- Needham analyst Anna Andreeva reiterated a Buy rating on the shares of Chewy Inc (NYSE:CHWY) with a price target of $55.
- The analyst said Chewy’s Q3 Net Sales Per Active Customer (NSPAC) maintained mid-teens run-rate as the company added new product categories and expands its catalog with the oldest cohort spending $1,000/year versus Year 1 cohorts at $100-$200/year.
- Pricing and units contributed equally to growth in 3Q22, the analyst reported.
- Management expects one round of incremental cost increases in 1Q23 and for both units and price to contribute to sales.
- The analyst noted net ads were positive first time this year as gross ads accelerated 6% q/q and grew 9% y/y, which coincided with a slight downtick in churn.
- Advertising expenses increased 18% y/y, and 5% – 7% range is still the right level for FY23.
- 4Q22 gross margin is expected lower than 3Q22, which the analyst views as conservative given that the industry is still considered rational and compares easing substantially.
- The analyst cited that Chewy has plenty of initiatives to drive sales and margins between automated FC’s, supply chain/logistics, sponsored ads, insurance and new private label brand.
- The pet space, the analyst said, is defensive and demand is inelastic plus the headwinds from last year across the supply chain and wage/ labor pressures are dissipating, with sell-side estimates poised for upside.
- The analyst raises the ’22 and ’23 estimates and expects more positive estimate revisions to drive the stock higher.
- Price Action: CHWY shares are trading higher by 6.51% at $44.70 on the last check Friday.
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