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Chewy Falls on 3rd-Quarter Earnings Miss

Shares of Chewy Inc. (NYSE:CHWY) declined 1.99% to a price of $23.70 per unit in after-hours trading on Monday after the Dania Beach, Florida-based online provider of pets' products missed analyst expecations on GAAP earnings for the third quarter of fiscal 2019.

Chewy posted a year over year flat GAAP loss of 20 cents per share on total net revenues of $1.23 billion. The top line increased 40.4% from the prior-year quarter. Analysts were expecting a GAAP loss of 16 cents per share on total net revenues of $1.2 billion.

In a statement, CEO Sumit Singh commented on third-quarter results:

"We are pleased to report strong third quarter 2019 results with net sales growing 40 percent year-over-year and gross margin increasing 410 basis points over the same period as the team continues to execute against our strategy of long-term, sustainable growth and margin expansion. We remain focused on delivering product innovation and technology that makes finding and buying the right product easy, convenient, and enjoyable. We believe we are transforming the industry with our truly unique and personalized, high-bar shopping experience that builds trust and brand loyalty by keeping the customer at the center of everything we do."

Moreover, the adjusted earnings before interest, taxes, depreciation and amortization loss of $30.2 million in the third quarter was a 56% improvement from the adjusted Ebitda loss of $68.6 million in the third quarter of fiscal 2018. The adjusted Ebitda margin was 2.5% of total net revenues, reflecting a year over year improvement of 530 basis points. The company recorded an operating cash outflow of $27.75 million in the quarter versus year-ago operating cash outflow of $92.38 million.

The balance sheet had nearly $136 million in cash on hand and equivalents and $290 million in total inventories as of Nov. 3. The company entered into a 5-year agreement with its bank for a line of secured revolving credit worth up to $300 million, which has remained completely undrawn as of Nov. 3. Total equity was a deficit of approximately $389.5 million.

Chewy's stock price has fallen 20% in the past 3 months through Dec. 11. The share price is now between the 50-day simple moving average line and the 20-day SMA line.

The stock has a market capitalization of $9.64 billion and a 52-week range of $21.68 to $41.34.

Wall Street's board of sell-side analysts says that Chewy Inc. will outperform within 52 weeks, and it has thus recommended an overweight rating. The average share price target of $34.91 reflects a 44.4% upside.

Disclosure: I have no positions in any security mentioned in this article.

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This article first appeared on GuruFocus.