Now is the time to buy into Chewy’s (NYSE: CHWY) stock price reversal because the share price remains low and signs of traction increase.
The FQ4 2024 results and F2025 guidance failed to inspire a rally because strength was expected, and guidance merely affirmed the outlook. However, the results are good, and the outlook is robust relative to peers and retailers in general.
Among the critical details for investors is that Chewy’s cash flow and free cash are rapidly improving, expected to grow in 2025, and allow for substantial buyback activity. The F2024 repurchases reduced the share count by 2.2%, and a similar, if not larger, reduction is likely in 2025.
Chewy Builds Leverage, Accelerates Growth
Chewy’s increased marketing is paying off. The company accelerated revenue growth in Q4 to nearly 15%, outpacing MarketBeat’s reported consensus by 150 basis points. The strength is partly due to an extra week, but revenue growth is more than double the industry average and pet-focused peers, even when adjusting.
The organic revenue strength is driven by a 2.1% increase in active customers, compounded by a 4.1% increase in sales per customer and a compelling increase in autoship statistics. Autoship, the company’s highly visible recurring revenue stream that includes dailies and consumables like medicine and food, grew by 21.2% and gained 420 basis points in contribution. It came in at 80.6% of quarterly sales, highlighting the utility it provides for pet owners.
[content-module:Forecast|NYSE: CHWY]Margin news is also favorable to higher share prices in 2025. The company widened its margin in most comparisons except GAAP net, which is impacted by non-cash charges, including share-based compensation. The gross margin improved by 30 bps to 28.5% and adjusted EBITDA by 70 bps, producing adjusted earnings of $0.28, up by 55%, including the impact of repurchases.
Critical details include the $0.08 or 4000 basis point outperformance and triple-digit increase in free cash flow. Free cash flow, the money available to reduce debt or pay dividends, increased by 133% and is expected to remain strong and improve as the quarters progress.
Guidance is solid despite aligning with the analysts’ consensus forecasts.
That aside, the company forecasts organic revenue growth to run near 7% for the year, adjusted for the extra week, with adjusted EBITDA margin expected to widen by nearly 200 basis points at the high end.
Analyst Sentiment Strengthens Following Chewy’s 2025 Guidance
Chewy’s analyst trends are bullish in 2025 and likely to strengthen after the guidance. Trends include steady coverage, with 23 analysts covering the stock, improving sentiment, with a consensus pegged at Moderate Buy, and a rising price target. The consensus price target reported by MarketBeat in late March was more than 10% above the price action, with most fresh targets leading to the high end and a fresh multi-year high.
The price action following the release was mixed. The market moved higher, hit resistance at the 30-day moving average, and moved lower but ultimately ended the day by confirming support at a critical level. That level lines up with the long-term 150-day EMA and a price peak from late 2024. While it may take time for the market to build momentum, a breakout to new highs and a sustained uptrend appear likely.
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