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Should Investors Buy Chewy Stock at the Discounted Valuation?
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Key Takeaways
CHWY's Q2 net sales rose 8.6% y/y to $3.1B, surpassing guidance and highlighting solid market-share gains.
Autoship sales hit a record $2.58B, up 14.9% y/y, driving predictable revenues and loyalty.
Chewy lifted its FY25 outlook to $12.5-$12.6B in sales, expecting margin gains and sustained expansion.
Chewy Inc. (CHWY - Free Report) is a leading online pet retailer, utilizing its robust e-commerce platform to serve a growing population of pet owners. CHWY is currently trading at a trailing 12-month price-to-sales (P/S) multiple of 1.33X, which is at a discount compared with the industry’s average of 2.69X. The key question for investors now is whether the CHWY stock represents a buy, hold or sell opportunity.
CHWY’s Valuation Snapshot
Image Source: Zacks Investment Research
This valuation is especially notable when compared with peers such as Central Garden & Pet Company (CENT - Free Report) , which has a trailing 12-month P/S of 0.61, Petco Health and Wellness Company, Inc. (WOOF - Free Report) at 0.18 and BARK, Inc. (BARK - Free Report) at 0.28.
Chewy has witnessed a decent increase in its stock price in the past month. Closing yesterday’s trading session at $38.25, the stock has rallied 8.9% in a month, outpacing the industry’s decline of 2.4%. Chewy's strategic initiatives and operational efficiency have enabled it to outperform the Retail - Wholesale sector’s 2.2% decline and the S&P 500 index’s 2.7% rise.
Image Source: Zacks Investment Research
CHWY has outperformed its competitors, including Central Garden, Petco Health and BARK. In the same period, shares of Central Garden and BARK have declined 15.9% and 9.3%, respectively. Meanwhile, shares of Petco Health have gained 4.7%.
CHWY’s Performance vs. Peer Performance
Image Source: Zacks Investment Research
Chewy’s Building Blocks
CHWY has delivered another solid quarter, reflecting the strength of its customer-focused strategy and consistent operational execution. For the second quarter of fiscal 2025, Chewy reported net sales of $3.1 billion, representing 8.6% year-over-year growth and exceeding the high end of its guidance range. Against an industry backdrop of low to mid-single-digit growth, Chewy’s performance underscores its continued ability to capture market share and strengthen its leadership in the pet care ecosystem.
Chewy’s Autoship program once again proved to be a key growth driver, generating a record $2.58 billion in customer sales, or 83% of total quarterly revenues. Autoship sales rose 14.9% year over year, outpacing overall company growth and reinforcing the program’s role in driving predictable revenues and customer retention. Moreover, the company reported continued strength in its hard goods segment, which grew more than 15% in the fiscal second quarter, benefiting from improved in-stock levels and broader product availability.
The company’s active customer base reached 20.9 million in the fiscal second quarter, up 4.5% year over year, supported by improving customer quality and higher engagement. Net sales per active customer increased 4.6%, supported by category expansion in health, consumables and premium offerings. The gross margin improved 90 basis points (bps) to 30.4% from the prior year, while adjusted EBITDA grew 34.8%. These results demonstrate effective cost management, pricing discipline and operational leverage.
Chewy advanced several strategic initiatives in the fiscal quarter. The Chewy Vet Care network continues to outperform expectations, with plans to open 8-10 practices in fiscal 2025, reaching nearly 20 by the year-end. The Chewy+ membership program accelerated rapidly, contributing roughly 3% of monthly sales and delivering higher spend, order frequency and product attachment rates than non-members.
Meanwhile, the launch of Get Real, Chewy’s new private brand of fresh dog food, received enthusiastic customer feedback, reinforcing the company’s innovative approach to product expansion.
What to Expect From CHWY in the Future?
For fiscal 2025, Chewy raised its net sales outlook to $12.5-$12.6 billion, indicating 7-8% adjusted year-over-year growth, when excluding the impacts of the 53rd week in fiscal 2024.
Chewy also maintained its full-year adjusted EBITDA margin guidance of 5.4-5.7%, reflecting continued gross margin expansion and controlled SG&A expenses. At the midpoint of these ranges, the company anticipates 75 bps of adjusted EBITDA margin improvement year over year, with 60% of that expansion driven by gross margin gains. The midpoint of the guidance also implies roughly 15% EBITDA flow-through for the year, consistent with Chewy’s long-term target model.
With a strong balance sheet, debt-free position and clear strategic roadmap, Chewy is well-positioned to deliver sustainable, long-term value for customers and shareholders alike.
Upward Estimate Revisions Signal Optimism on CHWY’s Earnings
Reflecting positive sentiment around Chewy, the Zacks Consensus Estimate for EPS has seen upward revisions. In the past 30 days, the consensus estimates for the current and next fiscal years have increased by three cents to $1.27 and by 11 cents to $1.53 per share, respectively.
Image Source: Zacks Investment Research
What May Derail Chewy’s Momentum?
CHWY continues to execute well operationally, but several factors can affect its near-term performance. While net sales and customer metrics remained strong in the fiscal second quarter, management acknowledged that margin expansion will likely moderate in the back half of fiscal 2025.
The company expects the fiscal second quarter to mark the peak for its gross margin this year as it reinvests in strategic programs and pricing initiatives. These reinvestments, though aimed at sustaining long-term growth, could limit quarterly profitability momentum and pressure short-term earnings.
Rising operating costs and fulfillment inefficiencies have also constrained Chewy’s leverage potential. SG&A expenses rose 30 bps year over year to 19.1% of net sales, reflecting temporary cost pressures from the ramp-up of its new Houston fulfillment center, transition costs at Dallas, and higher inbound processing expenses in hard goods.
Management expects SG&A leverage to materialize later in the year, but short-term cost friction may persist as the company navigates network expansion and inventory positioning ahead of potential tariff-driven cost increases.
Moreover, competitive intensity across online and brick-and-mortar channels remains high, convincing Chewy to sustain advertising and marketing spend of $200.6 million or 6.5% of sales in the fiscal second quarter to protect market share. While these investments reinforce long-term customer loyalty, they may constrain near-term profitability if category growth remains subdued.
How to Play CHWY Stock: Buy, Hold or Sell?
Chewy presents a compelling case for long-term investors seeking exposure to a high-growth, digitally native pet care leader trading at a relative valuation discount. While short-term margin pressures, rising operating costs and competitive intensity may affect near-term earnings, the company’s strong customer base, scalable platforms like Autoship and Chewy+, and expanding initiatives such as Chewy Vet Care and private brand launches reinforce its growth trajectory.
Image: Bigstock
Should Investors Buy Chewy Stock at the Discounted Valuation?
Key Takeaways
Chewy Inc. (CHWY - Free Report) is a leading online pet retailer, utilizing its robust e-commerce platform to serve a growing population of pet owners. CHWY is currently trading at a trailing 12-month price-to-sales (P/S) multiple of 1.33X, which is at a discount compared with the industry’s average of 2.69X. The key question for investors now is whether the CHWY stock represents a buy, hold or sell opportunity.
CHWY’s Valuation Snapshot
Image Source: Zacks Investment Research
This valuation is especially notable when compared with peers such as Central Garden & Pet Company (CENT - Free Report) , which has a trailing 12-month P/S of 0.61, Petco Health and Wellness Company, Inc. (WOOF - Free Report) at 0.18 and BARK, Inc. (BARK - Free Report) at 0.28.
Chewy has witnessed a decent increase in its stock price in the past month. Closing yesterday’s trading session at $38.25, the stock has rallied 8.9% in a month, outpacing the industry’s decline of 2.4%. Chewy's strategic initiatives and operational efficiency have enabled it to outperform the Retail - Wholesale sector’s 2.2% decline and the S&P 500 index’s 2.7% rise.
Image Source: Zacks Investment Research
CHWY has outperformed its competitors, including Central Garden, Petco Health and BARK. In the same period, shares of Central Garden and BARK have declined 15.9% and 9.3%, respectively. Meanwhile, shares of Petco Health have gained 4.7%.
CHWY’s Performance vs. Peer Performance
Image Source: Zacks Investment Research
Chewy’s Building Blocks
CHWY has delivered another solid quarter, reflecting the strength of its customer-focused strategy and consistent operational execution. For the second quarter of fiscal 2025, Chewy reported net sales of $3.1 billion, representing 8.6% year-over-year growth and exceeding the high end of its guidance range. Against an industry backdrop of low to mid-single-digit growth, Chewy’s performance underscores its continued ability to capture market share and strengthen its leadership in the pet care ecosystem.
Chewy’s Autoship program once again proved to be a key growth driver, generating a record $2.58 billion in customer sales, or 83% of total quarterly revenues. Autoship sales rose 14.9% year over year, outpacing overall company growth and reinforcing the program’s role in driving predictable revenues and customer retention. Moreover, the company reported continued strength in its hard goods segment, which grew more than 15% in the fiscal second quarter, benefiting from improved in-stock levels and broader product availability.
The company’s active customer base reached 20.9 million in the fiscal second quarter, up 4.5% year over year, supported by improving customer quality and higher engagement. Net sales per active customer increased 4.6%, supported by category expansion in health, consumables and premium offerings. The gross margin improved 90 basis points (bps) to 30.4% from the prior year, while adjusted EBITDA grew 34.8%. These results demonstrate effective cost management, pricing discipline and operational leverage.
Chewy advanced several strategic initiatives in the fiscal quarter. The Chewy Vet Care network continues to outperform expectations, with plans to open 8-10 practices in fiscal 2025, reaching nearly 20 by the year-end. The Chewy+ membership program accelerated rapidly, contributing roughly 3% of monthly sales and delivering higher spend, order frequency and product attachment rates than non-members.
Meanwhile, the launch of Get Real, Chewy’s new private brand of fresh dog food, received enthusiastic customer feedback, reinforcing the company’s innovative approach to product expansion.
What to Expect From CHWY in the Future?
For fiscal 2025, Chewy raised its net sales outlook to $12.5-$12.6 billion, indicating 7-8% adjusted year-over-year growth, when excluding the impacts of the 53rd week in fiscal 2024.
Chewy also maintained its full-year adjusted EBITDA margin guidance of 5.4-5.7%, reflecting continued gross margin expansion and controlled SG&A expenses. At the midpoint of these ranges, the company anticipates 75 bps of adjusted EBITDA margin improvement year over year, with 60% of that expansion driven by gross margin gains. The midpoint of the guidance also implies roughly 15% EBITDA flow-through for the year, consistent with Chewy’s long-term target model.
With a strong balance sheet, debt-free position and clear strategic roadmap, Chewy is well-positioned to deliver sustainable, long-term value for customers and shareholders alike.
Upward Estimate Revisions Signal Optimism on CHWY’s Earnings
Reflecting positive sentiment around Chewy, the Zacks Consensus Estimate for EPS has seen upward revisions. In the past 30 days, the consensus estimates for the current and next fiscal years have increased by three cents to $1.27 and by 11 cents to $1.53 per share, respectively.
Image Source: Zacks Investment Research
What May Derail Chewy’s Momentum?
CHWY continues to execute well operationally, but several factors can affect its near-term performance. While net sales and customer metrics remained strong in the fiscal second quarter, management acknowledged that margin expansion will likely moderate in the back half of fiscal 2025.
The company expects the fiscal second quarter to mark the peak for its gross margin this year as it reinvests in strategic programs and pricing initiatives. These reinvestments, though aimed at sustaining long-term growth, could limit quarterly profitability momentum and pressure short-term earnings.
Rising operating costs and fulfillment inefficiencies have also constrained Chewy’s leverage potential. SG&A expenses rose 30 bps year over year to 19.1% of net sales, reflecting temporary cost pressures from the ramp-up of its new Houston fulfillment center, transition costs at Dallas, and higher inbound processing expenses in hard goods.
Management expects SG&A leverage to materialize later in the year, but short-term cost friction may persist as the company navigates network expansion and inventory positioning ahead of potential tariff-driven cost increases.
Moreover, competitive intensity across online and brick-and-mortar channels remains high, convincing Chewy to sustain advertising and marketing spend of $200.6 million or 6.5% of sales in the fiscal second quarter to protect market share. While these investments reinforce long-term customer loyalty, they may constrain near-term profitability if category growth remains subdued.
How to Play CHWY Stock: Buy, Hold or Sell?
Chewy presents a compelling case for long-term investors seeking exposure to a high-growth, digitally native pet care leader trading at a relative valuation discount. While short-term margin pressures, rising operating costs and competitive intensity may affect near-term earnings, the company’s strong customer base, scalable platforms like Autoship and Chewy+, and expanding initiatives such as Chewy Vet Care and private brand launches reinforce its growth trajectory.
Current investors can hold with confidence, while potential investors may consider buying on dips. At present, CHWY carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.