"Roaring Kitty" stirs up the market, Chewy faces challenges but still favored by analysts

According to the Zhitong Finance and Economics APP, after the dramatic acquisition of 6.6% of Chewy (CHWY.US) shares by "Roaring Kitty", investment bank Evercore ISI conducted the fourth annual U.S. pet survey on this online pet supplies retailer and maintained a "neutral" rating on the company with a target price of $22.00.

This survey collected opinions from over 600 pet owners and Chewy customers, revealing a continuous increase in online pet supplies purchasing, with 85% of respondents stating that they buy pet supplies online, reaching a historical high. Chewy also excelled in customer satisfaction, with 87% of respondents expressing high satisfaction with the company.

However, the research also pointed out challenges faced by Chewy: the proportion of consumers choosing Chewy as their destination for online pet supplies shopping has significantly decreased, from 64% in 2022 to 52%, indicating fierce competition from omnichannel and value websites such as Walmart (WMT.US) and PetSmart.

These survey results reflect the rapid evolution of the online pet supplies retail market. While Chewy has maintained high levels of customer satisfaction, shifts in consumer shopping preferences may impact its market position. The intensified competition from well-known retailers with strong omnichannel capabilities seems to be a key factor in consumer behavior changes.

Chewy is known for its wide range of pet products and services, holding a significant position in the online pet retail sector. The company's focus on customer experience and satisfaction has always been at the core of its business model. However, facing changing market dynamics, Chewy needs to develop new strategies to continuously attract and retain customers in the fiercely competitive online environment.

Recently, Chewy's business operations have made significant progress. In particular, Keith Gill (also known as "Roaring Kitty") disclosed his 6.6% stake in Chewy, sparking investor interest and highlighting Gill's influence in the market.

According to holdings information disclosed on the U.S. Securities and Exchange Commission (SEC) website, Roaring Kitty owns approximately 9 million shares of Chewy's Class A stock, totaling about $245 million based on last Friday's closing price. Last week, Gill posted a cartoon image featuring a dog on social media platform X, causing a brief surge in Chewy and Petco Health and Wellness (WOOF.US) stock prices. Data shows that since early May, Chewy's stock price has risen by about 70%, but is still 79% lower than its peak in 2021.

It is worth mentioning that Gill, who previously fueled the "retail investor battle on Wall Street" and hyped up GameStop (GME.US) stock prices, returned to social media in May, triggering a rally in various meme stocks including GameStop. **GameStop quickly took advantage of this by raising over $3 billion through issuing stocks in the market. However, Gill was sued last Friday in a federal court in Brooklyn, New York, for orchestrating a "pump and dump" scheme involving GameStop stocks.

Meanwhile, short interest in Chewy is also on the rise, a phenomenon not uncommon among meme stocks including GameStop. Of more interest is another connection between GameStop and Chewy. GameStop's CEO Ryan Cohen, who is also the founder and CEO of Chewy, led PetSmart's acquisition of Chewy in 2017 and pushed for Chewy's initial public offering (IPO) in 2019.

Chewy has also taken a strategic stock repurchase initiative, planning to repurchase 17,550,000 shares of Class A common stock, demonstrating the company's confidence in its growth strategy and profit margin expansion. This repurchase is part of Chewy's capital allocation strategy and is expected to be completed by June 27, 2024.

In terms of analyst ratings, Jefferies raised Chewy's target price to $31 and maintained a "buy" rating. Barclays reiterated its "hold" rating with a target price of $32. Mizuho Securities also raised Chewy's target price to $20, considering the company's stock repurchase plan.

In terms of financial performance, Chewy showed strong performance in the first quarter of 2024, with Autoship sales growth, historical highs in gross margin and EBITDA profit margin. Despite a slight decrease in active customer count, Chewy expects second-quarter revenue to meet Wall Street expectations. The company also reaffirmed its full-year 2024 revenue guidance and raised its 2024 EBITDA profit margin guidance, increasing the midpoint from 3.8% to 4.2%.

Evercore ISI analyst Mark Mahaney also stated, "Despite industry-wide weakness, we still believe Chewy is a solid company with numerous investment highlights - including continued growth in spending and loyalty of each customer, advertising sponsorship, international expansion, growth opportunities in verticals such as veterinary clinics, and the potential for continuous improvement in gross margin and EBITDA profit margin."

After experiencing a series of fluctuations related to Gill, Chewy's stock price fell slightly by 0.30% in pre-market trading on Tuesday. After a period of intense volatility, Chewy's stock price has risen nearly 15% in the past six weeks. Currently, short interest in Chewy accounts for 14.9% of its total outstanding shares, indicating market divergence on its prospects.