Chewy (CHWY 0.67%) is scheduled to report fiscal 2022 first-quarter earnings on June 1. The online pet retailer is grappling with a few COVID consequences: Supply chain disruptions have made it difficult to secure the products consumers want and shortages are raising prices on everything from labor to fuel.
When Chewy reports its first quarter results, investors will be evaluating how successfully management mitigated those challenges. Let's take a deeper look to see what we can expect from the upcoming earnings call.
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Supply chain disruptions are hurting margins and stalling sales
In its most recent quarter (ended Jan. 30), Chewy reported sales of $2.4 billion. That was a 16.9% increase from the year-ago quarter. The company has benefited from a few tailwinds since the pandemic's onset, including the rise in pet ownership, increased average pet spending per household, and the growing popularity of e-commerce. Management noted that sales would have been even higher had it been able to secure more inventory: Sold-out products hurt sales twice as much as the company forecasted it would.
Fortunately, customer demand for Chewy's products and services remains robust. Last fiscal year, net sales per active customer rose 16% to a record $430. That increased spending has in turn contributed to the company's impressive revenue growth, which has increased from $900 million in 2016 to $8.9 billion in 2021. Chewy has done an excellent job capturing an estimated 7.4% share of the $120 billion pet industry.
CHWY Revenue (Annual) data by YCharts
Another reason for shareholder optimism is that Chewy has observed the easing of some supply chain disruptions. The company is having more success acquiring workers, and inbound shipping costs and pricing on products are improving. These headwinds impacted Chewy's gross profit margin, which decreased by 170 basis points to 25.4% in its most recent quarter (ended Jan. 30) compared to the year-ago period. Despite that fourth quarter pressure, though, gross profit for the full 2021 fiscal year increased by 120 basis points year-over-year to 26.7%. That's up from 16.6% in 2016, an excellent improvement for the pet-focused e-commerce company.
CHWY Gross Profit Margin (Quarterly) data by YCharts
What this could mean for Chewy investors
Wall Street analysts expect Chewy to report revenues of $2.42 billion and a loss per share (LPS) of $0.13 during the June 1 earnings report. If the company meets that revenue projection, it will be an increase of 13.90% from the same period the year before. The loss per share will be a reversal of the $0.09 earnings per share (EPS) it generated last year. Investors continue to worry about the headwinds caused by snarled supply chains; Chewy's stock is down 80% off its highs.
Unfortunately, supply chains only got worse in the previous three months, due to Russia's invasion of Ukraine and additional lockdowns in China. Shareholders can hope for a reprieve from management with commentary that can speak to the temporary nature of the issues and forecast an easing of these headwinds.
Chewy can overcome supply chain disruptions, but likely not in the current quarter. The Q1 figures will probably reveal rising costs, missed sales opportunities, and losses on the bottom line. That said, all those troubles may already be baked into the stock price that's down 80% off its high. In other words, there is no reason to panic and sell Chewy stock ahead of earnings.
