Chewy Stock Drops Despite Raised Annual Targets
Chewy shares declined 11% after Q2 results showed core growth slowing to 5.7%, even as the company raised full-year revenue and EBITDA guidance.
Shares of Chewy, the online pet-supplies retailer, fell 11% on Wednesday following the release of its second-quarter financial results. The stock reaction was driven by concerns over slowing organic growth, despite the company reporting revenue that slightly exceeded analyst estimates. According to data compiled by GN markets/earnings (en-US), the market appeared focused on the underlying momentum of the core business rather than the headline figures.
Chewy reported second-quarter revenue of $3.33 billion, a 7.3% increase year-over-year and slightly above the consensus estimate of $3.32 billion. However, excluding the contributions from its recent acquisitions of SmartPak and Modern Animal, organic revenue growth was only 5.7%. This lower organic rate highlighted the dependence on inorganic deals to meet top-line targets, a point that weighed heavily on investor sentiment.
Profitability Metrics Remain Stable
Operational metrics showed resilience despite the growth slowdown. Gross margin held steady at 30.4%, indicating that Chewy maintained its pricing power and cost structure. Adjusted earnings per share improved from $0.33 in the prior-year period to $0.36, matching analyst expectations. This consistency in profitability suggests that the company’s core operations remain efficient, even as the pace of new customer acquisition and spend-per-customer growth has moderated.
Guidance Raised Amid Weak Demand
Chewy raised its full-year revenue guidance to a range of $13.46 billion to $13.57 billion, implying growth between 6.8% and 7.7%. The company also increased its adjusted EBITDA margin guidance from 6.6%-6.8% to 6.7%-6.8%. Management attributed these upward revisions primarily to the strength of the recent acquisitions. However, comments from the earnings call indicated that consumer demand remains sluggish, with continued pressure on discretionary attachment and premiumization.
The strategic challenge for Chewy lies in its reliance on auto-ship subscriptions, which accounted for 84.6% of sales in the quarter. While this aligns with the company’s recurring revenue strategy, it limits the upside potential from one-off discretionary purchases such as toys or premium food upgrades. With the pet industry experiencing a post-pandemic correction and growth rates slowing, Chewy’s ability to drive incremental spend from existing customers is now a critical variable for future performance.
Market Valuation Reflects Lower Growth
The stock price decline reflects a broader re-rating of Chewy from a high-growth stock to a more mature, slower-growing consumer staple. The industry has faced headwinds since the pandemic-era surge in pet adoptions, leading to a normalization of growth rates. Investors appear to be adjusting their expectations in light of weak consumer discretionary spending and inflation pressures. The current valuation suggests the market is pricing in a period of modest expansion rather than the rapid market share gains seen in previous years.
