Chewy Analysts Applaud Customer Growth, Strong Execution Following Upbeat Q4 Results

Chewy Inc. (NYSE: CHWY) has been making waves in the pet products industry, and analysts are taking notice. The company's recent fourth-quarter results have been met with enthusiasm, as chewy continues to demonstrate strong customer growth and operational excellence. Let's dive into the key takeaways from the latest earnings report and what analysts are saying about Chewy's future prospects.



Strong Customer Growth and Sales Performance

Chewy's fourth-quarter results were nothing short of impressive. The company reported net sales of $3.25 billion, a nearly 15% year-over-year increase. This growth was driven by an increase in active customers, a return to growth in hard goods merchandise, and the loyalty of Autoship customers across consumables and health and wellness categories. The Autoship program, which accounted for nearly 81% of net sales in the fourth quarter, provides a predictable recurring revenue stream, with sales increasing 21% year-over-year to $2.62 billion.

Chewy ended the quarter with 20.5 million active customers, reflecting a 2.1% year-over-year increase. The company's efforts in improving its assortment, on-site and mobile app capabilities, and marketing have helped drive growth in new customers and reactivations, along with an improvement in gross churn. Chewy believes its active customer growth has reached an inflection point and expects to deliver growth in this metric in 2025. The company also saw growth in net sales per active customer, which rose 4.1% year-over-year to $578 in Q4.

Analysts Weigh In

Analysts have been quick to applaud Chewy's strong execution and customer growth. JPMorgan's Doug Anmuth reiterated an Overweight rating and lifted the price target from $38 to $40, citing Chewy's strong execution and growth in active customers and profitability. Anmuth noted that while the broader pet industry is expected to grow by 3.5-4.5% in FY25, Chewy continues to gain share.

Wedbush's Seth Basham maintained an Outperform rating and price target of $39, highlighting Chewy's revenue growth of 6.9% year-over-year, excluding the extra week benefit, and beating consensus estimates. Basham also noted the improvement in new customer acquisitions, reactivations, and churn, which contributed to the increase in active customers.

RBC Capital Markets' Steven Shemesh reiterated an Outperform rating and price target of $42, citing Chewy's gross margin expansion and the company's guidance for 2025 net sales growth of 6-7%. Shemesh also noted that Chewy's guidance reflects minimal tariff impact, which is a positive sign for the company's operational efficiency.



Encouraging Outlook for 2025

Chewy has provided an encouraging outlook for fiscal year 2025. The company expects net sales to range between $3.06-3.09 billion for the first quarter of 2025 and between $12.30-12.45 billion for the full year of 2025. This represents a year-over-year growth of approximately 6-7% for both the quarter and the year, when adjusted to exclude the impact of the 53rd week in FY2024. Sales growth is expected to be driven by growth in active customers and net sales per active customer, as well as minimal price inflation.

For the first quarter of 2025, Chewy expects adjusted EPS to range between $0.30-0.35. The company is optimistic about delivering year-over-year active customer growth in the low single-digit range, with the level of net additions broadly consistent throughout the year.

Potential Risks and Challenges

While Chewy's performance has been impressive, there are potential risks and challenges to consider. The current economic environment, with factors such as inflation and potential recessions, could impact consumer spending and Chewy's ability to maintain customer growth and profitability. Additionally, competition from players like Amazon and other pet supply retailers could pose a threat to Chewy's market share and profitability.

Chewy's business model relies heavily on e-commerce and supply chain efficiency, and any disruptions in the supply chain could impact its operational efficiency and profitability. As a pet pharmacy, Chewy is also subject to regulatory requirements and compliance risks, which could impact its operations and profitability.

Conclusion

Chewy's strong fourth-quarter results and encouraging outlook for 2025 have analysts bullish on the company's prospects. With a focus on customer growth, operational excellence, and strategic initiatives like the Chewy Vet Care clinics, Chewy is well-positioned to continue its growth trajectory. However, investors should be mindful of the potential risks and challenges that lie ahead. As always, it's important to do your own research and consider your investment goals and risk tolerance before making any investment decisions.

Ask Aime: What factors contributed to Chewy's strong customer growth and sales performance in the fourth quarter, and how does this impact its future prospects?