CHWY – Market expectations are for material Uniform ROA expansion, but management may be concerned about sales, margins, and customers

• Chewy, Inc. (CHWY:USA) currently trades at a historical high relative to UAFRS-based (Uniform) assets, with a 22.2x Uniform P/B. At these levels, the market has bullish expectations for the firm, but management may be concerned about sales growth, margins, and customer behavior
• Specifically, management may lack confidence in their ability to sustain net sales growth, adjusted EBITDA margin improvements, and SG&A cost reductions while scaling fulfillment centers. In addition, they may have concerns about the coronavirus impact on labor costs, the changing retail industry, and their pharmacy customers’ behavior. Moreover, management may lack confidence in their ability to retain their pet health customer base, keep growing the hardgoods business, and generate the benefits of fulfillment center automation. Additionally, they appear concerned about their ability to continue to acquire customers at pre-COVID levels. Finally, they may be exaggerating the potential of their new pet personalization offering and the benefits of spending on media during election years