Chewy Inc recently held its Investor Day, where they shared their outlook for the future. The company expects sales growth for FY24 to be below their long-term target of a high single-digit percentage. However, they remain optimistic about achieving a long-term adjusted EBITDA margin of 10% and anticipate 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 the profit and loss statement.
Andreeva also notes that out of a potential pool of 50 million new customers, 18% (12 million) are considered high-value prospects, while 62% (41 million) fall into the mid-value category.
In light of these insights, Needham reiterates its Buy rating for Chewy with a 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, they still face competition from Amazon.com Inc. Chewy’s Autoship feature, which makes up 75% of its sales, has cultivated a highly loyal customer base that spends over $1,000 annually.
Furthermore, with the inclusion of clinics, Chewy now has the opportunity to 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.