What happened
Chewy (CHWY +0.22%) stock beat a rising market this week. The pet supply specialist was up 10% at one point before settling to a 5% increase through Thursday trading. That's as compared to a 2.6% increase in the wider market, according to data provided by S&P Global Market Intelligence. Chewy's shares are still underperforming so far in 2023, down slightly even as the S&P 500 has gained nearly 6%.
This week's rally came as investors continued to digest the company's fourth-quarter earnings update.
So what
Chewy said late last week that sales rose 13% through late January, and that profit margin expanded despite soaring costs. While these were positive developments, Wall Street focused instead on the company's shrinking customer base. The active customer base declined by 1% in 2022, while average annual spending jumped 15% to $495.
NYSE: CHWY
Key Data Points
Investors this week decided to reverse some of the stock's losses in the wake of that Q4 earnings report last week. Chewy remains solidly profitable, after all, and it demonstrated its pricing power in 2022 even though the rising prices slowed its customer growth. The company is steadily winning market share in the pet supply industry, which traditionally performs well even in recessions.
Now what
Chewy is aiming to build on the record sales, cash flow, and profitability metrics that the company reached in 2022. At the same time, the company is preparing to launch an ambitious move into international markets starting in the first quarter. These moves might help the stock continue recovering from its 2022 losses.
Shareholders will want to watch for signs that Chewy is returning to customer growth over the next few quarters. Its sales trends should hold up well even through a slowing economy, too, as roughly 80% of its business is in the staples niche that includes pet food.
Nearly 75% of sales occur through its subscription-based service, adding more reliability to its revenue metric. Wall Street chose to focus on these positive factors this past week, and Chewy's stock price reflected that growing optimism.
