Shares of Chewy are down nearly 15% in premarket trading Wednesday after the company reported worse-than-expected Q4 net sales and Q1 guidance.

Chewy fourth-quarter net sales of $2.39 billion, up 17% YoY and below the analyst consensus of $2.42 billion. The company reported an adjusted EBITDA loss of $28.1 million, compared to a $60.8 million profit in the year-ago period and an expected loss of $73,000.

The number of active customers in the quarter was reported at 20.7 million, missing the consensus projection of 20.9 million. Net sales per active customer came in at $430, just above the analyst expectations of $429.61. Chewy reported a Q4 gross margin of 25.4%, compared to 27.1% in the year-ago period and consensus estimates of 26.2%.

For the first quarter, the retailer of pet-related products expects net sales in the range of $2.4 billion to $2.43 billion, missing the analyst estimates of $2.51 billion. For the full year, Chewy expects net sales to range from $10.2 billion to $10.4 billion, below the consensus projection of $10.79 billion.

The company expects the FY2022 gross margin to be in line with the FY2021 gross margin.

Our ability to deliver 24% net sales growth in 2021, on top of the outsized growth we delivered last year, reflects the durability of our business and the Pet category beyond the near-term benefits of the pandemic, and is a strong testament to Chewy’s ability to execute in the face of rapidly evolving macro conditions, CEO Sumit Singh said.

BofA analyst Nat Schindler lowered the price target to $108.00 per share, down from the prior $133.00 following as earnings suggest the company is suffering a growth slowdown in the first half of this year. Still, Schindler remains Buy-rated as he likes the long-term Chewy story.

We continue to see Chewy’s subscription-driven model and recession-resistant segment as appealing and sustainable heading into a post-pandemic world. We reiterate our Buy rating and shift our valuation model by a year to FY23, Schindler said in a client note.

Raymond James analyst Aaron Kessler echoed Schindler’s comments.

Long-term, we remain positive on CHWY fundamentals given: 1) the significant shift in pet care spending to the digital channel; 2) predictable customer economics; and 4) our expectation for 15%+ long-term revenue growth and 5-10% long-term EBITDA margins (vs. ~1% in FY21). That said, we believe shares are fairly valued at ~7.5x FY22 EV/Gross Profit and believe that risk/reward is balanced at current levels, Kessler wrote in a memo to clients.

By Senad Karaahmetovic

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