Chewy’s (CHWY) Earnings Momentum and Long-Term Growth Potential

Chewy, Inc. (CHWY) has long been a bellwether for the pet care e-commerce sector, and its Q2 2025 earnings results have reignited debates about its ability to sustain momentum amid macroeconomic headwinds. With revenue surging to $3.12 billion—exceeding the $3.06–$3.09 billion guidance and analyst expectations of $3.08 billion—Chewy demonstrated resilience in a market where discretionary spending remains volatile [2]. This performance, coupled with a 6.2% adjusted EBITDA margin (up 190 basis points year-over-year), underscores the company’s structural advantages and operational discipline [2]. But does this momentum translate to long-term outperformance?

Revenue Trends: Stability in a Shifting Landscape

Chewy’s revenue growth in Q2 2025 was driven by its Autoship subscription program, which accounts for over 80% of total revenue. This recurring model, combined with the fact that 85% of sales stem from non-discretionary goods like pet food and medications, creates a buffer against economic downturns [4]. Analysts at Piper Sandler note that this “defensive” revenue stream positions Chewy to outperform peers in a high-interest-rate environment [3].

Sequential gross margin improvements further bolster confidence. Management highlighted continued cost optimization and supply chain efficiencies during the earnings call, which should sustain profitability even as competition intensifies [3]. However, the 7%–8% year-over-year growth rate, while solid, lags behind the company’s historical averages. This raises questions about whether Chewy can scale its market share gains without compromising margins.

EBITDA Expansion: Progress, But Room to Grow

The 6.2% adjusted EBITDA margin in Q2 2025 marked a significant improvement from Q1’s 5.1% [1], reflecting better cost management and pricing power. Yet, this figure still falls short of Chewy’s long-term margin target of 10% [2]. The company’s full-year guidance of 5.4%–5.7% EBITDA margins suggests cautious optimism, but investors should monitor capital expenditures tied to its Vetcare clinic expansion.

Chewy plans to open 8–10 new clinics in FY2025, a strategic move to diversify revenue streams and deepen customer relationships. Early results indicate these clinics are exceeding acquisition targets, with management expressing confidence in their contribution to long-term profitability [3]. However, the clinics’ impact on EBITDA will likely take years to materialize, given the upfront costs and the need for customer retention.

Wall Street Sentiment: A Tale of Two Narratives

Despite beating expectations, Chewy’s stock dipped in premarket trading following the earnings report, reflecting broader investor anxiety about inflation and interest rates [2]. This highlights a critical risk: while Chewy’s fundamentals are robust, its valuation remains sensitive to macroeconomic shifts. Piper Sandler maintains an “Overweight” rating, citing the company’s “strong execution and market share gains,” but cautions that margin pressures could emerge if input costs rise [3].

Analysts also emphasize the importance of Chewy’s full-year guidance. If the company raises its FY2025 net sales target to the upper end of $12.30 billion–$12.45 billion, it would signal confidence in its ability to navigate challenges and capitalize on its first-mover advantage in pet care e-commerce [4].

Is CHWY a Buy?

Chewy’s Q2 results affirm its position as a leader in a high-growth sector, with a defensible business model and improving margins. The Autoship program’s stickiness, combined with the Vetcare clinics’ potential, creates a flywheel effect that could drive long-term value. However, the stock’s recent volatility and the company’s unmet EBITDA targets suggest a cautious approach.

For investors with a medium-term horizon, Chewy appears undervalued relative to its growth trajectory. The key will be monitoring its ability to maintain margin expansion while scaling new initiatives. If Chewy can demonstrate consistent execution and raise full-year guidance, it could outperform expectations—and justify its current valuation.

Source:
[1] Q2 Earnings Call Transcript [https://www.alphaspread.com/security/nyse/chwy/investor-relations/earnings-call/q2-2025]
[2] Chewy (CHWY) Earnings Dates & Reports [https://www.investing.com/equities/chewy-inc-earnings]
[3] Piper Sandler Maintains Overweight Rating on Chewy Stock [https://www.investing.com/news/analyst-ratings/piper-sandler-maintains-overweight-rating-on-chewy-stock-amid-recent-decline-93CH-4205170]
[4] Chewy Set for Growth as Analysts Highlight Market Share and Strong Execution [https://www.aol.com/chewy-set-growth-analysts-highlight-195930553.html]