Chewy's Q4 Revenue Surges, Profits Dip

Online pet products retailer Chewy (NYSE:CHWY) reported fiscal 2024 fourth-quarter earnings on Wednesday, March 26, that topped analysts' consensus expectations. Revenue for the quarter surged 14.9% year over year to $3.25 billion, outperforming forecasts of $3.2 billion. Adjusted earnings per share rose to $0.28 from $0.18 a year ago. However, net income fell nearly 29% to $22.8 million, as projected costs pressured margins.

Overall, Chewy showed robust revenue growth, yet headwinds in customer market expansion fazed investors.

Source: Chewy. Note: Analyst consensus estimates for the quarter provided by FactSet. YOY = Year over year. pps = Percentage points.

Chewy’s Business Overview and Focus Areas

Chewy is a prominent player in the e-commerce marketplace for pets. It provides a range of products including pet food, supplies, and healthcare services. The company’s growth strategy heavily relies on its Autoship program, a subscription model that encourages repeat purchases and ensures predictable revenue streams. Another critical focus area is Chewy's commitment to a customer-centric approach, striving to increase brand loyalty through superior service and personalized experiences. With the growing popularity of online shopping, these facets are pivotal for Chewy's long-term success.

Chewy also aims to penetrate the pet healthcare sector and innovate through private-label products. This expansion is represented by its Chewy Pharmacy and Connect with a Vet telehealth services, key components for future revenue growth. By leveraging technology to optimize its fulfillment network and logistics, Chewy hopes to maintain operational efficiency while expanding its market presence.

Quarter Highlights

During Q4 2024, Chewy's revenue growth stood out, with net sales jumping 15% year over year. This surge was fueled by Chewy's Autoship program, which made up 80.6% of Q4 revenue, up from 76.4% in the previous year. The company's focus on e-commerce efficiency and innovation, such as improving its AI capabilities, contributed to enhanced sales performance and customer satisfaction. These strategic moves resulted in improved margins, with adjusted EBITDA growing to $124.5 million, a 44% increase year over year, and a 70 basis points improvement in EBITDA margin to 3.8%.

However, Chewy's net income fell to $22.8 million from $31.9 million a year prior, reflecting a decrease in bottom-line profitability. Despite the Q4 decline, full-year net income markedly increased to $392.7 million from $39.6 million in fiscal 2023, as the company enhanced operational performance throughout the year. The full-year adjusted net income of $446.8 million underscores Chewy's broad annual profitability improvements. Gross margins expanded slightly to 28.5% from 28.2%, further highlighting meaningful operational achievements even amidst challenges.

Chewy faced pressure to maintain and grow its active customer base, which expanded modestly by 2.1% reaching 20.5 million. It had declined in the previous quarter. The lackluster customer growth was counterbalanced by 4% higher net sales per active customer of $578 compared to Q4 2023. Despite solid engagement, slowing active customer growth signals the need for refined customer acquisition tactics. Additionally, declining net margins by 40 basis points to 0.7% and a year-over-year drop in basic earnings per share to $0.06 from $0.07 indicate cost pressures that may stem from enhanced marketing or inflationary trends.

Strategically, Chewy made strides in technological and operational investments, such as in artificial intelligence and fulfillment network automation. These advancements aim to optimize logistics, reduce costs, and heighten customer satisfaction. These efforts align with Chewy’s long-term goal to support growth across e-commerce, healthcare, and international markets. Key announcements included plans to expand healthcare services and grow its international reach, especially in Canada, to mitigate domestic market saturation and diversify revenue sources.

Looking Ahead

Looking forward, Chewy management showed optimism and guided for fiscal 2025 first quarter sales of $3.06 billion to $3.09 billion, reflecting 6% to 7% year-over-year growth. Adjusted EPS is forecast to be $0.30-$0.35. For the full year 2025, management is forecasting net sales of $12.3 billion-$12.45 billion and adjusted EBITDA margin of 5.4%-5.7%. If full-year sales hit the high end of guidance, it would reflect 5% growth from fiscal 2023.

Elsewhere, management has indicated confidence in capitalizing on strategic initiatives to sustain growth. Management underscored expansion in healthcare services and external markets, being strategic priorities. Chewy’s forward-looking blueprint involves leveraging its strong foundation in technology and logistics innovation to maintain and grow its market position. The anticipated expansion into Canadian and other international markets forms a core element of this growth strategy.

Investors should closely monitor Chewy’s progress in enhancing customer acquisition and retention strategies to counterbalance the modest active customer growth seen in recent periods. Additionally, its commitment to operational efficiency through technological investments should remain pivotal for sustaining present growth levels. Adjustments in marketing strategies and potential inflationary impacts on costs also warrant investor attention as Chewy navigates these external pressures.

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JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool has positions in and recommends Chewy. The Motley Fool has a disclosure policy.