Chewy buys back shares at discount, aims for capital efficiency By Investing.com

PLANTATION, Fla. – Chewy, Inc. (NYSE: NYSE:), a leading online retailer for pet products, has entered into an agreement to repurchase 17,550,000 shares of its Class A common stock at $28.49 per share, a 5% discount to the previous day’s closing price. This buyback, amounting to approximately $500 million, is part of the company’s capital allocation strategy and will see the shares acquired from Buddy Chester Sub LLC, an affiliate of BC Partners, Chewy’s largest shareholder.

The repurchase is expected to be completed by June 27, 2024, and will reduce the outstanding shares of Chewy’s Class A and Class B common stock from approximately 436 million to 418 million. Chewy’s management believes that this move is an accretive use of capital, providing an efficient mechanism to repurchase shares below the current market price.

This transaction reflects Chewy’s confidence in its growth strategy and margin expansion, supported by increasing profitability and free cash flow generation. The company has also announced a separate $500 million share repurchase program authorized on May 24, 2024, which remains unaffected by this latest transaction.

The decision to repurchase the shares was made by a special committee of Chewy’s Board of Directors, consisting of independent and disinterested directors not affiliated with BC Partners. The committee’s approval underscores the transaction’s alignment with shareholder interests.

Chewy’s commitment to optimizing shareholder value is evident in its strategic approach to capital management. As the company continues to generate more free cash flow, it plans to evaluate additional opportunities to return capital to shareholders.

In other recent news, Chewy Inc . has experienced a series of noteworthy developments. The company’s first-quarter performance was marked by strong Autoship sales, record-high Gross Margin, and a record-high EBITDA Margin. Despite a slight decline in active customers, Chewy’s revenue for the second quarter is anticipated to align with Wall Street forecasts. The company has also reiterated its revenue guidance for the full fiscal year 2024 and improved its FY24 EBITDA margin guidance, raising the midpoint from 3.8% to 4.2%.

Several investment banking firms have adjusted their outlooks on Chewy. Jefferies raised its price target on the company to $31, maintaining a Buy rating and citing Chewy’s ability to scale up and achieve greater profitability. Barclays reiterated its Overweight rating with a steady price target of $32, despite a trend of pet surrenders outpacing adoptions. Mizuho Securities raised its price target for Chewy to $20, factoring in the company’s introduction of a $500 million share repurchase program. Evercore ISI and Piper Sandler both increased their price targets to $22, following the company’s strong first-quarter results and revised EBITDA forecast for the year.

InvestingPro Insights

As Chewy, Inc. (NYSE: CHWY) embarks on a significant share repurchase strategy, the company’s financial health and market performance come into sharper focus. With a robust market capitalization of $12.83 billion, Chewy’s size in the online pet products market is substantial. Yet, it’s the company’s valuation metrics that may catch the eye of investors. Chewy’s Price to Earnings (P/E) ratio stands at a lofty 154.59, reflecting high investor expectations for future earnings growth. This is further emphasized by the fact that Chewy is trading at a Price to Book ratio of 20.33, suggesting a premium valuation compared to its book value.

On the earnings front, Chewy’s revenue growth has been steady, with a 7.19% increase over the last twelve months as of Q1 2025. This is complemented by a 3.12% quarterly revenue growth, indicating a consistent upward trajectory. However, it’s worth noting that the company’s EBITDA growth has experienced a decline of 30.27% during the same period, which may warrant closer scrutiny from investors considering the stock’s high valuation multiples.

Investors may find reassurance in the company’s balance sheet, as Chewy holds more cash than debt, which is a positive sign for financial stability. Additionally, the recent share price performance has been impressive, with a significant return of 12.21% over the last week and a remarkable 75.86% over the last month. This momentum is backed by the fact that analysts have revised their earnings upwards for the upcoming period, reflecting optimism about Chewy’s profitability prospects.

For those looking to delve deeper into Chewy’s financials and stock performance, InvestingPro offers a wealth of additional insights. There are currently 16 more InvestingPro Tips available for Chewy, which could provide valuable guidance for making informed investment decisions. To explore these tips and gain a comprehensive understanding of Chewy’s investment potential, visit https://www.investing.com/pro/CHWY. Remember to use coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription, ensuring you have the latest data and analysis at your fingertips.

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