Why Chewy Inc (NYSE: CHWY) stock is rising

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Chewy Inc (NYSE: CHWY) stock rose 3.1% in the pre-market session of July 19th, 2019 (Source: Google finance) after the company’s loss narrowed to $29.6 million in the first quarter of FY 19 from a loss of $59.8 million in the year-ago period. Chewy’s growth initiatives include expansion of its private-label business and the launch of Chewy Pharmacy, an online pet pharmacy. In the first quarter, Chewy opened a pharmacy in its Phoenix, Arizona, fulfillment center. It also rolled out improvements to its mobile app.

Further, free cash flow was negative of $63.4 million in Q1, 2019 and Cash from operations of negative $51.1 million. CHWY ended the first quarter with $29.3 million in cash and cash equivalents.

CHWY in the first quarter of FY 19 has reported the adjusted loss per share of 8 cents, missing the analysts’ estimates for the adjusted loss per share of 7 cents, according to the analysts surveyed by FactSet. The company had reported the adjusted revenue growth of 45.2 percent to $1.12 billion in the first quarter of FY 19, which is in line with the analysts’ estimates for revenue of $1.12 billion. Active customers grew 3.5 million year-over-year to 11.3 million active customers. Net sales per active customer increased approximately 9% from $315 dollars to $343 dollars. Autoship customer sales, as a percent of net sales, represented 67.1% of the revenue. Gross margin for Q1 was 22.9%, up 330 basis points year-over-year and the highest level in the company’s eight-year history.

Moreover, the adjusted EBITDA margin of negative 1.4%, has improved 530 basis points versus Q1 2018 as a result of gross margin expansion and leveraging off the operating expenses. Q1 operating expenses of $284.2 million, or 25.6% of net sales, declined 190 basis points versus Q1, 2018. SG&A was $181.9 million, or 16.4% of net sales. The year-over-year increase was primarily driven by higher sales, expansion of the fulfillment network and additions to the corporate team.

Advertising and marketing was $102.3 million, or 9.2% of net sales, scaling year-over-year, even as the company continue to grow the active customer base. The net margin was negative 2.7%, improving 510 basis points year-over-year. Q1 adjusted EBITDA loss was $15.8 million, which is an improvement of $35.7 million compared to Q1, 2018.

For the second quarter, analysts model losses of 11 cents a share on sales of $1.12 billion. The company said it expected second-quarter sales of $1.12 billion to $1.14 billion, just above Wall Street Estimates.

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