Chewy Stock Slides Despite Sales Beat, Accelerating Customer Growth

Chewy (CHWY) shares are down 8% in premarket trading despite reporting Q1 fiscal results that exceeded analyst expectations, including EPS of $0.35 versus the expected $0.33 and revenue of $3.12 billion versus the expected $3.08 billion. While active customer growth continued for the second straight quarter, increasing 3.8% to 20.76 million, the stock's decline is attributed to already high expectations following a 37% year-to-date rally; moreover, FY25 sales guidance, while reaffirmed, has a midrange slightly below analyst forecasts.

Analysis

Chewy (CHWY) reported fiscal first-quarter results that surpassed analyst expectations, with adjusted earnings per share of 35 cents, a 13% year-over-year increase and above the 33 cents forecasted by FactSet. Revenue grew 8% year-over-year to $3.12 billion, exceeding the $3.08 billion consensus, although this represents a deceleration from the 15% sales growth seen in the fiscal fourth quarter. A significant positive was the continued resurgence in customer acquisition, with active customers growing 3.8% to 20.76 million, marking the second consecutive quarter of growth and beating estimates of 20.67 million. CEO Sumit Singh highlighted the pet category's resiliency and Chewy's ability to gain market share. For the current second quarter, Chewy projects sales of $3.075 billion at the midpoint, ahead of prior analyst estimates of $3.035 billion. However, the company reaffirmed its full fiscal year 2025 sales guidance of $12.3 billion to $12.45 billion, the midpoint of which is slightly below the $12.42 billion analyst forecast. Despite these largely positive operational metrics, Chewy's stock declined approximately 8% in premarket trading. This reaction appears to be driven by high expectations following a significant 37% year-to-date rally and a 102% gain over the past 12 months. The premarket movement suggests the stock may fall below its 21-day moving average, a key technical level, after recently breaking out from a cup-with-handle base. The stock's strong performance metrics, including an IBD Composite Rating of 98 and a Relative Strength Rating of 96, indicate robust prior momentum which may have contributed to the elevated expectations.

Key Decisions for Investors

• Investors should note the 'sell the news' reaction, where strong Q1 results were overshadowed by a full-year sales guidance midpoint slightly below consensus and the stock's significant prior appreciation.
• Consider the robust underlying fundamentals, particularly the consecutive quarters of active customer growth and profitability, against the potential for near-term profit-taking given the stock's 37% YTD rally and premarket decline below its 21-day moving average.
• Monitor upcoming quarters for sustained customer growth, continued market share gains, and any revisions to full-year guidance, as these will be critical for justifying further upside after the recent strong performance.