Chewy's mixed earnings spark debate as stock hovers near 52-week low
Strong free cash flow and customer growth offset EPS miss in quarterly report
Chewy delivered mixed fiscal fourth-quarter results that highlight a company strengthening its core business while facing questions about near-term earnings power, as shares hover near their lowest level in a year.
The online pet retailer reported adjusted earnings per share of 27 cents, missing analysts' estimates of 30 cents by 11 percent, according to company financial results. However, revenue climbed 5.4 percent to $3.26 billion, surpassing expectations.
Beneath the headline earnings miss, Chewy's operational fundamentals showed notable improvement. Full-year adjusted EBITDA surged 26.1 percent to $719 million, while profit margins expanded by 90 basis points to 5.7 percent. The company generated record free cash flow of $562 million, a 24.3 percent increase that demonstrates its ability to convert sales into cash even amid broader market uncertainty.
"The significant expansion in EBITDA margins and record free cash flow generation show Chewy is operating more efficiently," analysts noted, while investors weigh the path forward for the stock after its steep decline.
Chewy's customer metrics also point to underlying strength. Active customers grew 4 percent to 21.3 million, while Autoship—the company's subscription service that provides recurring revenue—now accounts for 84 percent of sales. The high penetration of Autoship helps stabilize revenue and provides visibility into future demand.
The earnings report comes as Chewy's stock has already endured a significant pullback. Shares have fallen approximately 25 percent since February, declining from around $31 to $23.45 as of March 25. The stock is now trading near its 52-week low of $23.06 and well below its 50-day and 200-day moving averages of $27.82 and $34.97, respectively, according to market data.
Several factors contributed to the pre-earnings decline. Broader market volatility following geopolitical tensions, concerns about competition from Amazon and Walmart, and recent executive changes have weighed on investor sentiment. The company appointed a new chief financial officer on February 23, while insider selling activity over the past six months—with 13 sales transactions and no purchases—has added to investor caution.
Despite the recent underperformance, Wall Street remains broadly optimistic about Chewy's long-term prospects. The stock maintains a consensus "Moderate Buy" rating with an average price target of $44.04, implying substantial upside from current levels, according to analyst data. Twenty-one analysts rate the stock a buy or strong buy, while six recommend hold.
Some firms have tempered their expectations amid the recent pullback. TD Cowen lowered its price target from $48 to $39 on March 10 while maintaining a buy rating, while Morgan Stanley reduced its target from $51 to $50 on the same date, keeping an overweight rating, analyst reports show. Raymond James upgraded the stock to outperform with a $28 target on February 19.
Chewy's valuation dynamics have shifted meaningfully during the decline. The stock's forward price-to-earnings ratio now stands at 17 times, a more reasonable multiple compared to recent levels when it traded at 52 times earnings.
Investors will be watching whether the combination of expanding margins, strong free cash flow generation, and growing customer base can eventually reignite the stock's performance. The high Autoship penetration provides revenue stability, while improving operational efficiency suggests Chewy can continue growing earnings even in a competitive environment.
The mixed earnings report underscores the tension between Chewy's strengthening business fundamentals and the challenges of meeting near-term earnings expectations in a market that has grown increasingly skeptical of growth stocks.