What happened
Shares of Chewy (NYSE: CHWY) are being sent to the doghouse today, pulling back after Oppenheimer downgraded the stock this morning and Walmart opened up its first pet services center.
As a result, the stock was down 4% as of 12:06 p.m. ET.
So what
First, Oppenheimer analyst Rupesh Parikh lowered his rating on the stock to perform from outperform, saying he sees the challenging backdrop facing the company persisting for at least a few quarters. The pet products sector has struggled following the pet spending boom during the pandemic, with growth slowing significantly since then.
Parikh also cited smaller inflation benefits in 2024, as well as pressure from higher interest rates on growth stocks like Chewy. The analyst is still bullish on the online pet food specialist over the long term but expects near-term earnings estimates to come down.
Separately, Walmart announced the opening of its first pet services center at a store in Georgia, offering routine veterinary care, grooming, and a self-serve dog wash. Walmart is partnering with PetIQ on the service.
The retail giant has taken baby steps into the pet industry in the past, with on-site vet clinics owned by PetIQ in 65 stores around the country, but the new center in Dallas, Georgia, could be hinting at a more aggressive expansion into the pet sector.
Now what
Chewy reported second-quarter results late last month, and it continues to see slowing growth, with revenue rising 14% and margins falling. The company is slightly profitable, but it will need to deliver either accelerating revenue growth or expanding margins for the stock to rebound, because the story is much less exciting with revenue increasing just 14%. It's not surprising that the stock is now trading at an all-time low.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chewy and Walmart. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
