Why Chewy Stock Jumped Higher Today

Actions of chew (CHWY 15.00%) rose today after the online pet products retailer reported strong earnings growth in its second-quarter earnings report, showing that the pet products industry may finally be breaking out of a long slump .

As a result, Chewy stock was up 15% at 10:20 a.m. ET on the news.

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Jumps chewed over a low bar

Chewy’s growth rate remained muted in the second quarter as revenue rose 2.6 percent to $2.86 billion, according to estimates, but the real surprise came further down in the income statement.

Gross margin improved 120 basis points to 29.5%, while operating expenses rose just 0.8%, leading Chewy to reverse an operating loss of $16.7 million in the quarter from a year ago at a profit of $32.1 million.

In conclusion, adjusted EPS rose from $0.15 to $0.24, which was much better than the consensus of $0.01.

CEO Sumit Singh said, “Our Q2 performance reflects another quarter of strong execution, delivering net sales at the high end of our guidance range.”

Chewy actually lost customers in the year-ago quarter, with active customers falling from 20.4 million to 20 million, reflecting a slowdown in the pet products industry, but it managed to attract more spending from its customers with net sales per active customer increasing. from $532 to $565.

What’s next for Chewy?

Looking to the third quarter, the company expects like-for-like revenue growth of 3%-4% to $2.84 billion-$2.86 billion, and full-year revenue growth of 4%-6% , at $11.6 billion – $11.8 billion. Both numbers were within consensus.

Chewy also raised its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin guidance for the full year from 4.1%-4.3% to 4.5%-4.7% .

While the margin improvement is certainly encouraging for Chewy, the company will need to demonstrate stronger revenue growth and a return to customer growth to continue moving higher.

Until that changes, the stock’s upside appears limited.