Chewy Q3 Earnings: grappling with supply chain bottlenecks



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soft (NYSE: CHWY) is expected to release its third quarter financial results on Thursday, December 9.

The relatively young state-owned company was a big winner at the start of the pandemic. Parents of pets still had to buy food and necessities for their furry friends, and pet adoption rates increased during the pandemic as people spent more time in the House.

Additionally, people were looking to avoid shopping in person, which became an additional tailwind for the. e-commerce specialist. Now that global economies are reopening, Chewy faces a new challenge: supply chain disruptions causing product shortages and rising costs. Thursday’s report is expected to provide information on how management is handling the current economic situation.

Chewy’s stock is down 24% in 2021. Image source: Getty Images.

Customers are seeing more and more out-of-stock items at Chewy

Chewy reported sales of $ 2.16 billion in its fiscal second quarter (which ended Aug. 1), a 27% increase from the same quarter a year earlier. However, management then noted that the company did not have sufficient supply in the second quarter. Customers looking for items to buy found that some were out of stock. This was also the case in the first quarter and although the trend is improving from the first quarter, it remains above what management would like. Sometimes when customers find the desired item out of stock, they replace it with a similar product, a scenario that doesn’t hurt the retailer much. However, sometimes customers go to another store or website to purchase the desired product. This can create problems.

Interestingly, one of the benefits of supply chain disruptions is that they reduce promotions or discounts across the industry. This is what CEO Sumit Singh said in response to a question on the subject during the second quarter conference call: “So far this has actually been directly correlated with how the supply chain and the out-of-stock issues and general freight conditions are improving. And so, so far, we continue to assume a stable and relatively quiet promotional environment as we move into the second half of the year. ”

It sounds rational. With fewer products to sell, pet companies offer less discounts and promotions. And this has the effect of increasing profit margins. Indeed, in its final quarter, Chewy’s gross profit margin reached 27.5%, 200 basis points higher than last year and the highest on record.

Will Q3 Results Unlock Stock Price Appreciation for Chewy?

Wall Street analysts expect Chewy to report sales of $ 2.21 billion and a loss per share of $ 0.04. The third quarter revenue forecast on Wall Street is halfway through the management forecast for the 24% revenue growth provided with the release of second quarter earnings. It is not always the case that management and Wall Street align with expectations.

Chewy’s share price is going down 23.6% over the year as investors worry about its outlook in a context of reopening economies. The company benefited as people preferred to shop at home at the start of the pandemic, and investors now fear that customers will revert to their old ways because they feel more secure leaving their homes. So far, earnings suggest this is not playing out and Chewy continues to report robust revenue growth. If management can show they’ve been successful in handling supply chain disruptions when they release third quarter results on December 9, that could be the catalyst that uplifts Chewy’s Stock upper.

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Parkev Tatevosian owns shares of Chewy, Inc. The Motley Fool owns shares and recommends Chewy, Inc. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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