E-commerce pet food and supplies retailer Chewy (NYSE: CHWY) beat Wall Street’s revenue expectations in Q4 CY2024, with sales up 14.9% year on year to $3.25 billion. Its non-GAAP profit of $0.28 per share was 36.6% above analysts’ consensus estimates.
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Chewy (CHWY) Q4 CY2024 Highlights:
- Revenue: $3.25 billion vs analyst estimates of $3.20 billion (14.9% year-on-year growth, 1.5% beat)
- Adjusted EPS: $0.28 vs analyst estimates of $0.20 (36.6% beat)
- Adjusted EBITDA: $124.5 million vs analyst estimates of $118.2 million (3.8% margin, 5.4% beat)
- Operating Margin: -0.3%, in line with the same quarter last year
- Free Cash Flow Margin: 4.8%, similar to the previous quarter
- Market Capitalization: $13.74 billion
Company Overview
Founded by Ryan Cohen, who later became known for his involvement in GameStop, Chewy (NYSE: CHWY) is an online retailer specializing in pet food, supplies, and healthcare services.
Online Retail
Consumers ever rising demand for convenience, selection, and speed are secular engines underpinning ecommerce adoption. For years prior to Covid, ecommerce penetration as a percentage of overall retail would grow 1-2% annually, but in 2020 adoption accelerated by 5%, reaching 25%, as increased emphasis on convenience drove consumers to structurally buy more online. The surge in buying caused many online retailers to rapidly grow their logistics infrastructures, preparing them for further growth in the years ahead as consumer shopping habits continue to shift online.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last three years, Chewy grew its sales at a mediocre 9.8% compounded annual growth rate. This fell short of our benchmark for the consumer internet sector and is a rough starting point for our analysis.
This quarter, Chewy reported year-on-year revenue growth of 14.9%, and its $3.25 billion of revenue exceeded Wall Street’s estimates by 1.5%.
Looking ahead, sell-side analysts expect revenue to grow 4.2% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and indicates its products and services will face some demand challenges.
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Cash Is King
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Chewy has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.5%, subpar for a consumer internet business.
Taking a step back, an encouraging sign is that Chewy’s margin expanded by 3.7 percentage points over the last few years. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.
Chewy’s free cash flow clocked in at $156.6 million in Q4, equivalent to a 4.8% margin. This result was good as its margin was 2.4 percentage points higher than in the same quarter last year, building on its favorable historical trend.
Key Takeaways from Chewy’s Q4 Results
We enjoyed seeing Chewy beat analysts’ EBITDA expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The market seemed to focus on the negatives, and the stock traded down 1.8% to $32.90 immediately following the results.
So do we think Chewy is an attractive buy at the current price? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
