Why Chewy Stock Rallied Today
Key Points
Customer wins are fueling Chewy's sales growth.
Free cash flow is increasing at an even faster pace.
- 10 stocks we like better than Chewy ›
Shares of Chewy (NYSE: CHWY) rose on Tuesday after the online pet products retailer issued an upbeat earnings forecast.
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Solid sales growth trends
Chewy's adjusted net sales grew 8.1% year over year to $3.26 billion in its fiscal 2025 fourth quarter, which ended on Feb. 1.
The pet food seller added 813,000 active customers during the year, bringing its total to 21.3 million. Existing customers also spent more on the e-commerce platform, with net sales per active customer rising to $591. That's up from $567 in fiscal 2024, $555 in 2023, and $496 back in 2022.
Better still, Chewy's profit margins are improving as it scales its business. Its gross margin increased to 29.4% from 28.5% in the prior-year quarter. Chewy's earnings before interest, taxes, depreciation, and amortization (EBITDA) margin also improved to 5% from 3.8%.
All told, the pet services provider's free cash flow surged 48% to $232 million.
Management is forecasting AI-fueled earnings growth
Looking ahead, Chewy sees its net sales growing by roughly 9% to $13.7 billion in fiscal 2026. The company also expects its adjusted EBITDA margin to rise to about 6.7%, driven in part by artificial intelligence (AI)-powered productivity gains. Chewy projects tens of millions of dollars of AI-related cost efficiencies in 2026 and up to $50 million in annual savings over time.
"We believe Chewy remains well-positioned to compound growth, expand share, and drive sustained margin and free cash flow expansion in 2026 and beyond," CEO Sumit Singh said during a conference call with analysts.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chewy. The Motley Fool has a disclosure policy.
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