Chewy EBITDA Margins Climb: How Close Is CHWY to Its 10% Goal?

Chewy, Inc. CHWY has been on track toward its long-term adjusted EBITDA margin of 10%, as it continues to demonstrate consistent year-over-year profitability improvement, with third-quarter fiscal 2025 results building on the momentum established in the first half of the year. The quarter underscored the structural resilience of Chewy’s business model and strong execution across the organization, as the company exceeded the high end of its net sales guidance, expanded margins and accelerated free cash flow generation.

Adjusted EBITDA increased 30% year over year to $180.9 million in the fiscal third quarter, with the adjusted EBITDA margin expanding 100 basis points to 5.8%. The improvement reflected a solid gross margin execution, disciplined sales and general administrative (SG&A) expenses, and continued efficiency in advertising and marketing spend.

Chewy expects its fiscal 2025 adjusted EBITDA margin between 5.6% and 5.7%. Initiatives like the expansion of Chewy Vet Care and the Chewy+ membership program are designed to deepen customer engagement and support long-term margin appreciation. The recent acquisition of SmartEquine is also expected to be accretive to margins upon closing.

Chewy remains confident in its long-term goal of achieving a 10% adjusted EBITDA margin. At a 5.8% margin in the fiscal third quarter, management indicated that less than 450 basis points of expansion are required to reach the long-term target. Roughly half of the margin expansion is expected to come from further gross margin improvement, with the balance driven by operating expense efficiencies.

Overall, Chewy’s fiscal third-quarter performance reinforces tangible progress toward its long-term profitability ambitions. With scalable gross margin levers, disciplined cost control and efficiency initiatives, the company appears well-positioned to sustain margin expansion beyond fiscal 2025.

Chewy Faces Competition From Petco & Bark

Petco Health & Wellness Company, Inc. WOOF saw a 3.1% year-over-year decline in net sales to $1.5 billion in the third quarter of fiscal 2025, in line with the company’s third-quarter outlook. Despite the revenue softness, adjusted EBITDA of Petco rose by $17.3 million to $98.6 million, reflecting improved profitability, driven by effective cost management and operational execution in the quarter.

BARK, Inc.’s BARK revenue totaled $107 million, exceeding the company’s guidance of $102-$105 million. However, total revenues declined 15.2% year over year due to fewer total orders stemming from a lower level of subscriptions carried into second-quarter fiscal 2026. Bark reported an adjusted EBITDA loss of $1.4 million, within the company’s guidance between a $2 million loss and breakeven.

Zacks Rundown for CHWY

CHWY shares have lost 25.2% in the last six months against the industry’s rise of 8.1%. Chewy carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

From a valuation standpoint, CHWY trades at a forward price-to-earnings ratio of 21.14, lower than the industry’s average of 24.

The Zacks Consensus Estimate for earnings estimates for the current and next fiscal years indicates year-over-year growth of 22.1% and 23.3%, respectively.

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This article originally published on Zacks Investment Research (zacks.com).

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