Chewy Inc (CHWY, Financial) saw its stock decline by 3.33% following the release of its third-quarter financial results, which did not meet the market's profit expectations. This downturn occurred despite a growth in net sales and an improvement in the company's gross margin.
In the third quarter, Chewy recorded a gain of approximately 200,000 net new customers, bringing its total customer base to 20.2 million. These customers have spent an average of $567 over the past year, up slightly from $565 in the previous quarter. This increase in consumer spending contributed to a nearly 5% growth in net sales, which was slightly above market projections.
The company reported a gross margin of 29.3% for the third quarter, along with a net income of around $4 million, compared to a $35 million loss in the same period last year. However, despite these improvements, the market was anticipating higher profitability, resulting in the recent decline in Chewy's stock price.
Examining Chewy's financial health, the company has a Price-to-Earnings (PE) ratio of 39.16 and a Price-to-Book (PB) ratio of 27.78, indicating high valuation metrics. The GF Score for Chewy is 81, suggesting a modest underestimation in its market value. The GF Value is estimated at $38.97, indicating a potential upside.
Chewy's financial strength is bolstered by a strong Altman Z-score of 6.1, showcasing its solid balance sheet and the ability to withstand financial distress. However, the Beneish M-Score flags a potential manipulation in financial reporting, which investors should cautiously consider.
Given the current metrics, while Chewy continues to demonstrate growth in its customer numbers and net sales, the high valuation ratios and concerns about profitability could pose challenges in the near term. Investors should closely monitor any future developments in Chewy's financial performance and market conditions.
