Vertigo3d/E+ via Getty Images

Vertigo3d/E+ via Getty Images

Chewy’s (NYSE:CHWY -1.6% ) challenges in supply chain issues and inflationary impacts are likely to overshadow sales growth on earnings day, according to multiple recent Wall Street analyses.

“Our checks suggest that category dynamics remain favorable, but supply chain disruption will likely continue to serve as a drag on top-line,” RBC Capital Markets analyst Steven Shemesh wrote to clients on Tuesday. “Between this and read-throughs from retail peers reporting higher than expected labor/transportation costs, we are cautious heading into the print (particularly on margins).”

Shemesh added that while pet product sales are quite resilient to macro pressures historically, the ability of the company to contend with sustained demand is a major issue. He pointed to the significant exposure to Asia-based suppliers as a pressing issue for its first quarter earnings report on Wednesday.

Further, operating margins are likely to be hit by increased freight and labor costs that have curtailed profits for many of Chewy’s (CHWY) peers. Shemesh noted that Chewy has struggled with cost inflation in recent quarters, likely elevating this issue as a primary problem for the online retailer.

While he noted that sales are likely to rebound as supply chain issues are alleviated, clarity on that timeline remains elusive.

Speaking about the elevated inflation concern, UBS analyst Michael Lasser indicated his belief that these pressures will promote a lowered guidance from the pet-focused eCommerce player.

“The macro uncertainty has increased [and] promotional activity across the sector is rising,” he wrote in a note to clients. “We think the company will either need to lower its topline forecast to account for the increased uncertainty…[or] it will need to lower its EBITDA expectations as it will have to spend more in order to drive its sales. Maintaining both will be too difficult.”

For his part, Lasser is leaning towards expecting trimmed guidance.

To be sure, he admitted that price increases could buoy bottom line estimates, especially in a typically resilient consumer category. Though, he was pessimistic about that playing well in the current environment.

“We don’t think the market will reward a stock of a company that is supposed to be early in its growth trajectory for generating increases from pricing,” Lasser concluded. “Thus, the shares probably have more downside than upside, in our view.”

The two analysts nonetheless disagreed strongly on the long-term prospects for Chewy (CHWY). Lasser holds a “Sell” rating on the stock, holding such a view since early 2021, while Shemesh holds a “Buy” equivalent rating on shares, sticking to his own bullish perspective since late January 2022.

Shares fell 1.5% shortly after Tuesday's open, adding to an over 50% decline year-to-date.

Read more on the earnings expectations for the company for its quarterly report on June 1.