Here's Why Chewy Stock Dropped Today

Source The Motley Fool

Shares of pet e-commerce company Chewy (NYSE: CHWY) dropped on Wednesday after the company's financial results for the third quarter of 2024 missed expectations on the bottom line. As of 11:20 a.m. ET, Chewy stock was down about 8%.

Sales are up but profits fell short of expectations

In Q3, Chewy added about 200,000 net new customers, reaching 20.2 million total. And over the last 12 months, these customers have spent $567 on average compared with an average of $565 in the previous quarter. This customer and spending growth formed the basis of the company's nearly 5% net sales growth, which was slightly ahead of expectations.

Chewy's Q3 gross margin improved to 29.3%, which was good. Moreover, the company had net income of nearly $4 million compared with a $35 million loss in the prior-year period. While improved, investors had hoped for higher profits especially in light of its higher-than-expected sales. That's why Chewy stock dropped today.

Chewy's growth is heating up

I think investors might be missing the forest for the trees with Chewy today. Management just gave guidance for the fourth quarter of 2024, forecasting 13% year-over-year growth. Not only is that better than its 4% growth in the fourth quarter of 2023, this would be Chewy's best growth in nearly two years.

CHWY Operating Revenue (Quarterly YoY Growth) Chart

CHWY Operating Revenue (Quarterly YoY Growth) data by YCharts. Chart doesn't reflect latest quarter.

There are many reasons to like Chewy stock but lackluster growth has held the stock back in recent years. But things could be turning around and I think investors are making a mistake to sell Chewy today. To the contrary, this looks like a buying opportunity to me.

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Jon Quast 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.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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