The online retailer specializing in pet supplies, Chewy, has demonstrated remarkable earnings growth over time, benefiting from strategic expansions in its revenue streams. The company’s stock has surged over 21% this year, significantly outpacing the broader market, which saw the S&P 500 increase by 9.6%.
Chewy’s diverse product offerings have contributed to its success. The retailer provides a wide range of items, including treats, toys, and food for pets, as well as necessary supplies such as prescription medications. Notably, Chewy has strategically ventured into offering veterinary services by opening clinics, effectively tapping into new revenue sources and reaching pet owners who may not have considered online shopping before.
Financially, Chewy is performing strongly. As of the most recent quarter, the company reported $616 million in cash and equivalents, with no outstanding debt. In the first quarter of its fiscal 2025, ending in May, Chewy’s sales rose by 8%, reaching $3.1 billion and exceeding analyst expectations. Furthermore, the company achieved an adjusted EBITDA of over $192 million, marking an increase of nearly $30 million compared to the same period last year. Chewy has also begun share buybacks, demonstrating confidence in its future performance, as it utilized approximately $23 million of its nearly $50 million in free cash flow for this purpose.
A significant factor driving Chewy’s growth is its AutoShip service, which allows customers to automatically reorder their favorite products. AutoShip now accounts for 82% of the company’s net sales, providing Chewy with consistent revenue visibility and establishing strong customer loyalty. Additionally, the introduction of sponsored advertisements in 2023 has contributed to gross margin improvements, further solidifying Chewy’s financial performance.
However, some analysts are questioning whether Chewy’s stock remains a viable investment option. While the company has performed exceptionally well, its shares now trade at 32 times forward earnings estimates, reflecting a higher valuation than earlier in the year. There are concerns about potential overexpansion with the new veterinary clinics and the competition posed by retailers focused on lower prices, such as Walmart and Amazon.
Despite these risks, Chewy’s well-planned strategies and strong operational performance suggest a promising long-term outlook. Investors have shown continued confidence in the stock, and whether Chewy can sustain its outperformance in the coming months remains to be seen. While some financial experts have identified alternative investment opportunities that may yield greater returns, Chewy’s ongoing success indicates that it still holds potential as a solid investment choice in the pet supply market.
