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Chewy's Gross Margin Expands Again: Will the Momentum Last?
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Key Takeaways
CHWY's gross margin increases 90 bps to 29.4% in Q4, aided by premium mix and ad strength.
CHWY expects Private brands and SmartEquine to drive higher-margin growth.
AI tools can add meaningful savings, supporting further margin expansion in 2026.
Chewy, Inc. (CHWY - Free Report) delivered a strong performance in the fourth quarter of 2025, marked by improved profitability and margin expansion. The company’s gross margin reached 29.4%, reflecting a year-on-year increase of approximately 90 basis points. This growth was driven by robust sponsored advertisements and a favorable mix shift toward premium, high-margin categories, especially in health and wellness. A more rational promotional environment supported gains through better pricing discipline and reduced reliance on heavy discounting.
Chewy is pursuing several strategic initiatives to sustain and enhance margin expansion. Under the Chewy Made platform, private brands are expected to deliver a gross margin approximately 500 basis points higher than the base business. This highlights its role in enhancing overall profitability and strengthening margin performance.
The company views SmartEquine as a high-quality pet health nutraceuticals business, benefiting from inherently high category gross margins. It expects the segment to achieve gross margins exceeding 35% in the near future. This reinforces its potential as a strong contributor to overall profitability. Chewy is deploying AI tools across functions like customer service, fulfillment, pharmacy and marketing operations to improve efficiency and productivity.
The company expects gross margin to continue expanding year over year in 2026, building on prior gains, though at a more moderate pace than in 2025. Overall, Chewy’s margin expansion appears sustainable, supported by a premium mix, higher-margin private brands and AI-driven cost savings, positioning profitability for continued improvement ahead.
Chewy Faces Competition From Petco & Bark
Petco Health & Wellness Company, Inc. (WOOF - Free Report) reported net sales of $1.5 billion for the fourth quarter of 2025, representing a decline of 2.4% year over year. The company’s gross profit decreased 1.4% year over year in the fourth quarter to $580.8 million, while gross margin improved 37 basis points to 38.3%, reflecting effective cost management and a favorable margin mix.
BARK, Inc. (BARK - Free Report) reported revenues of $115.4 million in the fourth quarter of 2025, declining 5% year over year, reflecting reduced marketing spend amid tariffs, macro uncertainty and shipment timing delays. BARK’s gross profit declined 3.8% to $73.4 million in the fourth quarter. Despite this, gross margin improved to 63.6% from 62.7% in the prior year period, driven by strong expansion in both DTC and Commerce segments.
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Chewy's Gross Margin Expands Again: Will the Momentum Last?
Key Takeaways
Chewy, Inc. (CHWY - Free Report) delivered a strong performance in the fourth quarter of 2025, marked by improved profitability and margin expansion. The company’s gross margin reached 29.4%, reflecting a year-on-year increase of approximately 90 basis points. This growth was driven by robust sponsored advertisements and a favorable mix shift toward premium, high-margin categories, especially in health and wellness. A more rational promotional environment supported gains through better pricing discipline and reduced reliance on heavy discounting.
Chewy is pursuing several strategic initiatives to sustain and enhance margin expansion. Under the Chewy Made platform, private brands are expected to deliver a gross margin approximately 500 basis points higher than the base business. This highlights its role in enhancing overall profitability and strengthening margin performance.
The company views SmartEquine as a high-quality pet health nutraceuticals business, benefiting from inherently high category gross margins. It expects the segment to achieve gross margins exceeding 35% in the near future. This reinforces its potential as a strong contributor to overall profitability. Chewy is deploying AI tools across functions like customer service, fulfillment, pharmacy and marketing operations to improve efficiency and productivity.
The company expects gross margin to continue expanding year over year in 2026, building on prior gains, though at a more moderate pace than in 2025. Overall, Chewy’s margin expansion appears sustainable, supported by a premium mix, higher-margin private brands and AI-driven cost savings, positioning profitability for continued improvement ahead.
Chewy Faces Competition From Petco & Bark
Petco Health & Wellness Company, Inc. (WOOF - Free Report) reported net sales of $1.5 billion for the fourth quarter of 2025, representing a decline of 2.4% year over year. The company’s gross profit decreased 1.4% year over year in the fourth quarter to $580.8 million, while gross margin improved 37 basis points to 38.3%, reflecting effective cost management and a favorable margin mix.
BARK, Inc. (BARK - Free Report) reported revenues of $115.4 million in the fourth quarter of 2025, declining 5% year over year, reflecting reduced marketing spend amid tariffs, macro uncertainty and shipment timing delays. BARK’s gross profit declined 3.8% to $73.4 million in the fourth quarter. Despite this, gross margin improved to 63.6% from 62.7% in the prior year period, driven by strong expansion in both DTC and Commerce segments.
Zacks Rundown for CHWY
CHWY shares have lost 22% in the past three months compared with the industry’s 14.9% decline. The company carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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From a valuation standpoint, CHWY trades at a forward price-to-earnings ratio of 30.24, higher than the industry’s average of 20.48.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for earnings for the current and next fiscal years indicates year-over-year growth of 22.8% and 21.7%, respectively.
Image Source: Zacks Investment Research