Chewy Stock Soars on Big Profit Beat. Is It Time to Buy?

Hand holds a phone with the Chewy website displayed, while a black dog looks on from the background.

(Image credit: Gabby Jones/Bloomberg via Getty Images)

Chewy (CHWY) stock is soaring in Wednesday's session after the online pet products retailer blew past earnings expectations for its second quarter.

In the 13 weeks ended July 28, Chewy said its earnings per share (EPS) jumped to 24 cents from 9 cents in the year-ago period. Revenue was up 2.6% year-over-year to $2.86 billion, helped by a 5.8% jump in Autoship customer sales to $2.24 billion.

"Our Q2 performance reflects another quarter of strong execution, delivering net sales at the high end of our guidance range," said Chewy CEO Sumit Singh in a statement. "Chewy's compelling value proposition is driving broader and deeper customer engagement, as reflected by our 20 million active customers, which grew sequentially in the quarter, and net sales per active customer of $565, which reached a new record for the company."

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

The results were mixed compared to analysts' expectations. While Chewy's top line matched what Wall Street was anticipating, it blew past estimates for earnings of 1 cent per share, according to Yahoo Finance.

For the third quarter, Chewy said it anticipates revenue in the range of $2.84 billion to $2.86 billion, representing a year-over-year increase of approximately 2% to 3%. Analysts are forecasting revenue of $2.86 billion.

Chewy also reiterated its revenue forecast for the full fiscal year, anticipating sales of $11.6 billion to $11.8 billion. It also raised its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) margin outlook to 4.5% to 4.7% from 4.1% to 4.3%.

Is Chewy stock a buy, sell or hold?

Thanks to today's post-earnings pop, Chewy is now up more than 22% for the year to date, outpacing the S&P 500's 17% return.

Wall Street is bullish on the consumer discretionary stock, but analysts' price targets have failed to keep up with its recent rally. According to S&P Global Market Intelligence, the consensus analyst target price for CHWY stock is $27.73, representing a discount to current levels. Analysts may very well revise their price targets following the better-than-expected earnings results.

Meanwhile, the consensus recommendation is Buy. Speaking for the bulls is financial services firm William Blair, which has an Outperform rating (equivalent to a Buy) on CHWY stock.

"We still see a compelling and improving fundamental outlook for Chewy, with a stabilizing pet market and a spring-loaded model set to deliver outsized free cash flow in the coming years," said William Blair analyst Dylan Carden in an August 26 note. "Management has cited several reasons to believe that pet spending improves in the second half, namely an improving inflationary backdrop, though we believe comparisons alone could be the largest driver."

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.