Sam Boughedda

Steven Shemesh, RBC Capital analyst, maintained an Outperform rating for Chewy (NYSE :), and $73 price target. However, he said that he was cautious before Wednesday’s earnings release.

Analyst said while his tests suggest that category dynamics remain positive, supply chain disruptions are likely to continue to cause havoc on the top line.

He said that other retail companies are reporting costs higher than they expected for labor and transportation.

The consensus estimates on adj have been missed by four of six companies covered in our earnings season coverage. Operating margins. Freight/transportation and labor have been the most-cited headwinds. Shemesh stated that this is particularly worrying given the fact that CHWY’s struggled with price inflation over recent quarters.

The analyst said that Chewy’s labor market is improving and that the Pet category had historically been “quite resilient” to macro-conditions.

We believe this dynamic held up throughout the 1Q, based on our channel work. As supply chain disruption decreases, we expect the top-line to increase in 2H.

Chewy stock fell more than 7% in Tuesday’s session.