Chewy (CHWY) shares declined Wednesday as the online pet retailer's reduced full-year sales forecast outweighed a better-than-expected first-quarter performance. The stock traded at $19.90, down 50 cents from the prior close, after touching a session high of $22.125 and a low of $19.12. Volume reached approximately 5.7 million shares, reflecting investor caution.
The company revised its fiscal 2026 net sales guidance to a range of $13.40 billion to $13.55 billion, down from the previous $13.60 billion to $13.75 billion. This new outlook falls short of the $13.65 billion consensus estimate compiled by FactSet. For the current second quarter, Chewy projects sales between $3.30 billion and $3.33 billion, with adjusted earnings of about $0.36 per share—both below FactSet's expectations of $3.36 billion and $0.40 per share, respectively.
The guidance cut overshadowed solid first-quarter results. For the period ending May 3, Chewy reported net sales of $3.36 billion, a 7.7% increase year-over-year. Gross margin expanded by 50 basis points to 30.1%, while net income more than doubled to $94.8 million, or $0.23 per diluted share, compared to $62.4 million, or $0.15 per share, in the same quarter last year. Adjusted EBITDA reached $253.1 million.
CEO Sumit Singh highlighted the company's continued outperformance in the pet category, noting growth in both profit and free cash flow. Chewy added nearly 200,000 net active customers during the quarter, bringing the total to 21.497 million, a 3.6% increase. Net sales per active customer rose 2.4% to $597, while Autoship customer sales climbed 10.5% to $2.83 billion, now representing 84.4% of total net sales, up from 82.2% a year ago.
Despite these positive metrics, the market focused on the softer revenue outlook, which signals potential headwinds ahead. Chewy's updated guidance suggests that consumers may be reducing spending on premium pet products, delaying purchases, or cutting back on non-essential items. In its latest annual filing, the company cited inflation, high interest rates, and broader economic uncertainty as factors that have altered shopper behavior, potentially affecting product mix, order frequency, and promotional activity.
Investor sentiment was already cautious ahead of the earnings release, given Singh's previous warnings about tight consumer wallets and weak results from Zoetis, which raised concerns about pet-owner price sensitivity. While Chewy maintained its adjusted EBITDA margin forecast of 6.6% to 6.8%, the revenue miss weighed on the stock.
Chewy generated $108.5 million in net cash from operating activities during the quarter, with free cash flow—operating cash flow minus capital expenditures—totaling $70.8 million. The company also repurchased $200.0 million of its own stock during the period, a move that could support per-share earnings if executed at favorable prices.
Looking ahead, Chewy's margin targets may face pressure if sales slow further. The company's 10-K filing outlines key risks, including challenges in acquiring and retaining customers without increased spending, higher shipping costs, supply chain disruptions, inaccurate sales forecasts, and intense online competition for pet goods and services. While increased retail discounting could boost sales, it would likely compress margins.
Chewy delivered a strong first quarter, but the market now expects the company to meet its second-quarter sales target of $3.30 billion to $3.33 billion and sustain healthy growth in Autoship and active customers. Achieving these goals will be crucial to demonstrating that the guidance cut reflects prudent caution rather than a broader downturn in pet spending.
