Can Chewy Maintain Its Momentum in Active Customer Growth?

Chewy (CHWY) reported robust fiscal Q1 2025 results, with net sales up 8.3% to $3.12 billion and active customers growing 3.8% to 20.8 million, driven by enhanced customer acquisition and retention, including improved cohort quality and higher spending per customer. This strong performance, attributed to strategic initiatives like Autoship, expanded healthcare services, and the Chewy+ program, significantly outpaced competitors and led to a reaffirmation of full-year revenue guidance and an expectation for active customer growth at the higher end of its projected range. CHWY shares have gained 27.3% year-to-date, trading at a forward price-to-sales ratio of 1.38x, below the industry average.

Analysis

Chewy, Inc. (CHWY) reported a strong first quarter for fiscal 2025, demonstrating significant operational momentum and market share gains. Net sales grew 8.3% year-over-year to $3.12 billion, underpinned by an acceleration in customer acquisition and improved retention. The company added 240,000 active customers sequentially, reaching a total of 20.8 million, a 3.8% annual increase. This growth is attributed to strategic initiatives such as Autoship subscriptions, expansion into healthcare services, and the Chewy+ membership program, which have also driven higher customer engagement, as evidenced by a 3.7% rise in Net Sales Per Active Customer to $583. This performance stands in stark contrast to key competitors; Petco's (WOOF) sales declined 2.3% and Central Garden & Pet's (CENT) fell 7.4%. Despite its stock gaining 27.3% year-to-date, Chewy's forward price-to-sales ratio of 1.38x remains below the industry average of 2.02x. While management reaffirmed full-year revenue guidance of $12.3 billion to $12.45 billion, they signaled that active customer growth is trending toward the high end of their low-single-digit forecast, supported by analyst consensus for 10.3% earnings growth in fiscal 2025.

Key Decisions for Investors

• Given the strong operational performance and a forward P/S ratio of 1.38x trading below the industry average of 2.02x, investors could view the current valuation as an attractive entry or accumulation point despite the stock's 27.3% year-to-date rally.
• The significant performance divergence against competitors like Petco and Central Garden & Pet, which are experiencing sales declines, presents a potential relative value or pairs trade opportunity for investors looking to capitalize on Chewy's apparent market share consolidation.
• Investors should monitor upcoming quarters for sustained active customer growth and margin trends, as continued execution will be critical to justify further multiple expansion and prompt upward revisions to earnings estimates, which have remained unchanged for the past 30 days.
• The reaffirmation of guidance with a positive bias on customer growth suggests that while the current outlook is priced in, any outperformance on this key metric could serve as a significant catalyst for the stock.