Chewy's stock soars after profit beats by a wide margin and company offers upbeat guidance

By Ciara Linnane

Chewy now has 20 million active customers and net sales per active customer are a record $565

Chewy Inc.'s stock (CHWY) soared 14% Wednesday, after the online retailer of pet food and products posted better-than-expected earnings for its fiscal second quarter and offered upbeat guidance for the year.

The Plantation, Florida-based company had net income of $299.1 million, or 68 cents a share, for the quarter to July 28, up from $20.2 million, or 5 cents a share, in the year-earlier period.

Adjusted for one-time items, EPS came to 24 cents, ahead of the 2-cent FactSet consensus.

Sales rose to $2.859 million from $2.785 million a year ago, in line with the $2.858 billion FactSet consensus.

Chief Executive Sumit Singh said sales came in at the high end of the company's guidance range. Autoship customer sales grew about 6%, or double the company-wide rate, to reach 78% of overall sales.

The company ended the quarter with 20 million active customers and net sales per active customer, or NSPAC, of $565, a record, he said.

"NSPAC growth is being driven by factors such as strengthening mix of repeatable categories and growth in our premium product lines, for example, premium food and Chewy Health," Singh told analysts on the company's earnings call, according to a FactSet transcript.

The company's recently upgraded mobile app also helped boost customer engagement, he added.

Gross margins came to 29.5%, up 120 basis points from a year ago, and are expected to expand over time as higher margin businesses become a larger contributor to overall sales.

Since its last earnings call, the company has added two additional Chewy vet care clinics, one in the Denver area and another in South Florida, he said. That brings the total to six locations, which compares with its goal of six to eight openings in 2024.

"Chewy vet care is serving as an acquisition funnel, with the proportion of net new customers acquired through our clinics exceeding our expectations," said the executive.

And clinic engagement is also support NSPAC as consumers spend veterinary services and exhibit strong cross-category shopping behavior, he said.

The company's sponsored ad business is on track to hit the low end of Chewy's long-term target of accounting for 1% to 3% of net sales in 2024, said Singh.

Chief Financial Officer David Reeder said the company is still expecting full-year customer additions to be roughly flat.

It now expects third-quarter sales of $2.84 billion to $2.86 billion, or about 3% to 4% growth year-over-year. The FactSet consensus is for sales of $2.74 billion.

The company expects full-year sales to range from $11.6 billion to $11.8 billion, while FactSet is expecting $11.1 billion.

Chewy raised guidance for full-year adjusted Ebitda margin, or earnings before interest, taxes, depreciation and amortization, to a range of 4.5% to 4.7%. The new guidance midpoint indicates expansion of about 130 basis points year-over-year, said Reeder.

The stock has gained 24.5% in the year to date, while the S&P 500 has gained 18%.

-Ciara Linnane

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

08-28-24 1124ET

Copyright (c) 2024 Dow Jones & Company, Inc.