Chewy stock tumbled early Wednesday despite the pet-centric e-commerce company reporting fiscal first quarter results that exceeded expectations. Chewy was up against high expectations after a near 40% rally from the start of the year.
Plantation, Fla.-based Chewy said it earned an adjusted 35 cents per share for the May 4-ended quarter, up 13% from a year earlier. That beat the 33 cents per-share earnings analysts polled by FactSet forecast. Sales increased 8% year over year to $3.12 billion, ahead of analyst estimates of $3.08 billion. Chewy grew sales 15% in its January-ending fiscal fourth quarter.
After two years of declines, Chewy added active customers for a second straight quarter. Total active customers grew 3.8% to 20.76 million. That's up from 1.7% growth in Chewy's fiscal Q4 and beat analyst estimates of 20.67 million customers.
"We delivered topline growth exceeding the high-end of our net sales guidance range, year-over-year growth in active customers, and compelling profitability and free cash flow generation," Chewy Chief Executive Sumit Singh said in a news release. "These results are a testament to the resiliency of the pet category and underscore the strength of Chewy's value proposition and our ability to continue to gain market share."
For the current quarter, Chewy guided for sales of $3.075 billion at the midpoint of its range. That topped the $3.035 billion in sales analysts previously projected for the July-ending period, according to FactSet.
Chewy stuck by its previous guidance for 2025 fiscal year sales between $12.3 billion and $12.45 billion, which has a midrange short of the $12.42 billion in sales that analysts forecast.
On the stock market today, Chewy stock gapped down 11% to 40.66 in recent morning trades.
Why Chewy Stock Fell
Heading into the report, Chewy's shares had rallied 102% from a year earlier. A return to customer growth after a post-Covid slowdown helped start a bounce-back rally for Chewy stock. But the stock's recent hot run had some analysts cautious about the upside for Chewy's Q1 results.
William Blair analyst Dylan Carden wrote Wednesday that it was "unlikely" Chewy's results or outlook could sustain the momentum of the past two months.
"That said, we were more hopeful for upside to the outlook here on a better print," Carden wrote. "We believe the weakness we see coming out of this print will be a reaction to flat gross margin versus last year, and a step-back in the size of sequential net adds."
Net margin slipped a tick to 29.6% from 29.7% for the same period a year earlier. Chewy pinned the blame on one-time benefits that helped margins in the same quarter last year, Carden noted.
Meanwhile, Chewy added roughly 240,000 customers during the most recent quarter, Carden noted, compared to the 354,000 it added sequentially during its January quarter.
The William Blair analyst held to an outperform call for Chewy stock.
"Net, net, this is not the print the Street needed, nor does it throw us off our thesis," Carden wrote. "The company is beating its own projections for sales and earnings, while leaving guidance intact in a low visibility environment where we see continued room for upside."
Chewy Falls Below 21-Day
Chewy's slide has sent the stock tumbling below its 21-day moving average for the first time since early April. Shares broke out above a cup-with-handle base buy point of 37.91 on May 9, according to its weekly chart on IBD MarketSurge.
Entering trading Wednesday, Chewy stock had an IBD Composite Rating of 98 out of a best-possible 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
Further, Chewy's IBD Relative Strength Rating was 96 out of 99. The RS Rating means that Chewy has outperformed 96% of all stocks in IBD's database over the past year.
Chewy's 21-day average true range ratio is 3.11%.
The average true range is a metric available on IBD's MarketSurge that gauges the characteristic breadth of a stock's behavior. Stocks that tend to make large jumps or dives in daily action, the kind that can trigger sell rules and shake investors out of a stock, have a high ATR. Stocks that tend to make more incremental moves have lower ATRs. With the S&P 500 and Nasdaq now in a power trend, investors can buy stocks with ATRs up to 8%, though they should be wary of being too concentrated in high-octane names.
