CHWY Stock Up 13% Following Solid Q4 Performance Despite Earnings Miss

Chewy, Inc. CHWY reported solid fourth-quarter fiscal 2025 results, wherein the top line beat the Zacks Consensus Estimate and the bottom line missed the same. Also, sales increased and earnings declined year over year.

The company delivered a strong fourth quarter, supported by consistent execution across its customer growth and engagement initiatives. Its Autoship program continued to drive recurring demand, while improvements in product mix and operational efficiency contributed to better margin expansion. Strategic focus on areas such as private brands, healthcare offerings and AI-driven efficiencies is also enhancing scalability and strengthening the overall business model.

Management highlighted confidence in sustaining share gains, expanding margins and driving long-term profitable growth, even in a stable industry environment. The combination of steady demand trends, improving profitability and strong cash generation boosted investor sentiment. As a result, shares of CHWY gained 13.3% in yesterday’s trading session.

CHWY’s Quarterly Performance: Key Metrics and Insights

Chewy posted adjusted earnings of 27 cents per share, which missed the Zacks Consensus Estimate of 28 cents. The figure decreased 3.6% from the prior-year period.

The company reported net sales of $3,264.7 million, surpassing the Zacks Consensus Estimate of $3,256 million. The figure increased 0.5% from $3,247.4 million posted in the year-ago period, driven by strong execution, continued market share gains in a stable category environment and consistent performance across both customer growth and spend per customer.

The Autoship subscription program remained a cornerstone of Chewy’s model. Autoship customer sales grew 4.8% to $2.74 billion, outpacing overall net sales growth. The metric represented 84% of total net sales, a record for the company and an increase from 80.6% in the prior-year period.

The company ended the quarter with 21.3 million active customers, which met the consensus estimate and reflected a 4% increase year over year, supported by continued improvement across customer acquisition, retention and engagement metrics.

Chewy’s net sales per active customer reached $591, reflecting a 2.2% year-over-year increase, driven by improved customer engagement and higher spending per user. The consensus estimate for net sales per active customer was pegged at $593 in the quarter under review.

CHWY’s Margin & Cost Performance

Chewy’s gross profit increased 3.6% year over year to $959.7 million from $926 million. The gross margin expanded 90 basis points (bps) to 29.4% compared with 28.5% in the year-ago quarter, driven by growth in sponsored ads, a favorable mix toward higher-margin categories and a rational promotional environment.

SG&A expenses declined 2.3% year over year to $684.6 million from $700.7 million in the fiscal quarter. As a percentage of net sales, this metric declined 60 basis points year over year to 21%. Advertising and marketing expenses for the fiscal fourth quarter decreased 1% year over year to $232.6 million from $235 million.

The adjusted EBITDA increased 30.4% year over year to $162.3 million from $124.5 million. The adjusted EBITDA margin increased 120 bps year over year to 5%, highlighting strong operating leverage and improved profitability.

CHWY’s Financial Health Snapshot

The company ended the year with approximately $879 million in cash, cash equivalents and marketable securities, maintaining a strong liquidity position of around $1.7 billion while remaining debt-free. Total shareholders’ equity stood at $497.9 million, reflecting a significant improvement from the prior year.

In the fourth quarter, the company generated free cash flow of $232 million. For fiscal 2025, free cash flow reached a record $562.4 million, supported by $691.6 million in net cash provided by operating activities and $129.2 million in capital expenditures.

In fiscal 2025, the company repurchased approximately 6.8 million shares, deploying around $257 million toward share buybacks, reflecting a continued commitment to returning excess cash to shareholders.

What to Expect From CHWY in the Future?

For the first quarter of fiscal 2026, the company expects net sales in the range of $3.33-$3.36 billion, representing approximately 7-8% year-over-year growth. This period is expected to mark the lowest growth point of the year, primarily due to timing and lapping dynamics. Contribution from the SmartEquine acquisition is expected to be broadly consistent on a quarterly basis throughout the year.

The company also expects adjusted earnings per share for the first quarter to be in the range of 40- 45 cents.

CHWY’s Fiscal 2026 Guidance

Turning to fiscal 2026 guidance, the company expects net sales between $13.6 billion and $13.75 billion, reflecting approximately 8-9% year-over-year growth. The SmartEquine acquisition is expected to contribute approximately $80 million in net sales during the year. Growth is expected to be driven by a combination of active customer expansion and NSPAC growth, with the outlook assuming no price inflation and low single-digit active customer growth. From a quarterly cadence perspective, net sales growth is expected to build after the first quarter, improving in the second quarter and continuing to strengthen through the third quarter.

From a profitability standpoint, adjusted EBITDA is expected to be between $900 million and more than $930 million, with growth projected to outpace net sales growth by approximately three times. The company anticipates adjusted EBITDA margin in the range of 6.6-6.8% for the full year, representing approximately 100 basis points of expansion at the midpoint.

The composition of margin expansion is expected to shift in fiscal 2026, with a greater contribution from operating leverage, supported by structural improvements in SG&A and modest leverage in advertising and marketing. Gross margin is expected to expand year over year, albeit at a more moderate pace than in 2025, with quarterly progression more aligned with historical patterns.

SG&A is expected to show leverage and remain broadly consistent as a percentage of net sales throughout the year. Advertising and marketing expenses are expected to follow a similar quarterly progression as observed in fiscal 2025. A sequential moderation in margins is anticipated in the fourth quarter, consistent with typical seasonality and promotional timing.

CHWY Stock Past Three-Month Performance

Image Source: Zacks Investment Research

This Zacks Rank #3 (Hold) stock has lost 20.1% in the past three months compared with the industry’s decline of 12.7%.

Stocks to Consider

Etsy ETSY operates as a leading e-commerce service provider, currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ETSY delivered a negative trailing four-quarter earnings surprise of 9%, on average. The Zacks Consensus Estimate for Etsy’s current financial-year sales and earnings implies a decline of 5.5% and 152.5%, respectively, from the year-ago reported numbers.

Global-e Online Ltd. GLBE provides a platform to enable and accelerate global, direct-to-consumer cross-border e-commerce. It currently sports a Zacks Rank of 1.

GLBE delivered a trailing four-quarter earnings surprise of 62.2%, on average. The Zacks Consensus Estimate for Global-e Online’s current financial-year sales and earnings implies growth of 29.5% and 176.9%, respectively, from the year-ago reported numbers.

FIGS Inc. FIGS is a direct-to-consumer healthcare apparel and lifestyle brand, and it currently sports a Zacks Rank of 1. The company delivered a trailing four-quarter earnings surprise of 187.5%, on average.

The Zacks Consensus Estimate for FIGS’ current financial-year sales and earnings indicates growth of 11.7% and 15.8%, respectively, from the year-ago reported numbers.

Zacks Names #1 Semiconductor Stock

This under-the-radar company specializes in semiconductor products that titans like NVIDIA don't build. It's uniquely positioned to take advantage of the next growth stage of this market. And it's just beginning to enter the spotlight, which is exactly where you want to be.

With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $971 billion by 2028.

See This Stock Now for Free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Etsy, Inc. (ETSY): Free Stock Analysis Report

Chewy (CHWY): Free Stock Analysis Report

Global-e Online Ltd. (GLBE): Free Stock Analysis Report

FIGS, Inc. (FIGS): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research