What happened
Chewy (CHWY -0.19%) shareholders lost ground to a declining market through most of this week. The stock shed 11% through Thursday trading compared to a 2.2% slump in the wider market. Chewy is now down a painful 44% so far in 2022, according to data provided by S&P Global Market Intelligence, while the S&P 500 is down 18%.
The broader market decline was a factor in Chewy's slump this week, but the bigger driver was management's update on the pet supply retailer's latest operating trends.
So what
Chewy on Tuesday announced that sales in the fiscal second quarter (ending in late July) rose 13%, on top of big gains in the year-ago period. That expansion came despite a general shift in demand away from e-commerce and rising price sensitivity on the part of most consumers. Management said it was happy with the performance, considering those pressures.
Yet Wall Street was more focused on Chewy's weakening sales growth rate. Revenue is on track to expand by only about 11% this year after soaring 24% in 2021.
Now what
It might be some time before investors see a return to 20% annual sales gains. However, the company remains solidly profitable, and has even boosted its operating margin so far in 2022. A rising proportion of customers are committed to regular shipments of pet food and supplies, too. And Chewy is still gaining market share in a growing industry.
These positive factors suggest Chewy can deliver solid returns to investors who are willing to hold on through this current period of unusually weak sales growth.
And the stock price decline this week simply makes that investing thesis more compelling as shares can now be purchased for about 1.5 times annual sales, or about half the valuation Chewy enjoyed at the start of the year.
Sure, its short-term growth prospects have worsened since then. But Chewy is still positioned well for long-term success.
