What happened
Chewy (CHWY -0.19%) shares tanked Wednesday morning after the company reported disappointing results for its 2021 fourth quarter. The online pet retailer missed analyst expectations on revenue, and reported a larger loss than anticipated. Its stock was down 12% as of 10:30 a.m. ET.
So what
Chewy swung from its first profitable quarter in the year-ago period to a loss of $63.6 million in its fourth quarter ended Jan. 30. Analysts had expected a loss of $36 million. The company attributed the shortfall to increased expenses including labor and freight costs. Net margin was negative 2.7%, a 370 basis point decline over the prior year.
Image source: Getty Images.
Now what
Chewy reported sales of $2.39 billion, representing growth of 17% over the prior-year period. But that didn't meet analyst expectations for fourth-quarter sales of $2.42 billion. The company's guidance for first-quarter 2022 sales of between $2.4 billion and $2.43 billion similarly didn't match expected levels.
However, the company said some of the headwinds it faced in the previous quarter have started to abate. Management noted in a statement, "we are already seeing improvements in labor availability, inbound shipping costs, and pricing."
Chewy still sees its business as having plenty of potential as demand from consumers remains elevated. Sales for the full year 2021 rose 24% over 2020 -- a year that also saw elevated growth as pet adoption increased during the pandemic. The company said margin pressures likely peaked in the fourth quarter of 2021.
With sales continuing to grow, and the stock having dropped more than 40% over the last 12 months, the price-to-sales ratio based on 2022 guidance has dropped below 2. That's a reasonable valuation for investors who think pet care will continue to be a priority in many U.S. households.
