09:18 AM EST, 11/27/2024 (MT Newswires) -- Chewy (CHWY) is expected to report 'solid' third-quarter results next week amid accelerating sales growth and continued margin strength despite a slowdown in website traffic in October, Wedbush Securities said in a Wednesday client note.

The brokerage estimates the online pet store company to log an annual increase of more than 4% in its fiscal third-quarter sales, compared with the 2.6% gain it reported in the previous three-month period. In August, Chewy said it anticipated sales of $2.84 billion to $2.86 billion in the third quarter, reflecting yearly gains of 3% to 4%, while the current consensus on FactSet is for $2.86 billion.

The company is scheduled to report earnings on Dec. 4.

Category personal consumption expenditures data through September suggested that the industry demand environment continued to improve in the third quarter, even as deflationary pressures modestly increased, according to Wedbush. However, Chewy's web traffic trends and new pet household formation leading indicators slowed down in October, the brokerage said.

"The step down in October may have been driven by a combination of comping increased promotional intensity in October 2023, extended promotional duration by competitors around (Amazon's) Prime Day and a change in consumer behavior ahead of the election," Wedbush analysts Seth Basham and Matthew McCartney wrote in the note. "With that said, trends improved in November to date."

Wedbush believes that Chewy remained a "share gainer" in the third quarter with its wallet share initiatives in healthcare and tailwinds from its new customer relationship management software. The brokerage forecasts the company to see modest growth to about 20 million active customers in the third quarter.

Chewy's margins are set to benefit from its "improved" fulfillment network that contributed about 20 basis points to selling, general and administrative leverage in the second quarter, Wedbush said. The brokerage expects the company to see incremental benefits as its initiatives continue to scale.

Wedbush projects Chewy to issue fourth-quarter revenue growth guidance in line at the midpoint with consensus estimates of 12.1%.

The brokerage has an outperform rating on Chewy's stock with a 12-month price target of $35.