin increase for Chewy: people are willing to spend more money than ever on their pets, whether it be healthier food, better toys, or just more in general.
While the loss of customers and why that is outlined above is concerning, the financials show that Chewy is incredibly well run company, able to increase margins while also increasing sales. Additionally, pets are not something that will be leaving the lives of American consumers anytime soon, and the faster and easier they can provide for their furry family members, the better!
Of course, always do your own research or talk to your own financial advisor before making any investment decisions, as they all come with risk, especially individual stocks such as Chewy! This is only an idea that I myself am going with.