Chewy's (CHWY -3.27%) stock price and its business have been moving in opposite directions lately. The e-commerce pet products retailer expanded sales and profitability at a solid clip through late 2021. Yet Wall Street has pushed its shares lower on worries about a disruptive slowdown ahead.
Those concerns might be eased -- or amplified -- when the company announces its fiscal fourth-quarter results in a few days before issuing a detailed outlook for the 2022 year ahead.
So let's look at the key questions heading into that report, set for Tuesday, March 29.
Image source: Getty Images.
How much of a slowdown?
There's no doubt that Chewy is in for a growth slowdown ahead as economies reopen and people shift more spending back toward in-person shopping. Pet adoption trends have dipped after soaring through most of the pandemic, too. These factors contributed to push sales gains to 24% in the previous quarter, compared to 27% growth in fiscal Q2.
Most investors are expecting a further slowdown on Tuesday, with revenue growth landing at about 19%. That weaker figure would still translate into market share gains for Chewy, though.
The company gets over two-thirds of its sales through subscription-based shipments, after all. Look for CEO Sumit Singh and his team to highlight the stickiness of that offering when they discuss Chewy's successes through the holiday shopping season.
Are margins falling?
There's no shortage of challenges likely to pressure earnings in Q4 and through most of 2022. Costs are soaring on everything from transportation to labor, and these spikes are coming at a time when Chewy needs to spend more on its infrastructure to account for all of the extra volume it won over the last two years.
Those factors helped keep Chewy operating in the red through late October even though profitability inched up slightly compared to a year earlier. Investors are bracing for worse results on this metric, with Chewy's operating profit margin likely stepping backwards after having just crossed into positive territory.
CHWY Operating Margin (TTM) data by YCharts
Sure, a quick return to net losses isn't a threat to the wider investment thesis for the stock. But a move like that would imply weaker earnings in 2022.
What's in store for 2022?
Wall Street will be focused on the new fiscal year outlook that management issues as part of its operating update. Heading into the report, most investors are expecting sales gains to slow to below 20% compared to roughly 25% growth in the current year. Pressures likely to impact that top line include supply chain challenges and changing consumer shopping behavior. On the plus side, Chewy can count on its strong customer loyalty to help it maintain market share.
The cloudier earnings outlook has played a big part in Chewy's weak stock price performance lately. Wall Street is bracing for executives to project ballooning losses in the year ahead as investment spending accelerates.
That's the right move for Chewy to make, since it will help solidify its sales gains and build up its infrastructure for many more years of growth ahead. Yet, investors aren't excited about the prospect of a 2022 that pairs slowing sales gains with spiking expenses.
