by Ian Harvey
April 01, 2021
Chewy Inc reported one of the strongest quarters that has been seen for the Q4 reporting cycle. The company delivered a 51.1% increase in YOY revenue that beat the consensus by 460 basis points.
“Stock Options Made Easy Members” made gains of 203% within three trading days.
With the growth story to continue another trade maybe considered.
The Actual Recommended Trade.....
** OPTION TRADE: Buy CHWY APR 16 2021 80.000 CALLS at approximately $5.35 (actual entry price was $4.40)
The Profit Explained…..
“Stock Options Made Easy members” entered a trade on Chewy Inc Monday, March 29, 2021 for $4.40.
The earnings report came out Tuesday, after the market closed, Chew Inc stock soared, and after the market opened Wednesday the option price had climbed to a high of $13.31 – a potential profit of 203%.
Why The Trade Recommendation On Chewy Inc?
"Dania Beach-based Chewy Inc
(NYSE: CHWY), a pure
play e-commerce business in the United States providing pet food, pet products,
pet medications, and other pet health products, will report earnings after the
market closes. The
consensus estimate is for a loss of $0.09 per share on revenue of $1.96 billion;
but the Whisper number is better at ($0.02) per share.
estimates are for year-over-year earnings growth of 40.00% with revenue
increasing by 44.70%.
This pet food and other pet-related supplier delivered an earnings
surprise of 40.2%, on average, in the trailing four quarters.
spending on Chewy.com has been increasing by at least 40% year over year
in all but one quarter since the start of fiscal 2019 (not to mention the
seven-year streak from fiscal 2011 through fiscal 2018) -- highlighting that a
return to pre-pandemic conditions is no reason to shy away from this growth
Like other e-commerce businesses, its sales have increased during the
coronavirus pandemic as consumers look to reduce trips to stores. By the same
token, Chewy is experiencing rising costs as it wrestles with challenges from
operating in the presence of a deadly virus.
interest has decreased by 16.8% and overall earnings estimates have been
revised higher since the company's last earnings release.
The company has been witnessing strength in e-commerce and increased pet
ownership. Customers are responding positively toward the company’s assortment
that includes innovative products and service launches.
Also, its pharmacy operations bode well. Management has also launched
Medication Compounding and Connect with the Vet– the company’s proprietary
telehealth platform to make pet healthcare affordable. Such strengths are
expected to have contributed to overall sales in the quarter.
becoming an ever-increasing part of people's lives in the U.S. From 2013 to
2018, spending on pets grew 50% from $58 billion to $87 billion. Meanwhile,
annual income during that same period grew only 23%. As the economy recovers
from the pandemic and the recent $1.9 trillion American Rescue Plan puts more
money into consumers' bank accounts, a growing part of people's budgets will
likely go toward their pets. That will be a boon for Chewy.
are bringing home new pets at an increasing rate since the start of the
69% of sales in the company's most recent quarter came from Chewy's Autoship
program, which allows customers to sign up for repeat deliveries of products
with a small discount. In addition to the discount, typically 5%, Autoship
customers get access to the company's Connect with a Vet offering, a telehealth
service giving pet parents access to a licensed veterinarian at no additional cost.
consumers to place their shopping on autopilot provides the company with
fiscal 2020 third quarter, free cash flow totaled $33 million, up from negative
$13 million in the same period last year. The figure enjoyed a boost thanks to
an early start to the holiday shopping season.
pet store generated negative but improving free cash flow in its prior three
fiscal years -- deficits of $120 million, $58 million, and $2 million in 2017,
2018, and 2019, respectively. And through the first nine months of fiscal 2020,
Chewy more than doubled its capital investments, reducing the likelihood it has
a positive year of free cash flow. However, those investments are focused on
expanding the company's fulfillment capacity as Chewy prepares for continued
growth in customer demand over the coming years."
Earnings Report for Chewy Inc.....
Revenue gains were driven by new customer acquisition as well as organic growth to the tune of +3% for its active customers. Auto-ship, the company’s recurring revenue stream, grew 46% YOY and accounted for 68.2% of sales.
Moving down the report the details only get better. The company was able to leverage its revenue growth and widen margins. The gross margin widened by 300 basis points from last year to hit 27.1% and outpace the consensus by 200 basis points. At the operating level margins improved by 500 basis points to produce a surprise 1.0% margin and profit. On the bottom line the GAAP $0.05 beat by $0.15 while the adjusted $0.11 beat by $0.20.
Chewy CEO Sumit Singh praised the company's progress that led to its first quarter of positive net income. He said in a statement, "Years of preparation and focus have positioned us as the Internet's preeminent neighborhood pet store and a leading pure-play e-commerce company in the pet space."
Looking Ahead for Chewy Inc…..
The company is expecting Q1revenue in the range of $2.11 to $2.13 billion versus the consensus of $2.07. This is 3.5% to 4.5% sequential growth and 30% to 32% YOY growth. The pace of YOY growth is falling but that is to be expected, the company’s comps are getting harder and harder but sequential growth should be steady. Regardless, the analysts are expecting this company to grow at a high double-digit pace for the next several years at least and are already upping their estimates in the wake of the Q4 results.
Enthusiasm From The Analysts…..
Analysts were lining up Wednesday to raise their price targets on Chewy after the online pet-care provider posted a surprise fourth-quarter profit. Chewy said revenue nearly doubled amid surging online orders to $2.04 billion, beating Wall Street's expectations.
Morgan Stanley, Wedbush, and Jeffries all came out with positive comments and higher price targets for the stock. Jeffries is the high-water mark of these three at $105 but not the highest on Wall Street. The consensus target is $88 but the high-price target is $121 and held by Credit Suisse.
"CHWY's 4Q results and outlook amplified its industry-leading position and path to commanding market share gains still to come," said Wedbush analyst Seth Basham, who raised his price target to $100 from $90, while keeping his outperform rating.
An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!