Chewy's Stock Drop: A Closer Look

Shares of leading online pet goods retailer Chewy (CHWY 2.06%) are down 15% this week as of 1 p.m. ET on Thursday, according to data provided by S&P Global Market Intelligence. Chewy reported second-quarter earnings on Wednesday, delivering a 9% increase in sales and a 38% rise in adjusted earnings per share (EPS). However, management guided for a slower 7.5% sales growth and just $0.30 in adjusted EPS (down from $0.33 in Q2) in its upcoming quarter, prompting this week's sell-off.

Chewy Is Firing on All Cylinders

Drops like these are peculiar. Yes, guidance was a bit conservative, but there's a solid chance that Chewy ends up beating its estimates anyway in the upcoming quarter.

Q2 Results: A Positive Outlook

As for the company's actual Q2 results, things look great. Not only were sales up 9%, but Chewy's autoship sales (such as recurring dog food purchases) rose 15% -- now accounting for 83% of the company's total sales. These figures indicate that the majority of Chewy's sales are recurring, predictable, and stable, establishing a substantial sales base that should only grow over time.

On top of this stability, the company is diving into numerous higher-margin verticals, such as:

  • Sponsored ads, which were a key driver for Chewy's gross margin rising 90 basis points
  • Chewy+, a new $49 per year membership program, which already equaled 3% of sales in July
  • The launch of Get Real, a private-label, fresh dog food brand with premium pricing potential
  • The opening of 20 total Chewy Vet Care locations by year's end, bringing higher margins from the veterinary industry

Trading at 29 times forward earnings and with its profit margins set to continue improving over time, Chewy remains one of my favorite stocks right now -- even after rising 29% over the last year.

Further Analysis: The stock's decline could be partly attributed to broader concerns about consumer spending, as investors closely monitor for signs of a potential economic slowdown. However, Chewy remains well-positioned to capitalize on long-term trends in the pet market, including increased spending on premium products and services.

Important Note: This analysis is for informational purposes only and does not constitute investment advice. Investors should conduct their own research before making any investment decisions.


Risk Warning and Disclaimer: This article represents only the author’s views and is for reference only. It does not constitute investment advice or financial guidance, nor does it represent the stance of the Markets.com platform. Trading Contracts for Difference (CFDs) involves high leverage and significant risks. Before making any trading decisions, we recommend consulting a professional financial advisor to assess your financial situation and risk tolerance. Any trading decisions based on this article are at your own risk.

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