Why Chewy Inc (NYSE: CHWY) Stock is Going Gangbusters Today

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Chewy Inc (NYSE: CHWY) stock rose over 12% in the pre-market session of March 31st, 2021 (Source: Google finance) after the company posted better than expected results for the fourth quarter of FY 20 as the company delivered the first quarter of positive net income.

The company reported the net income was $21 million and net margin was 1% for the fourth quarter, a 550 basis points improvement year-over-year. In the Q4, the new customer acquisition pace accelerated relative to the Q3. Customer reactivations grew by 40% and customer retention improved by 240 basis points. The company therefore added 1.4 million net active customers in the fourth quarter and ended the year with 19.2 million active customers.

During the fourth quarter, third-party hardgoods sales rose 40% faster than the business overall and proprietary brand hardgoods sales more than doubled year-over-year. Further within hardgoods, the proprietary brand penetration increased 570 basis points year-over-year to reach 21%. Meanwhile, the company generated Fourth quarter free cash flow of $47 million, reflecting $77.5 million in positive cash flow from operating activities and $30.5 million of capital expenditures. CHWY ended the year with $563 million of cash and cash equivalents.

CHWY in the fourth quarter of FY 20 has reported the adjusted earnings per share of 11 cents, beating the analysts’ estimates for the adjusted loss per share of 9 cents, according to the Zacks Consensus Estimate. The company had reported the adjusted revenue growth of 50.8 percent to $2.04 billion in the fourth quarter of FY 20, beating the analysts’ estimates for revenue by 4.09%. The fourth quarter gross margin increased by 300 basis points year-over-year to 27.1%. About half of the Q4 gross margin improvement was led by structural and sustainable drivers like higher penetration rate into higher margin verticals like hardgoods, proprietary brands and healthcare. On a year-over-year basis, the company has executed a 510 basis point mix shift out of lower margin consumables and into higher margin verticals like healthcare and hardgoods. The company has posted fourth quarter adjusted EBITDA of $60.8 million, which means adjusted EBITDA margin of 3%, reflecting a 340 basis point improvement year-over-year.

Moreover, in the fourth quarter, Autoship net sales represented 68.2% of total net sales and net sales per active customer or NSPAC increased to $372. This represents a sequential growth of $9 or 2.5% and year-over-year increase of 3.3%. NSPAC growth accelerated this quarter as the mechanics of the NSPAC calculation begin to reflect the positive revenue impact of the millions of customers who joined the platform in 2020.

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