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Why Chewy Stock Got Bit Today

By Howard Smith – Sep 2, 2021 at 12:41PM

Key Points

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The second-quarter report hit the trifecta of bad news for hopeful investors.

What happened

Online pet products retailer Chewy (CHWY 0.07%) reported its second-quarter 2021 earnings last night, and shareholders were left whimpering. Chewy shares were down more than 10% Thursday morning and remained down almost 9% as of 12:20 p.m. EDT. 

So what

The stock dropped due to three items from the quarterly report. The company reported a larger-than-expected quarterly loss, missed analyst estimates on revenue, and provided a disappointing outlook. Though sales grew about 27% compared to the year-ago period, management disappointed investors by holding its full-year guidance steady, anticipating sales growth of about 25.5% for the full year compared to 2020. 

girl playing with pet dog on living room carpet.

Image source: Getty Images.

Now what

During the conference call for investors, CFO Mario Marte said that although supply chain issues are improving, "Out-of-stock levels remained elevated in the second quarter." He added that the current macro environment makes forecasting difficult, but "Consumers may have started redirecting some of their discretionary spending back to areas like travel or dining out." That could imply that consumers might splurge less on toys or extra treats for their pets. 

But beyond the somewhat negative news was a strong underlying business. The company saw a 21% increase in active customers. Net loss for the quarter of $16.7 million was a nearly 50% improvement over the prior-year period. And the company produced $60 million in free cash flow for a total of $120 million year to date. That compares to negative free cash flow of $78 million for the first half of 2020. 

For investors looking beyond short-term business swings, today's drop could be a good opportunity. Chewy trades at a price-to-sales ratio of about 3.7 based on the full-year revenue guidance. That's near the lows of the past 12 months, and would be a good entry point if the company continues to grow at its current rate. 

Howard Smith has no position in any of the stocks mentioned. The Motley Fool recommends Chewy, Inc. The Motley Fool has a disclosure policy.

Stocks Mentioned

Chewy Stock Quote
Chewy
CHWY
$44.95 (0.07%) $0.03

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