To The Moon

$Chewy, Inc.(CHWY)$

Chewy Inc. (NYSE: CHWY), the online pet product retailer that once rode the wave of pandemic-era e-commerce mania, reported its latest quarterly results to a mixed reception. While the numbers were, in many respects, stronger than anticipated, investor sentiment turned cautious—dragging the stock price down following the release.

This recent dip has sparked questions from investors and subscribers who know that I’ve had Chewy rated as a “Buy” throughout 2025. In this long-form breakdown, I want to do several things:

1. Analyze Chewy’s latest quarterly results in full detail.

2. Highlight the critical business trends and operational developments that may be overlooked by short-term traders.

3. Revisit my valuation model to determine whether Chewy still represents long-term value.

4. Offer an updated recommendation based on current risks, forecasts, and market sentiment.

Let’s begin by unpacking the quarter.

Earnings Overview, Profitability, and Margin Management

Chewy posted net sales of $3.12 billion in its most recent quarter, up 8.3% year-over-year. This result beat management’s internal guidance and consensus expectations. The company entered fiscal 2025 with strong revenue momentum, continuing to demonstrate its resilience in a challenging macroeconomic environment that includes inflationary pressures, declining discretionary spending, and now, once again, rising tariffs.

Despite these headwinds, Chewy managed to expand its top line through higher Autoship penetration, customer re-engagement, and an ongoing shift in pet consumer behavior toward digital-first retail. This wasn’t a fluke quarter—it was a demonstration of the company’s operational discipline and value proposition to consumers.

Growth

Gross margins for the quarter came in at 29.6%, down just 10 basis points year-over-year. While a decline in margins is usually a red flag, in this context, the modest dip was a positive sign. That’s because the period included the first full impact of reintroduced trade tariffs under President Donald Trump’s administration—policies that directly affected imported goods from key trading partners.

Chewy sources a notable portion of its pet products from overseas manufacturers, especially non-essential or discretionary items such as accessories, toys, and apparel. However, its fresh food line—an increasingly important product category—is domestically sourced, and this helped buffer margin pressure. In addition, the company’s logistics infrastructure and investment in automation are beginning to show real cost efficiencies, allowing Chewy to withstand tariff shocks without margin compression.

Adjusted EBITDA

Moving down the income statement, adjusted EBITDA rose to $193 million, marking a $29.8 million increase from the prior-year quarter. This figure is particularly important because Chewy, unlike many e-commerce platforms, owns and operates a substantial logistics and fulfillment operation. It’s not a simple marketplace model—it’s vertically integrated. That adds operating leverage as revenues rise, and we're seeing that benefit flow through to the bottom line.

Cash Flow

Chewy also demonstrated healthy cash flow from operations, which increased to $86.4 million for the quarter, up from $81.9 million last year. This metric is crucial for investors focused on long-term sustainability. Chewy is not a speculative “growth at all costs” business anymore. It is increasingly becoming a mature, cash-generating platform that can fund its own growth.

Capital expenditures rose to $37.7 million, up from $29.3 million a year ago. But this increase is tied to tangible investments in automation across its warehouse network—a strategic move that enhances long-term margin structure and reduces human labor costs in fulfillment and inventory management. Given the company’s expanding base of Autoship subscribers, automating logistics becomes a crucial competitive advantage.

Subscription Model: A Hidden Moat

Chewy’s Autoship program—a subscription-based delivery service for pet food and supplies—continues to be one of its most powerful value drivers. During the quarter, Autoship sales accounted for 82.2% of total revenue, up significantly from 77.6% in the same period last year. That’s an impressive increase in a metric that was already high.

Why does this matter?

• It makes revenue more predictable.

• It improves inventory planning and cost efficiencies.

• It enhances customer retention—once a user signs up for Autoship, they are far less likely to churn.

• It lowers Chewy’s customer acquisition cost over time, as retained users spend more without requiring additional marketing investment.

In a highly competitive pet care landscape, having a sticky, recurring revenue base is a significant advantage. It’s also a strong sign that customers trust Chewy to deliver reliable service and quality, month after month.

Active Customer Base: Stabilization After the Pandemic Boom

For years, Chewy’s user base expanded rapidly—particularly in the pandemic period from 2020 to 2022. As physical retail shut down, millions of pet owners turned to online platforms for food, toys, prescriptions, and more. Chewy was the primary beneficiary of this sudden behavioral shift.

However, as brick-and-mortar stores reopened in 2023 and 2024, many of those pandemic-era customers reverted to in-store shopping, leading to a churn-driven headwind in Chewy’s user base. This post-COVID normalization pressured Chewy’s customer growth rates.

But now, we’re seeing signs that this trend has reversed.

In Q1, Chewy added active customers again, growing the base to 20.76 million, a 3.8% increase year-over-year. This is a crucial inflection point. It suggests that Chewy has not only weathered the post-pandemic churn cycle—it is now returning to growth in net new customers.

The company also disclosed that it now captures nearly 50% of the online market share for pet-related purchases, up from roughly 40% several years ago. That means Chewy isn’t just riding the overall industry’s coattails—it’s gaining share within a growing segment.

Management Execution

CEO Sumit Singh was upbeat but measured in the company’s commentary, stating:

“We delivered topline growth exceeding the high end of our net sales guidance, year-over-year growth in active customers, and compelling profitability and free cash flow generation.”

It’s not just spin—the numbers support this narrative. Chewy’s management has demonstrated a rare balance between growth, cost control, and strategic investment. In a market where many e-commerce players are still struggling to find a path to profitability, Chewy is quietly executing.

Forward Guidance

For Q2, Chewy expects revenue growth of 7.5% at the midpoint, and for the full fiscal year, management is guiding for 6%–12% revenue growth. Adjusted EBITDA margin guidance has also been raised to a midpoint of 5.5%.

This forward guidance reinforces the view that Chewy’s business model is durable—even in an environment of tightening consumer wallets and geopolitical risks.

Valuation Update: What Is Chewy Worth?

I’ve revisited my proprietary discounted cash flow (DCF) model to reflect updated revenue guidance, margin forecasts, and capital allocation. While I won’t walk through the full math in this article, I regularly publish detailed valuation breakdowns for channel members.

Based on my model, I estimate Chewy’s intrinsic value to be over $56 per share.

With the stock currently trading below $41, this represents more than 36% upside from today’s levels—an attractive margin of safety for long-term investors.

However, valuation isn’t one-dimensional. On a relative basis, Chewy trades at a forward price-to-earnings (P/E) ratio of 32.6. While that’s not cheap, it reflects the quality of the business and its improving financial profile.

Chewy is not a high-risk, cash-burning startup anymore. It's a scaled platform generating real cash flow, with a sticky customer base and a defendable economic moat.

Final Verdict: Still a Buy for Long-Term Investors

After reviewing Chewy’s earnings, analyzing the updated outlook, and revisiting my valuation model, I’m reaffirming my “Buy” rating on Chewy stock.

While short-term market reactions have been negative, I see no fundamental red flags. The company continues to:

• Grow its core revenue at a healthy pace.

• Manage tariffs and inflation better than peers.

• Expand subscription revenue and reduce churn.

• Generate positive cash flow and reinvest in productivity-enhancing tech.

• Trade at a fair to undervalued multiple relative to its long-term growth and profitability.

Yes, the pet care industry may be maturing slightly post-pandemic. And yes, tariffs will remain a headwind. But in the context of these broader shifts, Chewy is emerging as the dominant digital-first player in its category—with the scale, customer loyalty, and operational sophistication to thrive.

For long-term investors seeking exposure to a recurring-revenue e-commerce platform in a defensible niche, I continue to view Chewy as a compelling opportunity.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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