Shares of Chewy (CHWY 0.30%) were soaring today after the online pet products seller posted strong earnings growth in its second-quarter earnings report, showing the pet products industry may finally be emerging from a long slump.
As a result, Chewy stock was up 15% as of 10:20 a.m. ET on the news.
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Chewy hops over a low bar
Chewy's growth rate remained muted in the second quarter as revenue rose 2.6% to $2.86 billion, matching estimates, but the real surprise came further down the income statement.
Gross margin improved 120 basis points to 29.5%, while operating expenses rose just 0.8%, leading Chewy to flip an operating loss of $16.7 million in the quarter a year ago to a profit of $32.1 million.
On the bottom line, adjusted earnings per share jumped from $0.15 to $0.24, which was much better than the consensus of $0.01.
CEO Sumit Singh said, "Our Q2 performance reflects another quarter of strong execution, delivering net sales at the high end of our guidance range."
Chewy actually lost customers in the quarter from a year ago with active customers falling from 20.4 million to 20 million, reflecting a slowdown in the pet products industry, but it was able to coax more spending out of its customers with net sales per active customer up from $532 to $565.
What's next for Chewy
Looking ahead to the third quarter, the company expects similar revenue growth of 3%-4%, to $2.84 billion-$2.86 billion, and full-year revenue growth of 4%-6%, to $11.6 billion-$11.8 billion. Both numbers were within range of the consensus.
Chewy also raised its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin guidance for the full year from 4.1%-4.3% to 4.5%-4.7%.
While the margin improvement is certainly encouraging for Chewy, the company will have to demonstrate stronger revenue growth and a return to customer growth to continue moving higher.
Until that changes, the upside in the stock seems limited.
