Hey there, bargain hunter.

Chewy (CHWY) jumped roughly 21.5% after its fiscal Q1 2025 results landed on June 11. That’s the kind of move that makes people feel like they missed something obvious. Maybe they did. Maybe they didn’t. Let’s actually look at what happened.

What the Quarter Actually Showed

The numbers, straight from the filing:

• Net sales: $3.12 billion — up 8.3% year over year, beating the analyst consensus of ~$3.08 billion
• Adjusted EPS: $0.35 vs. the $0.34 estimate — a modest beat, up 12.9% from the prior year period
• Adjusted EBITDA: $192.7 million (6.2% margin) vs. estimate of $190.7 million
• Active customers: 20.8 million — up 3.8% year over year, adding ~240,000 sequentially
• Autoship customer sales: $2.56 billion — up 14.8% year over year, representing 82.2% of total net sales
• Free cash flow conversion: Management guided ~80% of adjusted EBITDA converts to free cash flow for FY2025 — roughly $550 million at guidance midpoint

Not a blowout. But clean across the board. Revenue came in above the high end of guidance. Customer count inflected upward. Autoship — the subscription engine that keeps Chewy’s revenue sticky — kept accelerating faster than overall growth.

That last point matters more than people give it credit for.

The Autoship Engine

Here’s what’s interesting about Chewy’s model: over 82% of its quarterly revenue now flows through Autoship subscriptions. When a customer signs up for automatic delivery of dog food or prescription medications, they are not casually browsing Amazon next Tuesday. That’s recurring, predictable cash — and Autoship sales grew nearly 15% in Q1 while total revenue grew 8.3%.

The gap between those two numbers is the story. The subscription base is compounding faster than the overall business. That’s the kind of dynamic that tends to be underappreciated until it isn’t.

Slight tangent, but it’s relevant: Chewy also now has 11 Chewy Vet Care clinic locations across four states, with plans to open 8–10 more in fiscal 2025. Vet services are high-margin, high-retention, and — critically — they pull customers deeper into the Chewy ecosystem. It’s still early, but the direction is right.

On the Buyback — A Correction Worth Making

Some coverage this week described the $500 million share repurchase as freshly announced alongside Q1 earnings. That’s not quite right. Chewy’s board authorized the $500 million buyback program back on May 24, 2024. It was already in place heading into this report. The Q1 quarter did show $23.2 million returned to shareholders under that program — modest execution so far against the full authorization.

That distinction matters for framing. The buyback isn’t new signal. It’s existing capacity. Whether management accelerates buybacks from here depends on free cash flow generation and where the stock trades relative to their own internal value assessment.

Is It Cheap?

After a 21% pop, probably not on a pure multiple basis. Chewy trades at roughly 26x forward EV/EBITDA. That’s not the price of a neglected value stock. For context, full-year FY2025 guidance calls for $12.3–$12.5 billion in net sales and an adjusted EBITDA margin of 5.4–5.7%. Profitable, yes. Cheap by traditional metrics, not obviously.

What you’re actually paying for is the compounding subscriber base, the Autoship retention flywheel, the early-stage vet care optionality, and management’s stated path toward a 10%+ EBITDA margin over time. If those play out, today’s price looks reasonable in hindsight. If growth slows or the vet clinic buildout disappoints, you’re holding a richly priced e-commerce retailer in a competitive space.

Bull / Base / Bear

• Bull: Autoship penetration keeps climbing past 82%, vet care scales into a meaningful revenue contributor, management raises full-year guidance, and the $500M buyback gets deployed aggressively. Stock re-rates higher as EBITDA margins prove the path to 10%.
• Base: Steady 7–8% annual revenue growth, gradual margin expansion, active customer count holds in the 20–21M range. Stock grinds higher in line with earnings growth but without multiple expansion.
• Bear: Pet spending softens in a weaker consumer environment, customer acquisition costs rise, the vet clinic buildout eats into margins without sufficient revenue return, and competition from Amazon and PetSmart intensifies. The post-earnings pop fades.

Cheap Investor Scorecard

• Revenue growth beating guidance high-end: Yes — Q1 FY2025
• Autoship as % of total sales (target: expanding): 82.2% and climbing
• Active customer growth (target: positive YoY): +3.8% YoY, +240K sequentially
• Adjusted EBITDA margin (target: 5.4–5.7% for FY2025): 6.2% in Q1 — on track
• Free cash flow conversion (target: ~80% of EBITDA): Guided — ~$550M FY2025 midpoint
• Chewy Vet Care clinic count (target: 8–10 new in FY2025): 11 total, 3 opened in Q1
• Buyback execution (watching pace vs. $500M authorization): $23.2M returned in Q1 — early innings
• Q2 guidance credibility (7–8% growth guided): Watch the August report
• Gross margin stability (29.6% in Q1): Roughly flat YoY — monitor
• CFO transition risk (David Reeder departing): Ongoing — successor search active

The bottom line here is conditional. If Chewy keeps adding customers, keeps Autoship penetration above 80%, and actually executes on the vet care expansion, the multiple is defensible and the stock has room. If the CFO transition creates operational noise or the consumer weakens enough to hit discretionary pet spending, the 21% pop becomes the exit, not the entry.

Worth watching. Not worth chasing blindly.

– The Cheap Investor