Chewy Announces $500 Million Repurchase of Shares from BC Partners

Rhea-AI Summary

Chewy (NYSE: CHWY) announced a repurchase of 17,550,000 shares of its Class A common stock at $28.49 per share, totaling approximately $500 million. This buyback, coordinated with BC Partners, Chewy’s largest shareholder, reflects a 5.0% discount to the previous closing price. The repurchased shares will be canceled, reducing outstanding shares from 436 million to 418 million. The transaction, expected to close by June 27, 2024, is separate from Chewy's existing $500 million repurchase program initiated in May 2024. Chewy cites strong profitability and free cash flow as enabling factors for this capital allocation strategy, aiming to return cash to shareholders and optimize growth.

Positive

• Chewy will repurchase 17,550,000 shares at $28.49 each, totaling approximately $500 million.
• The repurchase represents a 5.0% discount to the previous closing price.
• Shares outstanding will reduce from 436 million to 418 million.
• Chewy's strong profitability and free cash flow support this repurchase.

Negative

• The repurchase does not impact Chewy's existing $500 million repurchase program.

Insights

Financial Analyst

Chewy's decision to repurchase $500 million worth of shares at a 5% discount is a significant move. The $28.49 per share repurchase price and cancellation of 17.55 million shares will reduce the outstanding share count from 436 million to 418 million, effectively increasing the earnings per share (EPS) for remaining shareholders. This reduction in share count is expected to be accretive, meaning it will likely enhance stock value by boosting profitability metrics. It also indicates confidence from the management in the company's growth and margin expansion strategy.

A share repurchase usually signals that a company believes its stock is undervalued. The financial metrics behind this deal, including the discount to the market price and the consolidated share count, demonstrate prudent capital allocation. This move is separate from the existing $500 million share repurchase program, indicating an even stronger position in terms of available cash flow.

Impact on short-term investors: In the short term, the reduced share count may lead to a positive market reaction, improving stock price due to perceived value enhancement. Nonetheless, it's important for retail investors to monitor if the improved EPS figures translate into actual stock performance growth over time.

Long-term considerations: For long-term investors, the strategic repurchase indicates sound financial management and potential for future capital returns. However, the sustainability of these repurchases depends on continued strong free cash flow generation and profitability.

Market Research Analyst

The repurchase of shares from BC Partners, Chewy’s largest shareholder, is notable. This transaction not only reduces BC Partners' stake but also underscores Chewy’s aim to optimize its shareholder structure. Share buybacks like this one can impact market perception positively, showing a more concentrated ownership with potentially fewer large-scale sell-offs in the future.

Chewy's strategy here is twofold: enhancing shareholder value and reducing the influence of a single, large shareholder. This can mitigate risks associated with significant share price volatility caused by large block trades from institutional investors. Additionally, by reducing the free float, Chewy might increase stock price stability, benefiting retail investors.

Sector comparison: In the broader e-commerce and pet retail sectors, share repurchases are not uncommon but signify a robust cash position. For Chewy, which operates in a fiercely competitive market, demonstrating a solid balance sheet and commitment to returning cash to shareholders can positively influence investor sentiment. This move could also place Chewy favorably against peers who might not have the financial strength to make similar repurchases.

Corporate Governance Expert

This share repurchase was approved by a special committee of Chewy’s Board of Directors, consisting of independent and disinterested directors. This step is important for ensuring transparency and fairness in corporate governance, especially since BC Partners is a major shareholder. By involving independent directors, Chewy mitigates potential conflicts of interest, ensuring that the transaction serves the best interests of the company and its shareholders.

Good corporate governance practices, such as this one, enhance investor confidence by ensuring decisions are made without undue influence from major shareholders. This transaction showcases a commitment to maintaining high governance standards, which is vital for building long-term investor trust.

Implication for retail investors: Retail investors should view this as a positive indicator of Chewy's adherence to robust governance practices. This can instill greater confidence in the company's management and strategic decisions, potentially making Chewy's stock a more attractive long-term investment.

PLANTATION, Fla.--(BUSINESS WIRE)-- Chewy, Inc. (NYSE: CHWY) (“Chewy” or “Company”), a trusted destination for pet parents and partners everywhere, announced today that it has agreed to repurchase an aggregate of 17,550,000 shares of its Class A common stock, par value $0.01 per share, at a price per share of $28.49, which represents a 5.0% discount to yesterday’s closing price, resulting in an aggregate repurchase price of approximately $500 million (the “Repurchase”) from Buddy Chester Sub LLC, which is an entity affiliated with funds advised by BC Partners Advisors LP (“BC Partners”), Chewy’s largest shareholder. The repurchased shares will be cancelled and retired upon completion of the Repurchase.

Chewy believes today’s Repurchase is an accretive use of capital and provides an efficient mechanism to repurchase shares at a discount to the current market price, while further reducing the ownership position of the Company’s largest shareholder. Chewy’s increasing profitability and free cash flow generation enables the Company to further optimize its capital allocation strategy through this transaction, which comes in addition to the recently announced $500 million share repurchase program. This transaction together with the Company’s share repurchase program underscores the confidence Chewy has in the business and its compelling growth and margin expansion strategy. In light of Chewy’s expanding free cash flow generation, the Company will continue to assess options to opportunistically return cash to its shareholders.

Prior to the Repurchase, Chewy had approximately 436 million shares of Class A common stock and Class B common stock outstanding. Following the Repurchase, Chewy will have approximately 418 million shares of Class A common stock and Class B common stock outstanding. The Repurchase is expected to close by June 27, 2024.

The Repurchase was approved by a special committee of Chewy’s Board of Directors, consisting solely of independent and disinterested directors not affiliated with BC Partners, and is being executed separately from Chewy’s existing $500 million share repurchase program authorized on May 24, 2024, which will be unaffected by this transaction.

About Chewy

Our mission is to be the most trusted and convenient destination for pet parents and partners everywhere. We believe that we are the preeminent online source for pet products, supplies and prescriptions as a result of our broad selection of high-quality products and services, which we offer at competitive prices and deliver with an exceptional level of care and a personal touch to build brand loyalty and drive repeat purchasing. We seek to continually develop innovative ways for our customers to engage with us, as our websites and mobile applications allow our pet parents to manage their pets’ health, wellness, and merchandise needs, while enabling them to conveniently shop for our products. We partner with approximately 3,500 of the best and most trusted brands in the pet industry, and we create and offer our own private brands. Through our websites and mobile applications, we offer our customers approximately 115,000 products and services offerings, to bring what we believe is a high-bar, customer-centric experience to our customers.

Forward-Looking Statements

This communication contains forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this communication are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as "anticipate," "believe," "contemplate," "continue," "could," "estimate," "forecast," "intend," "may," "plan," "potential," "predict," "project," "seek," "should," "target," "will," or "would," or the negative of these words or other similar terms or expressions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could cause actual results to differ materially from those in such forward-looking statements, including, but not limited to our ability to close the Repurchase and complete any repurchases under our share repurchase program following the Repurchase. You should not rely on forward-looking statements as predictions of future events, and you should understand that these statements are not guarantees of performance or results, and our actual results could differ materially from those expressed in the forward-looking statements due to a variety of factors. We have based the forward-looking statements contained in this communication primarily on our current assumptions, expectations and projections about future events and trends that we believe may affect our business, financial condition, and results of operations. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended January 28, 2024, our subsequent quarterly reports, and elsewhere in our filings with the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this communication. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements. The forward-looking statements made in this communication relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this communication to reflect events or circumstances after the date of this communication or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240626578986/en/

Investor Contact:

Jennifer Hsu

ir@chewy.com



Media Contact:

Diane Pelkey

dpelkey@chewy.com

Source: Chewy

FAQ

What is the total value of Chewy's share repurchase announced?

Chewy announced a share repurchase worth approximately $500 million.

At what price will Chewy repurchase its shares?

Chewy will repurchase its shares at $28.49 per share.

How many shares will Chewy repurchase in the announced buyback?

Chewy will repurchase 17,550,000 shares of its Class A common stock.

What is the discount rate for Chewy's share repurchase compared to the previous closing price?

The share repurchase is at a 5.0% discount to the previous closing price.

How will Chewy's repurchase affect the total number of shares outstanding?

The number of shares outstanding will decrease from 436 million to approximately 418 million.

When is Chewy's share repurchase expected to close?

The repurchase is expected to close by June 27, 2024.

Will Chewy's existing share repurchase program be affected by the new repurchase?

No, Chewy's existing $500 million share repurchase program will be unaffected by the new repurchase.