CHEWY SHARES YES/NO?
1. Chewy as a growth stock with volatile results in 2024
-$CHWY is experiencing volatility due to expected lower pet spending.
- The stock has recovered due to positive results and the influence of investor Keith Gill.
- Shares are up more than 35% this year but have lost 18% from the June high.
2. Chewy's strong recurring business model
- 78.4% of revenue comes from Autoship, which provides recurring revenue.
- Autoship contributes to revenue stability and increases customer loyalty.
- Revenue per customer increased by 6.2%.
3. Decline in growth due to the post-pandemic downturn
- Pet ownership stabilizes after the pandemic boom.
-$CHWY expects a return to normal trends in 2025.
- The company benefits from non-discounted sales, which account for 85% of revenues.
4. Increasing margins as key to future earnings growth
-$CHWY is increasing margins through sponsored ads and the pharmacy segment.
- Pharmacy services have higher margins than retail sales.
-$CHWY focuses on private brands with higher margins than national brands.
5. Chewy reduces operating costs and increases efficiency
- The company has a high fixed cost infrastructure.
- As a result, it has operating leverage that helps increase profits.
6. Second-quarter achievements due to margin expansion
- Gross margin increased 120 basis points to 29.5%.
- Adjusted EBITDA margin increased from 3.2% to 5.1%.
- Adjusted EBITDA margin increased 65% on a 2.6% increase in sales.
7. Attractive valuation of Chewy shares
- The stock is trading at a forward P/E of around 26.
- Despite relatively slow revenue growth, the potential is high due to margin expansion.
- The valuation is lower than Walmart, but $CHWY is growing faster.
