Chewy (CHWY) Outperforming in Bear Market: Sustainable Growth or Temporary Rally?

As the broader market faces headwinds, Chewy, Inc. (CHWY) has emerged as a standout performer, defying the bearish trends with robust financial results and strategic execution. The question investors must ask: Is this a fleeting rally or a sign of durable, sustainable growth? A deep dive into Chewy’s financial resilience, competitive moat, and long-term tailwinds in the pet care sector reveals a compelling case for the latter.

Financial Resilience: A Strong Foundation

Chewy’s Q1 2025 results underscore its ability to thrive even as economic uncertainty looms. Revenue surged 15% year-over-year to $3.25 billion, outpacing its own guidance. While adjusted for an extra week in fiscal 2024, the growth rate of 6.9% still reflects organic momentum. The real story lies in its margin expansion: gross margin rose 30 basis points to 28.5%, driven by higher-margin private label products, pet pharmacy services, and sponsored ads (now contributing 1% of sales). This shift toward value-added services is a strategic masterstroke, insulating margins from price competition.

The company’s free cash flow hit $452.5 million in Q1, a staggering figure for a company with $596.7 million in cash and no debt. Management’s focus on capital allocation is equally impressive: $942.8 million in stock buybacks in fiscal 2024 underscores confidence in its valuation. With a forward P/E of 27 and a PEG ratio of 0.7—below 1, signaling undervalued growth—Chewy’s financials paint a picture of a company primed to capitalize on its strengths.

Competitive Advantages: The Power of Recurring Revenue

Chewy’s Autoship program, which accounts for 80.6% of revenue, is its secret weapon. Autoship sales grew 21% year-over-year to $2.6 billion, locking in loyal customers who auto-renew essentials like pet food and medication. This recurring revenue model isn’t just sticky; it’s recession-resistant. With 85% of sales tied to consumables, Chewy benefits from a category where spending cuts are rare, even in downturns.

Moreover, its private label brands—now a key growth lever—command higher margins and reduce reliance on suppliers. Chewy’s partnership ecosystem, spanning 3,200 brands and offering 130,000 products, further entrenches its dominance in the $100 billion U.S. pet industry. Analysts at Piper Sandler note that Chewy’s focus on essentials like pet healthcare positions it to outperform peers in volatile markets.

Long-Term Trends Favoring Chewy

The pet care sector is a growth juggernaut. The U.S. pet population is rising, with ownership penetration hitting 68% of households—a metric that’s climbed steadily over decades. Meanwhile, e-commerce adoption in pet care continues to surge, with Chewy owning ~16% of the online pet market. Its customer-centric platform, combining low prices, fast shipping, and personalized recommendations, is hard to replicate.

Critically, Chewy’s unit economics are improving. Net sales per active customer rose 4% to $578, while customer retention metrics remain strong. Management’s guidance for 6-7% full-year 2025 revenue growth—accelerating from fiscal 2024’s 6.4%—reflects confidence in its ability to scale profitably.

Risks, But No Dealbreakers

Bear market skeptics will point to risks: Chewy’s reliance on equity raises (e.g., a $500 million offering in late 2024) could dilute shares, and margin pressures from tariffs or supply chain disruptions loom. However, 85% of revenue comes from domestic consumables, shielding Chewy from most tariff impacts. Competitors like Amazon and Walmart are formidable, but Chewy’s niche focus and loyalty-driven model offer a defensible edge.

Conclusion: A Buy at These Levels

Chewy isn’t just riding a temporary rally—it’s building a fortress in a recession-proof industry. Its subscription-based model, margin expansion, and fortress balance sheet make it a rare growth stock with defensive qualities. With 171% stock gains over the past year and analyst price targets climbing (e.g., TD Cowen’s $44), now is the time to act.

For investors seeking stability in volatility, Chewy’s blend of predictable cash flows, strategic pricing power, and sector tailwinds makes it a standout buy. The rally isn’t fleeting—it’s the start of something sustainable.

Investors: Act now before Chewy’s valuation catches up to its potential.