Chewy Inc recently held its Investor Day, where it revealed that its sales growth for FY24 is expected to be below its long-term target of a high single-digit percentage. However, the company remains optimistic about achieving a long-term adjusted EBITDA margin of 10% and anticipates margin accretion in FY24, regardless of the macro environment.
According to Needham Analyst Anna Andreeva, Chewy has focused on only half of the Health TAM, which includes $4 billion in insurance and $18 billion in products. She highlights that over 20% of active customers have purchased from Chewy’s pharmacy, and as the pharmacy TAM shifts online, Chewy is well-positioned to benefit across its profit and loss statement.
Andreeva also notes that out of a potential pool of 50 million new customers, 18% (12 million) represent high-value prospects, while 62% (41 million) fall into the mid-value category.
Needham reiterates its Buy rating for Chewy with a revised price target of $25, up from $20.
As the pet industry continues to shift towards online platforms and away from mass market and food, Chewy is poised for growth. However, it faces competition from Amazon.com Inc. Chewy’s Autoship feature, which accounts for 75% of its sales, has cultivated a highly loyal customer base that spends over $1,000 annually.
With the inclusion of clinics, Chewy can now tap into an NSPAC opportunity worth up to $1,700, addressing a larger portion of the $500-$600 pet health spend. Previously, the company only captured half of this potential market.
In terms of price action, CHWY shares are currently up 4.63% at $21.13 as of the last check on Friday.