Chewy Inc "Keeping Your Expectations On A Leash" (Neutral) Lasser

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Chewy Inc "Keeping Your Expectations On A Leash" (Neutral) Lasser

Although, the company should continue to gain market share as customers

engage across its ecosystem.

Importantly, CHWY guided to a modest gross margin contraction in 2Q. This is

largely due to a tough compare, when the company experienced one-time pricing

benefits. Still, the underlying gross margin drivers should persist in 2Q. This means

that CHWY should see support from the scaling of its sponsored ads business, mix

shift into margin-accretive categories, and efficiency gains. Plus, CHWY is

embedding a mid-single digit million dollar impact to COGS from elevated fuel

prices.

Further, CHWY expects a 2Q adj. EBITDA of 6.3% to 6.4%. We think this is largely

a function of the gross margin pressure in 2Q. The midpoint translates to a 2Q adj.

EBITDA of $211mm (cons. pre-print $233mm).

CHWY revised its FY'26 guidance

Alongside 1Q results, CHWY lowered its 2026 sales outlook while maintaining its

profitability guidance. Specifically, it now expects sales of $13.40bn to $13.55bn (was

$13.60bn to $13.75bn) and an adj. EBITDA margin of 6.6% to 6.8% (unchanged).

CHWY's updated guidance reflects an incrementally more challenged consumer and

industry backdrop. And due to this incremental pressure, CHWY adopted a more

conservative outlook for the contribution of its initiatives intended to drive customer

growth and wallet share gains. Overall, we believe it was prudent for CHWY to provide a

realistic outlook for both 2Q and the full-year. We believe CHWY's revised guidance is

achievable as the company navigates an unfavorable backdrop.

The low end of its guidance assumes the consumer backdrop gets progressively

more challenged, while the high end of its guidance assumes an improvement in