Chewy's Loyalty Engine, $1B Pharmacy Business Have JPMorgan Staying Bullish Before Q1

JPMorgan analyst Doug Anmuth reiterated an Overweight rating on Chewy (CHWY) with a $36 price target ahead of its Q1 2025 earnings release on June 11th, anticipating a potential upside to the company's net sales guidance of $3.06 billion–$3.09 billion. Anmuth cites Chewy's category leadership, rising profitability driven by high-margin segments like pharmacy and sponsored ads, and a strong Autoship customer base as key factors supporting his bullish outlook, forecasting 6% year-over-year net sales growth for the quarter.

Analysis

JPMorgan analyst Doug Anmuth has reiterated an Overweight rating on Chewy, Inc. (CHWY) with a $36 price target, as the company approaches its fiscal first quarter 2025 earnings announcement on June 11th. Investors are reportedly anticipating an upside to Chewy's Q1 net sales guidance of $3.06 billion–$3.09 billion, and Anmuth suggests the company may also raise its full-year 2025 outlook for net sales ($12.30 billion–$12.45 billion) and adjusted EBITDA margins (5.4%–5.7%). This bullish stance is attributed to Chewy's category leadership, increasing profitability, and strategic diversification into high-margin segments like its pharmacy business, which has reached $1 billion in trailing twelve-month revenue, alongside international expansion and sponsored advertisements. A significant factor supporting this view is that over 80% of Chewy's sales originate from Autoship customers, providing substantial revenue visibility and strong unit economics. Anmuth forecasts 104,000 sequential net customer additions in Q1 and 421,000 for the full year, alongside an estimated 6% year-over-year net sales growth for Q1 and 3% for FY25, figures he deems potentially conservative. This growth is supported by data indicating a 4% year-over-year increase in web traffic in Q1, a deceleration from 13% in Q4, but with a reported pickup in May and improving trends into Q2. Profitability is expected to be enhanced by advertising, product mix, automation, scale, and cost controls, leading to a projected 5.4% adjusted EBITDA margin and $524 million in free cash flow for FY25. However, with CHWY shares recently trading at $48.19, the reiterated $36 price target is substantially below the current market price, indicating a potential valuation concern despite the positive operational outlook and Overweight rating.

Key Decisions for Investors

• Investors should closely monitor Chewy's Q1 earnings release for net sales performance against the $3.06-$3.09 billion guidance and any revisions to the FY25 outlook, which are anticipated to be positive.
• Given that Chewy's shares are trading at $48.19, significantly above the analyst's reiterated $36 price target, careful consideration of the current valuation is warranted despite strong fundamental drivers like Autoship loyalty and high-margin segment growth.
• Key metrics to scrutinize in the upcoming report include net customer additions, revenue growth from pharmacy and sponsored ads, and progress on adjusted EBITDA margins to assess if operational performance can justify the prevailing share price or bridge the gap to the analyst's target.