Is Chewy's 6.2% Q1 EBITDA Margin a Turning Point Toward Its Target?

Chewy CHWY reported a 6.2% adjusted EBITDA margin in the first quarter of fiscal 2025, expanding 50 basis points year over year. Adjusted EBITDA rose 18.3% to $192.7 million from $162.9 million a year ago. These results highlight Chewy’s disciplined execution and its progress toward long-term profitability targets.

The improvement was driven by a focus on high-margin, recurring revenue streams, particularly the Autoship program. Chewy also expanded its sponsored ads business, which remains the largest contributor to margin gains. Together, these initiatives have shifted the sales mix toward more profitable categories and improved margin stability.

Operational discipline further supported the company’s performance. SG&A was held at 18.5% of net sales, reflecting tight cost control, while the timing of marketing campaigns delivered modest leverage in the first quarter. Adjusted earnings per share increased 12.9% year over year to 35 cents, underscoring consistent bottom-line growth alongside margin expansion.

Management reaffirmed its 2025 adjusted EBITDA margin outlook of 5.4-5.7%, with the mid-point implying a 75-basis-point improvement from that reported in 2024. Approximately 60% of this expansion is expected to come from gross margin gains, with the rest from operating leverage. Chewy also expects to convert about 80% of adjusted EBITDA into free cash flow for 2025.

While the first quarter is typically the most profitable quarter of the year, management expressed confidence in achieving its long-term adjusted EBITDA margin goal of 10%. Reaching the mid-point of 2025 guidance will already mark a 220-basis-point improvement over the past two years, demonstrating steady progress toward this target.

How Do CENT & WOOF Stack Up Against CHWY’s Margin Growth

Central Garden & Pet CENT showcased resilient margin performance in second-quarter fiscal 2025 despite a 7% revenue drop to $833.5 million. Cost and Simplicity initiatives expanded Central Garden & Pet’s gross margin by 180 basis points to 32.8%, with adjusted earnings per share rising to $1.04 from 99 cents in the prior year period. Central Garden & Pet reaffirmed its full-year EPS guidance of $2.20 or higher, showing confidence despite macroeconomic uncertainties.

Petco Health and Wellness Company, Inc. WOOF in first-quarter fiscal 2025 focused on restoring profitability through disciplined execution. The gross margin expanded 30 basis points to 38.2%, aided by Petco Health and Wellness’ better pricing, cost control and productivity gains in services. Petco Health and Wellness’ adjusted EBITDA margin improved 105 basis points to 6%.

CHWY’s Price Performance, Valuation & Estimates

Shares of Chewy have gained 23.3% year to date compared with the industry’s growth of 7.4%.

From a valuation standpoint, CHWY trades at a forward price-to-sales ratio of 1.33X, below the industry’s average of 2.02X. It has a Value Score of B.

The Zacks Consensus Estimate for CHWY’s fiscal 2025 earnings implies year-over-year growth of 23.1%, whereas the same for fiscal 2026 indicates an uptick of 19.5%. Estimates for fiscal 2025 and 2026 have been upwardly revised by five cents and one cent, respectively, over the past 30 days.

CHWY currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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