Shares of Chewy , the e-commerce pet-focused business, were falling Monday after getting downgraded by analysts at Wedbush ahead of the company’s quarterly earnings on Thursday.
The analysts downgraded the stock to Neutral from Outperform, saying they expect weaker gross customer additions for the second half of 2021 and 2022, moderating from the Covid-driven customer surge of last year.
Chewy (ticker: CHWY) stock dropped 7% to $58.31.
Wedbush forecasts 20.4 million active customers for the third quarter vs. Wall Street consensus of 20.6 million. For the fourth quarter of 2021, the analysts expect 20.7 million vs. consensus of 21.1 million.
“CHWY is well-positioned to capture market share given a long-term secular channel shift in the pet retail industry, but we now expect at best in-line results for 2H21 and growth below consensus in 2022,” wrote analyst Seth Basham in the note.
For 2022, Basham expects 22.5 million in active customers vs. consensus 23.8 million.
Along with downgrading the stock, Wedbush also reduced its price target to $70 from $90. Conversely, the analysts upgraded their rating on competitor Petco Health & Wellness (WOOF) to Outperform from Neutral and lifted the price target on the stock to $23 from $22.
The decline in Petco shares compared to the broader S&P 500 since the company reported earnings last month has created an “attractive entry point fora top-notch retailer in a less-discretionary sector with highly visible and stronggrowth ahead,” explained a separate note from Wedbush.
For the upcoming third quarter, Basham expects Chewy’s revenue to be in-line with consensus as “higher net spending per active customer (NSPAC) dueprimarily to inflation could partially offset the lower customer figures.”
According to Wedbush, Chewy will generate $2.2 billion in sales for the third-quarter matching Wall Street consensus of $2.21 billion.
But Wedbush expects $2.42 billion revenue in the fourth quarter which is slightly below consensus of $2.45 billion. For 2022, Basham expects revenue of $9.97 billion, which is a material 7.7% below consensus for 2022.
In the second quarter, Chewy said it hit 20.1 million active customers, up from 19.8 million active customers in the fiscal first quarter. Net sales of $2.16 billion grew 26.8 percent year over year.
The analysts first revealed risk to Chewy’s active customer counts in a July report.
Write to Karishma Vanjani at [email protected]
