Chewy (CHWY)

E-commerce pet food and supplies retailer Chewy (NYSE:CHWY) reported Q2 CY2025 results beating Wall Street’s revenue expectations, with sales up 8.6% year on year to $3.10 billion. Its non-GAAP profit of $0.33 per share was in line with analysts’ consensus estimates.

Company Overview

Founded by Ryan Cohen, who later became known for his involvement in GameStop, Chewy (NYSE:CHWY) is an online retailer specializing in pet food, supplies, and healthcare services.

Consumers ever rising demand for convenience, selection, and speed are secular engines underpinning ecommerce adoption. For years prior to Covid, ecommerce penetration as a percentage of overall retail would grow 1-2% annually, but in 2020 adoption accelerated by 5%, reaching 25%, as increased emphasis on convenience drove consumers to structurally buy more online. The surge in buying caused many online retailers to rapidly grow their logistics infrastructures, preparing them for further growth in the years ahead as consumer shopping habits continue to shift online.

Chewy competes with Amazon (NASDAQ:AMZN), Petco (NASDAQ:WOOF), BARK (NYSE:BARK), PetMed Express (NASDAQ:PETS), Walmart (NYSE:WMT), and Costco (NYSE:COST).

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, Chewy’s sales grew at a mediocre 9% compounded annual growth rate over the last three years. This was below our standard for the consumer internet sector and is a rough starting point for our analysis.

This quarter, Chewy reported year-on-year revenue growth of 8.6%, and its $3.10 billion of revenue exceeded Wall Street’s estimates by 0.8%.

Looking ahead, sell-side analysts expect revenue to grow 4.9% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and implies its products and services will face some demand challenges.

For online retail (separate from online marketplaces) businesses like Chewy, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include the cost of acquiring the products sold, shipping and fulfillment, customer service, and digital infrastructure.

Chewy’s unit economics are far below other consumer internet companies because it must carry inventories as an online retailer. This means it has relatively higher capital intensity than a pure software business like Meta or Airbnb and signals it operates in a competitive market. As you can see below, it averaged a 29.2% gross margin over the last two years. Said differently, Chewy had to pay a chunky $70.77 to its service providers for every $100 in revenue.

This quarter, Chewy’s gross profit margin was 30.4%, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Chewy has managed its cost base well over the last two years. It demonstrated solid profitability for a consumer internet business, producing an average EBITDA margin of 4.7%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Chewy’s EBITDA margin rose by 3.9 percentage points over the last few years, as its sales growth gave it operating leverage.

In Q2, Chewy generated an EBITDA margin profit margin of 5.9%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

In Q2, Chewy reported adjusted EPS of $0.33, up from $0.24 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Chewy’s full-year EPS of $1.16 to grow 19.6%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Chewy has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.4%, subpar for a consumer internet business.

Taking a step back, an encouraging sign is that Chewy’s margin expanded by 3.6 percentage points over the last few years. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.

Chewy burned through $48.55 million of cash in Q2, equivalent to a negative 1.6% margin. The company’s cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Chewy is a profitable, well-capitalized company with $591.8 million of cash and $494.1 million of debt on its balance sheet. This $97.7 million net cash position gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

Revenue, adjusted EBITDA, and EPS were all roughly in line. Investors were likely hoping for more, and shares traded down 7.6% to $38.90 immediately following the results.

Updated: December 4, 2025 at 9:17 PM EST

Before making an investment decision, investors should account for Chewy’s business fundamentals and valuation in addition to what happened in the latest quarter.

Chewy’s business quality ultimately falls short of our standards. First off, its revenue growth was mediocre over the last three years, and analysts expect its demand to deteriorate over the next 12 months. And while its EPS growth over the last three years has been fantastic, the downside is its gross margins make it extremely difficult to reach positive operating profits compared to other consumer internet businesses. On top of that, its low free cash flow margins give it little breathing room.

Chewy’s EV/EBITDA ratio based on the next 12 months is 18.7x. This multiple tells us a lot of good news is priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $44.81 on the company (compared to the current share price of $33.29).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.