Why Chewy Stock Dropped on Thursday

Chewy (NYSE: CHWY) stock found itself in the doghouse on Thursday. Shares fell 6% through early afternoon trading, compared to a modest uptick in the S&P 500. That move contributed to a rough year for owners of the pet supply retailer, which is down over 50% in the past 12 months.

Thursday’s slump was sparked by some discouraging news on the earnings front .

Barking up the wrong tree

Chewy executives reported Q4 operating results before the market opened, and Wall Street wasn’t thrilled with the details. While the e-commerce specialist boosted sales and improved its profit margin, both metrics were sluggish. Looking deeper into the results reveals some caution signs for the future.

Specifically, Chewy continued to shed customers. Its active shopper pool fell 1.6% for the year to mark an acceleration over the prior year’s 1.2% drop. The company offset that pressure by raising prices and moving slightly higher volume through its delivery network. Yet it was still discouraging to learn that Chewy is no closer to logging a rebound in its core active-customer metric.

Looking ahead

Management said they were as excited as ever about Chewy’s long-term growth initiatives, which include its push into pet healthcare and entry into the Canadian market. The business is profitable and cash-flow positive, after all, and its e-commerce shoppers remain highly engaged with the platform.

Unfortunately, the next year will be characterized by an even tougher selling environment. Prices won’t rise like they did in 2023, management warned, because inflation has cooled. Volumes will likely be pressured because pet adoption rates are down. Overall, there’s little reason to be excited about a growth rebound occurring in the next year or so.

These projections don’t mean it’s time to abandon Chewy’s stock. But they do suggest that its business will struggle through at least one more year of unusually weak results as the pandemic-growth hangover continues pressuring the pet supply industry.

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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chewy. The Motley Fool has a disclosure policy.

Why Chewy Stock Dropped on Thursday was originally published by The Motley Fool