Key Points
Chewy shares have been falling consistently over the last year,
Management says net customer acquisitions for the year will be on the lower end of its forecast.
Several analysts have cut their price targets for Chewy stock.
Chewy(NYSE: CHWY) stock has been stumbling since the company reported its fiscal first-quarter 2026 earnings on June 10. Chewy reported gains in revenue, earnings per share, and net margin, but the stock still slipped after guidance projected a challenging sales environment.
Then Chewy continued its fall today following a series of analyst downgrades, losing another 5%. The fall is the latest in a series of declines in Chewy stock, which is now down 43% this year and 84% off its all-time highs set during the COVID-19 pandemic.
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Considering Chewy is seeing increased sales and improved margins, are investors overreacting to the guidance? Let's take a closer look at what's happening.
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About Chewy stock
Chewy, based in Florida, is an online pet retailer that sells food, toys, treats, supplements, and other supplies. The business caters to the estimated 56.3 million U.S. households that own dogs and 43.1 million that own cats, providing a large base of potential customers.
But shares have been falling consistently over the last year, sinking 58.1% in the last 12 months versus a 21% gain in the benchmark S&P 500. And the drop is not industrywide: Petco Health & Wellness(NASDAQ: WOOF), another pet retailer with both brick-and-mortar and online sales, gained 4% in the same period.
Despite the sell-off, Chewy stock trades at a forward price-to-earnings ratio of 12.5, which is only slightly below Petco's 13.1 multiple.
CHWY PE Ratio (Forward) data by YCharts
Chewy's earnings were good, but the guidance was not
Quarterly net sales for the period ending May 3 were $3.36 billion, up 7.7% from a year ago. Net income was $94.8 million, up from $62.4 million, and the company's net margin increased 80 basis points to 2.8%. Earnings were $0.43 per share, up from $0.35 per share
CEO Sumit Singh said the company was confident in its ability to gain market share and deliver more growth, but he raised red flags when speaking to analysts about challenges facing the U.S. consumer.
"Pet remains a resilient category, driven by recurring nondiscretionary needs and strong emotional attachment," he said. "At the same time, consumers are growing more discerning, driven in part by elevated fuel prices and broader macroeconomic pressures."
The company's updated guidance, he said, reflects "a more appropriately conservative view of the consumer environment and broader category growth assumptions for the balance of the year."
The company is now projecting full-year sales of $13.4 billion to $13.55 billion, representing growth of 6.3% to 7.5%. But it is projecting that customer additions will be toward the lower end of its previously stated range of 150,000 to 250,000.
What are analysts saying about Chewy stock?
Several analysts have lowered their projections for the company since Chewy's fiscal Q1 report. Morgan Stanley dropped its price target from $43 to $42, citing the weak macroeconomic environment. Bank of America maintained a "Buy" rating, but cut its price target from $33 to $31. Piper Sandler kept its "Overweight" rating, but cut its price target from $48 to $30. And MoffettNathanson downgraded the stock from a "Buy" to "Neutral," saying it can no longer maintain a bullish thesis on Chewy.
Is Chewy stock a buy?
Chewy is growing its revenue base and market share, planning to operate 60 veterinary clinics by the end of the year, and using artificial intelligence to generate cost savings estimated at at least $50 million by next year. Those are all reasons why Chewy should not be overlooked.
But at the same time, management is acknowledging that customer acquisitions will be at the low end of its forecast, and that growing inflation and the possibility of higher interest rates will continue to pinch household budgets of potential customers. I am sitting on the sidelines for Chewy stock and don't expect a significant turnaround any time soon.
Should you buy stock in Chewy right now?
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Patrick Sanders 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.
