Online retailer of pet products and services Chewy, Inc. (NASDAQ: CHWY) the stock nearly doubled from its May 23, 2022 low of $22.22. The pandemic has helped accelerate the use of e-commerce and pet ownership, which is Chewy’s wheelhouse. Once a pet is adopted or acquired, it has basic needs including food, medicine, and grooming supplies. Gathering these basic supplies can be a tedious chore to manage each month. Chewy has simplified this with its Autoship service which will automatically ship selected products to pet owners on a regular basis.
Autoship has been an anchor for the company when it comes to consistent and stable cash flow. Customers are incentivized to use Autoship with deep discounts. It also integrates its PracticeHub platform for vets to provide an e-commerce marketplace solution to increase practice revenue for its customers. Autoship guarantees recurring business from customers. The Company has partnered with Lemonade, Inc. (NASDAQ: LMND) to expand its CarePlus insurance and wellness programs. The company plans to launch its lemonade offerings nationwide in the spring of 2023. Chewy has proven that
Just as consumers need basic foods and essential items in grocery stores, pets need their form of essential medicine and food. Chewy notes that 83% of its revenue comes from non-discretionary products like pet food and healthcare items, while discretionary items like toys are down (-5%) year-on-year.
Consumer staples stocks have performed well this year, but pet staples stocks haven’t performed as well, as Petco Health and Wellness Company, Inc. (NASDAQ: WOOF) shares are down (-49%) over the year, Stir! Group Co. (NASDAQ: PET) is down (-78%) and PetMed Express. Inc. (NASDAQ: PETS) is down (-28%) for 2022.
Chewy has data that shows how Autoship customers spend $400 a year in year two and up to $900 a year in year four. Chewy is also expanding its private label products under its Tylee’s brand and its Vibeful pet wellness brand. Additionally, it continues to expand its Chewy Health ecosystem with services such as the Connect With a Vet telehealth service and CarePlus pet insurance plans.
Chewy released its third quarter 2022 results ending October 2022 on December 8, 2022. The company reported earnings per share of $0.01 compared to analyst consensus estimates for a loss of (-$0.06) , a beat of $0.07. Revenue grew 14.5% year-over-year (YoY) to $2.53 billion, beating consensus estimates of $2.46 billion. Autoship sales increased 18.8% year-on-year to $1.86 billion, or 73.3% of total sales. Gross margins increased by 200 basis points to 28.4%. The Company ended the quarter with 20.5 million active customers, up 9% from Q3 2019.
Chewy CEO Sumit Singh commented, “Chewy’s third quarter results showed accelerating double-digit revenue growth, sustained gross margin expansion and strong free cash flow generation. available. The fact that we are simultaneously driving revenue growth and increasing margins is proof of our ability to get big quickly and scale quickly, regardless of the macro environment.”
Chewy issued an upward forecast for fourth-quarter 2022 revenue to be between $2.63 billion and $2.65 billion from $2.63 billion. Chewy expects revenue of $10.2 billion to $10.4 billion in fiscal 2023, down from $9.95 billion in analyst consensus estimates. CEO Singh summed up why Chewy is a hedge against the recession: “The operating environment remains dynamic and evolving. What hasn’t changed is how much pet parents value the enduring companionship of their pets, and this emotional connection sustains the pet category through all phases of the economic cycle.”
Emergence of a rising price channel
The weekly candlestick chart on CHWY stock illustrates a new bullish channel that formed after hitting a low low in October 2022. Additionally, the stock held the weekly market structure buy trigger low (MSL) at $29.79 as it proceeded to form higher highs and lower lows. in its third quarter 2022 earnings report.
The weekly 20-period exponential moving average (EMA) has now crossed back through the weekly 50-period MA offering support on the upside at $39.40. The weekly 50-period MA support stands at $38.76. Trading volume remains high as selling is absorbed through the higher price channel. The weekly stochastic has oscillated higher and continues towards the 80 band.
A botched weekly seed wave will trigger a breakout of the double top at $51.57, creating potential reversal zones (PRZs), which also act as price targets based on Fibonacci extensions (fib). For example, the 1.27 fib target is $59.88, followed by the 1.44 fib target at $64.15 and the 1.618 fib target at $70.19.
Each of these fib targets is a potential reversal zone to be aware of, which does not guarantee that the stock will continue to the next fib target. If CHWY breaks below the lower trendline of the upward price channel, pullback supports are at the weekly MSL trigger level of $37.05, $33.55, $31.89, 29.79 $ and $26.47.