How did CHWY's Q4 2025 earnings surprise analysts?

Chewy Inc. (CHWY) reported its fourth-quarter (Q4) 2024 earnings, surprising analysts with robust growth and profitability despite missing estimates on diluted earnings per share (EPS). Here's a detailed analysis of the earnings report:

1. Revenue Surpassed Estimates: Chewy's Q4 revenue amounted to $3.25 billion, marking a 14.9% year-over-year increase. This surpassed the estimated $3.049 billion, indicating a strong performance in sales and market outperformance.

2. Gross Margin Expansion: The company's gross margin expanded to 28.5%, up from the previous year's 28%, representing a 30 basis point improvement. This suggests enhanced operational efficiency and cost management.
3. Net Income and EPS: Chewy reported a net income of $22.8 million for the quarter. However, the diluted EPS of $0.05 fell short of the estimated $0.17. This discrepancy was primarily due to higher-than-expected expenses, particularly in the areas of advertising and marketing, which totaled $804.1 million for the full year, amounting to 6.8% of net sales.
4. Adjusted EBITDA and Free Cash Flow: The adjusted EBITDA increased by $38.1 million to $124.5 million, reflecting improved profitability. Free cash flow also saw a significant boost, rising by 133.2% to $156.6 million, indicating enhanced operational efficiency and liquidity.
5. Customer Growth and Autoship Sales: Autoship customer sales grew by 21.2% to $2.62 billion, accounting for 80.6% of total net sales. Active customer base increased by approximately 2.1% year-over-year to 20.5 million. This customer growth and strong loyalty from Autoship customers contributed significantly to Chewy's revenue outperformance.
6. Stock Market Reaction: Following the earnings release, Chewy's stock experienced a positive surge, jumping nearly 5% in pre-market trading on March 26, 2025. This reflects investor confidence in Chewy's strategic direction and growth prospects.

In conclusion, while Chewy's Q4 2024 earnings showcased strong revenue growth, expanded gross margins, and impressive free cash flow, the diluted EPS fell slightly short of expectations due to higher-than-anticipated expenses. Nevertheless, the company's overall performance highlights its ability to sustain growth and profitability in a competitive market, positioning it well for future expansion.